1933 Act File No. 33-31259
1940 Act File No. 811-5911
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
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Pre-Effective Amendment No. ..........................
Post-Effective Amendment No. 49 ........................ x
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 49 ....................................... x
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FEDERATED MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
x on December 31, 1998, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on _________________ pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS
Alabama Municipal Cash Trust
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of
Alabama.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
DECEMBER 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities
in Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 23
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the income tax imposed by
the State of Alabama consistent with stability of principal. While there is
no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Alabama State
income tax. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market
fund. Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B1.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on
a yearly basis.
The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's year-to-date total return as of the most recent calendar quarter
of September 30, 1998 was 2.38%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.98% (quarter ended June 30, 1995). Its lowest quarterly return was
0.56% (quarter ended March 31, 1994).
The Fund's Seven-Day Net Yield as of 12/31/97 was 3.59%.
The following table represents the Fund's Average Annual Total Return
through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.30%
Start of Performance 1 3.20%
1 The Fund's Shares start of performance date was December 3, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
ALABAMA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay when you buy,
hold and redeem Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.17%
Total Annual Fund Operating Expenses 0.92%
1 Although not contractually obligated to do so, the Adviser and shareholder
services provider waived certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.37%
Total Actual Annual Fund Operating Expenses (after waivers) 0.55%
2 The Adviser voluntarily waived a portion of the management fee. The Adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.14% for the year ended
October 31, 1998.
3 The shareholder services fee for the Fund has been voluntarily reduced. This
voluntary reduction can be terminated at any time. The shareholder services
fee paid by the Fund (after the voluntary reduction) was 0.24% for the year
ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses are BEFORE WAIVERS as shown
above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $94 $293 $509 $1,131
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the income tax imposed by the State of
Alabama. Temporary investments will be of comparable quality to other
securities in which the Fund invests. It may do this to minimize potential
losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause
the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Alabama. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$10,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-Alabama taxpayers because
it invests in Alabama tax-exempt securities. The Distributor and its
affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly
from the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check. You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or
Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividends.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered. Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member. Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets. You will not accrue interest or
dividends on uncashed checks from the Fund if those checks are
undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Alabama state income tax to the extent
they are derived from interest on obligations exempt from Alabama state
income taxes. Capital gains and non-exempt dividends are taxable whether
paid in cash or reinvested in the Fund. Redemptions are taxable sales.
Please consult your tax adviser regarding your federal, state and local
tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
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 1998 1997 1996 1995 1994 1
<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 0.04 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.24% 3.26% 3.22% 3.66% 2.31%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.55% 0.55% 0.55% 0.48% 0.36% 3
Net investment income 3.19% 3.21% 3.18% 3.59% 2.67% 3
Expense waiver/reimbursement 4 0.37% 0.36% 0.37% 0.44% 0.62% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $189,825 $223,647 $233,720 $209,490 $142,804
</TABLE>
1 Reflects operations for the period from December 3, 1993 (date of initial
public investment) to October 31, 1994. For the period November 29, 1993
(start of business) to December 3, 1993 the Fund had no investment
activity.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.4% 1
ALABAMA-96.3%
$ 5,000,000 Alabama HFA, Multifamily Revenue Bonds (Series 1997) Weekly
VRDNs (YW Housing Partners, Ltd. Project)/(Amsouth Bank
N.A., Birmingham LOC) $ 5,000,000
2,495,000 Alabama HFA, Variable Rate Certificates (Series 1997) Weekly
VRDNs (Bank of America NT and SA, San Francisco LIQ) 2,495,000
11,005,000 2 Alabama State Docks Department, PT-208, 3.70% TOBs (MBIA
INS)/(Bayerische Vereinsbank AG, Munich LIQ), Optional
Tender 6/10/1999 11,005,000
1,320,000 Alabama State IDA Weekly VRDNs (Sunshine Homes Inc.)/
(Amsouth Bank N.A., Birmingham LOC) 1,320,000
4,755,000 Alabama State IDA, IDRB (Series 1994) Weekly VRDNs (Decatur
Aluminum Corp.)/(Star Bank, N.A., Cincinnati LOC) 4,755,000
1,200,000 Alabama State IDA, IDRB Weekly VRDNs (Monarch Tile, Inc.
Project)/(Nationsbank, N.A., Charlotte LOC) 1,200,000
3,250,000 Alabama State IDA, IDRB's (Series 1996) Weekly VRDNs (IMI
Cash Valve Project)/(Regions Bank, Alabama LOC) 3,250,000
3,350,000 Alabama State IDA, Industrial Revenue Bonds Weekly VRDNs
(Kappler USA, Inc. Project)/(SouthTrust Bank of Alabama,
Birmingham LOC) 3,350,000
4,600,000 Alabama State Public School & College Authority, 4.10%
Bonds, 12/1/1998 4,601,525
3,650,000 Arab, AL IDB, (Series 1989) Weekly VRDNs (SCI Manufacturing,
Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 3,650,000
1,100,000 Arab, AL IDB, Revenue Refunding Bonds (Series 1989) Weekly
VRDNs (SCI Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi
Ltd. LOC) 1,100,000
1,570,000 Ashland, AL IDB, (Series 1996) Weekly VRDNs (Tru-Wood
Cabinets)/(Regions Bank, Alabama LOC) 1,570,000
2,000,000 Birmingham, AL IDA Weekly VRDNs (Altec Industries, Inc.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,000,000
1,510,000 Birmingham, AL IDA Weekly VRDNs (Glasforms, Inc.)/(Regions
Bank,
Alabama LOC) 1,510,000
2,000,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) 2,000,000
2,930,000 Birmingham, AL IDA, IDRB's (Series 1997) Weekly VRDNs
(J. J. & W, IV, Ltd.)/(Svenska Handelsbanken, Stockholm LOC) 2,930,000
2,335,000 Birmingham, AL IDA, Revenue Bonds (Series 1996) Weekly VRDNs
(American FireLog Corp.)/(Comerica Bank, Detroit, MI LOC) 2,335,000
900,000 Birmingham, AL Private Educational Building Authority,
Revenue Bonds
(Altamont Series 1998) Weekly VRDNs (Altamont School)/
(Amsouth Bank N.A., Birmingham LOC) 900,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
ALABAMA-CONTINUED
$ 800,000 Calhoun County, AL Economic Development Council Weekly VRDNs
(Food Ingredients Tech. Co.)/(Nationsbank, N.A., Charlotte
LOC) $ 800,000
2,925,000 Calhoun County, AL Economic Development Council, Variable/
Fixed Rate IDRBs Weekly VRDNs (Fabarc Steel Co.)/(Regions
Bank, Alabama LOC) 2,925,000
600,000 Columbia, AL IDB, CDC Municipal Products, Inc. (Series 1997)
Weekly VRDNs (Alabama Power Co.)/(AMBAC INS)/(CDC Municipal
Products, Inc. LIQ) 600,000
1,600,000 Cullman, AL IDB, IRB's (Series 1992) Weekly VRDNs (Pressac
Holdings PLC)/(NBD Bank, Michigan LOC) 1,600,000
950,000 Cullman, AL IDB, (Series 1989) Weekly VRDNs (Pressac Inc)/
(NBD Bank,
Michigan LOC) 950,000
2,795,000 Cullman, AL IDB, Variable Fixed Rate IDRB Weekly VRDNs
(National Bedding Co.)/(Bank of America, IL LOC) 2,795,000
1,600,000 Dothan, AL IDB, Adjustable/Fixed Rate IRD's (Series 1997)
Weekly VRDNs (Henderson Steel Erectors)/(Regions Bank,
Alabama LOC) 1,600,000
3,175,000 Fairfield, AL IDA, Variable Rate Environmental Improvement
Revenue Bonds (Series 1995), 3.60% TOBs (USX Corp.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC), Optional
Tender 12/3/1998 3,175,000
1,255,000 Fort Payne, AL IDB, IDRB Weekly VRDNs (Ovalstrapping, Inc.)/
(U.S. Bank, N.A., Minneapolis LOC) 1,255,000
5,500,000 Gadsen, AL IDB, IDRB's (Series 1997) Weekly VRDNs (Chicago
Steel, (Alabama), LLC)/(Marshall & Ilsley Bank, Milwaukee
LOC) 5,500,000
5,230,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series
1996) Weekly VRDNs (Brooks AG Co., Inc.)/(Regions Bank,
Alabama LOC) 5,230,000
4,000,000 Guntersville, AL IDB, (Series 1995) Weekly VRDNs (Hercules
Rubber Co. Project)/(SouthTrust Bank of Alabama, Birmingham
LOC) 4,000,000
3,075,000 Hamilton, AL IDB, Variable/Fixed Rate IDRB's Weekly VRDNs
(Tennessee River, Inc.)/(SouthTrust Bank of Alabama,
Birmingham LOC) 3,075,000
7,000,000 Hoover, AL Board of Education, Warrant Anticipation Notes
(Series 1998-A), 3.80% BANs, 2/1/1999 7,000,000
2,815,000 Hoover, AL IDA Weekly VRDNs (Bud's Best Cookies, Inc.)/
(SouthTrust Bank of Alabama, Birmingham LOC) 2,815,000
2,375,000 Huntsville, AL IDA Weekly VRDNs (Giles & Kendall, Inc.)/
(SouthTrust Bank of Alabama, Birmingham LOC) 2,375,000
240,000 Huntsville, AL IDA Weekly VRDNs (Parkway Project
(Huntsville, AL))/(Regions Bank, Alabama LOC) 240,000
1,050,000 Huntsville, AL, Warrants (Series B), 5.00% Bonds, 2/1/1999 1,054,068
8,000,000 Jefferson County, AL, (Series A), 3.45% Bonds (Bayerische
Landesbank Girozentrale LOC), 10/1/1999 8,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
ALABAMA-CONTINUED
$ 3,150,000 Lowndes County, AL IDB, (Series 1996) Weekly VRDNs (Warren
Oil Company Project)/(First Union National Bank, Charlotte,
NC LOC) $ 3,150,000
2,425,000 Mobile, AL Downtown Redevelopment Authority, (Series 1992)
Weekly VRDNs (Mitchell Project)/(SunTrust Bank, Atlanta LOC) 2,425,000
2,000,000 Mobile, AL IDB Weekly VRDNs (American Aero Crane)/(National
Bank of Canada, Montreal LOC) 2,000,000
3,000,000 Mobile, AL IDB, (1994 Series A), 3.85% TOBs (International
Paper Co.), Optional
Tender 12/1/1998 3,000,000
1,000,000 Mobile, AL, G.O. Warrants (Series 1998), 3.70% Bonds (MBIA
INS), 2/15/1999 999,610
825,000 Mobile, AL, Warrants, 4.30% TANs, 2/1/1999 826,349
3,000,000 Montgomery - Wynlakes Governmental Utility Services Corp.,
Bonds
(Series 1995-A) Weekly VRDNs (Vaughn Road, L.L.C., Project)/
(Amsouth Bank N.A., Birmingham LOC) 3,000,000
2,435,000 Montgomery, AL IDB, (Series 1990-A) Weekly VRDNs (Industrial
Partners)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,435,000
3,000,000 Montgomery, AL IDB, IDRB's (Series 1996) Weekly VRDNs (CSC
Fabrication, Inc. Project)/(First Union National Bank,
Charlotte, NC LOC) 3,000,000
3,650,000 Montgomery, AL IDB, Industrial Development Revenue Bonds
(Series 1996A) Weekly VRDNs (Jobs Co., L.L.C. Project)/
(Columbus Bank and Trust Co., GA LOC) 3,650,000
7,000,000 Phoenix City, AL IDB, (Series 1988), 3.30% CP (Mead Coated
Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
1/21/1999 7,000,000
805,000 Piedmont, AL IDB Weekly VRDNs (Industrial Partners)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 805,000
3,415,000 Prattville, AL IDB, IDR Bonds Weekly VRDNs (Kuhnash
Properties/Arkay Plastics Project)/(PNC Bank, N.A. LOC) 3,415,000
2,700,000 Scottsboro, AL IDB, (Series 1994) Weekly VRDNs (Maples
Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) 2,700,000
1,000,000 Scottsboro, AL IDB, IDRB (Series 1991) Weekly VRDNs (Maples
Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) 1,000,000
5,000,000 Selma, AL IDB, Annual Tender PCR Refunding Bonds (1993
Series B), 3.95% TOBs (International Paper Co.), Optional
Tender 7/15/1999 5,000,000
1,885,000 Shelby County, AL Board of Education, Special Tax Warrants,
4.375% Bonds (AMBAC INS), 2/1/1999 1,888,358
7,575,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco
Industries, Inc.)/(National Australia Bank, Ltd., Melbourne
LOC) 7,575,000
4,700,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series
1995A) Weekly VRDNs (Fulghum Fibres Project (AL))/(Regions
Bank, Alabama LOC) 4,700,000
1,000,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series
1995B) Weekly VRDNs (Canal Chip Project)/(Regions Bank,
Alabama LOC) 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
ALABAMA-CONTINUED
$ 2,600,000 Tallassee, AL IDB, (Series 1998) Weekly VRDNs (Milstead Farm
Group, Inc.)/(Regions Bank, Alabama LOC) $ 2,600,000
500,000 Troy, AL IDB, (Series 1997A) Weekly VRDNs (Hudson Cos.)/
(Amsouth Bank N.A., Birmingham LOC) 500,000
3,000,000 Troy, AL IDB, IRB's (Series 1996A) Weekly VRDNs (Hudson
Sauces & Dressings, Inc.)/(Amsouth Bank N.A., Birmingham
LOC) 3,000,000
2,000,000 Tuskegee, AL IDB, IDRB (Series 1995) Weekly VRDNs (Concrete
Company (The))/(Columbus Bank and Trust Co., GA LOC) 2,000,000
2,080,000 Vincent, AL IDB, (Series 1993) Weekly VRDNs (Ebsco
Industries, Inc.)/(National Australia Bank, Ltd., Melbourne
LOC) 2,080,000
3,060,000 Wetumpka, AL IDB, (Series 1997) Weekly VRDNs (US Fabtec
L.L.C.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 3,060,000
Total 182,769,910
PUERTO RICO-3.1%
2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 2,000,319
1,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1983A), 3.60% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank
N.V., Amsterdam LOC), Optional Tender
9/1/1999 1,000,000
3,000,000 Puerto Rico Industrial, Medical & Environmental PCA,
Pollution Control Facilities Financing Authority (Series
1983 A), 3.75% TOBs (Schering Plough Corp.)/(Morgan Guaranty
Trust Co., New York LOC), Optional Tender 12/1/1998 3,000,000
Total 6,000,319
Total Investments (at amortized cost) 3 $188,770,229
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 68.7% of
the portfolio based upon total market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
95.7% 4.3%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $11,005,000 which represents 5.8% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($189,824,609) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
CP -Commercial Paper
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
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PLC -Public Limited Company
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 188,770,229
Cash 331,604
Income receivable 978,933
Receivable for shares sold 10,000
Deferred organizational costs 1,558
Total assets 190,092,324
LIABILITIES:
Income distribution payable $ 223,897
Accrued expenses 43,818
Total liabilities 267,715
Net Assets for 189,824,609 shares outstanding $ 189,824,609
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
$189,824,609 / 189,824,609 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,066,520
EXPENSES:
Investment advisory fee $ 944,018
Administrative personnel and services fee 142,377
Custodian fees 8,041
Transfer and dividend disbursing agent fees and expenses 21,382
Directors'/Trustees' fees 2,637
Auditing fees 12,193
Legal fees 15,255
Portfolio accounting fees 48,242
Shareholder services fee 472,009
Share registration costs 25,586
Printing and postage 21,104
Insurance premiums 13,708
Miscellaneous 25,796
Total expenses $ 1,752,348
WAIVERS:
Waiver of investment advisory fee $ (686,739)
Waiver of shareholder services fee (18,880)
Total waivers (705,619)
Net expenses 1,046,729
Net investment income $ 6,019,791
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,019,791 $ 7,075,588
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (6,019,791) (7,075,588)
SHARE TRANSACTIONS:
Proceeds from sale of shares 436,920,174 655,080,120
Net asset value of shares issued to shareholders
in payment of distributions declared 3,252,776 4,317,122
Cost of shares redeemed (473,995,552) (669,470,177)
Change in net assets resulting from share transactions (33,822,602) (10,072,935)
Change in net assets (33,822,602) (10,072,935)
NET ASSETS:
Beginning of period 223,647,211 233,720,146
End of period $ 189,824,609 $ 223,647,211
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 to provide current income
exempt from federal regular income tax and the income tax imposed by the
State of Alabama consistent with stability of principal.
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,
1998 is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Alabama State Docks Department, PT-208 7/17/1998 $11,005,000
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).
At October 31, 1998, capital paid-in aggregated $189,824,609. Transactions
in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
Shares sold 436,920,174 655,080,120
Shares issued to shareholders in payment of distributions
declared 3,252,776 4,317,122
Shares redeemed (473,995,552) (669,470,177)
Net change resulting from share transactions (33,822,602) (10,072,935)
</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, Inc.
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.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, 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 $291,070,000 and
$301,614,670 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, 1998, 86.2% 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 13.6% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely
affected if the computer systems used by the Trust's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Trust's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Trust's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Trust.
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Alabama Municipal Cash Trust
A Portfolio of Federated Municipal Trust
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's
Internet site at http://www.sec.gov. You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying
charges.
[Graphic]
Alabama Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229790
3090802A (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Alabama Municipal Cash Trust
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Alabama Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling 1-800-341-
7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 3142229790
3090802B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax and Alabama state income tax or so that
at least 80% of its net assets is invested in obligations, the interest income
from which is exempt from federal regular and Alabama state income tax. This
policy is fundamental and cannot be changed without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following investment limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: Hubco, Regions
Financial Corp., Birmingham, Alabama, owned approximately 44,346,909 Shares
(22.98%); Lynspen & Co., SouthTrust Bank, N.A., owned approximately 39,024,032
Shares (20.22%); and NBC Securities, Inc., Birmingham, Alabama, owned
approximately 14,039,030 Shares (7.28%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Alabama laws, distributions made by the Fund will not be subject
to Alabama personal income taxes to the extent that such distributions are
attributable to interest earned on obligations that would be exempt from Alabama
personal income taxes if held directly by shareholders (such as obligations of
Alabama or its political subdivisions, of the United States or of certain
territories or possessions of the United States). Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to Alabama personal income taxes.
Shareholders may exclude from the share value of the Fund, for purposes of the
Alabama personal property tax, that portion of the total share value which is
attributable to the value of the obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ----------------------------- ---------------------------------------------------------- ----------------- -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESDIENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- ---------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- --------------------------------------------------------------
Advisory Fee Earned $944,018 $1,102,550 $1,049,210
- --------------------------------------------------------------
Advisory Fee Reduction 686,739 774,067 692,887
- --------------------------------------------------------------
Brokerage Commissions 0 0 0
- --------------------------------------------------------------
Administrative Fee 142,377 166,497 158,659
- --------------------------------------------------------------
Shareholder Services Fee 453,129 ---- ----
- --------------------------------------------------------------
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, and since inception periods ended October 31,
1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
Share Class 7-Day Period 1 Year Since Inception
on December 3, 1993
- ------------------------------------------------------------------------------
Total Return -- 3.24% 3.20%
- ------------------------------------------------------------------------------
Yield 2.91% -- --
Effective Yield 2.95% -- --
Tax-Equivalent Yield 5.32% -- --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF ALABAMA
- ------------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.00% 33.00% 36.00% 41.00% 44.60%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1 - $42,351 - $102,301 - $155,951 OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------------
2.50% 3.13% 3.73% 3.91% 4.24% 4.51%
3.00% 3.75% 4.48% 4.69% 5.08% 5.42%
3.50% 4.38% 5.22% 5.47% 5.93% 6.32%
4.00% 5.00% 5.97% 6.25% 6.78% 7.22%
4.50% 5.63% 6.72% 7.03% 7.63% 8.12%
5.00% 6.25% 7.46% 7.81% 8.47% 9.03%
5.50% 6.88% 8.21% 8.59% 9.32% 9.93%
6.00% 7.50% 8.96% 9.38% 10.17% 10.83%
6.50% 8.13% 9.70% 10.16% 11.02% 11.73%
7.00% 8.75% 10.45% 10.94% 11.86% 12.64%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
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
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Arizona Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking current income exempt from federal regular
income tax and income tax imposed by the State of Arizona.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
Report of Independent Public Accountants
DECEMBER 31, 1998
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and Arizona income taxes consistent with stability of
principal and liquidity. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax
and Arizona income taxes. Interest from the Fund's investments may be subject to
the federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in securities of
a single issuer, an investment in the Fund may involve additional risks compared
to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is possible
to lose money investing in the Fund. The shares offered by this prospectus are
not deposits or obligations of any bank, are not endorsed or guaranteed by any
bank and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency.
What are the Fund's Fees and Expenses?
ARIZONA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
1.78%
Other Expenses/3/
Total Annual Fund Operating Expenses 2.53%
/1/Although not contractually obligated to do so, the Adviser waived certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 2.21%
Total Actual Annual Fund Operating Expenses (after waivers) 0.32%
</TABLE>
/2/ The Adviser voluntarily waived a portion of the management fee. The Adviser
can terminate this voluntary waiver at any time. There was no management fee
paid by the Fund (after the voluntary waiver) for the year ended October 31,
1998.
/3/ The Adviser has voluntarily waived certain other operating expenses. The
Adviser can terminate this voluntary waiver at any time. Other operating
expenses paid by the Fund (after the voluntary waiver) were 0.07% for the
year ended October 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
you costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Expenses assuming no $256 $788 $1,345 $2,866
redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar- weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum credit
standards. The Adviser targets an average portfolio maturity based upon its
interest rate outlook and the tax-exempt securities available. The Adviser
structures the portfolio by combining variable rate demand instruments and
municipal notes. Depending on the supply of tax-exempt securities, the Adviser
generally shortens the portfolio's maturity when it expects interest rates to
rise and extends the maturity when it expects interest rates to fall.
Temporary Defensive Investments
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Arizona income taxes. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax
- -exempt securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior to collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a
tax-exempt money market fund are described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment of
the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. If the security is unrated, greater reliance is placed
on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Arizona. In
addition, a substantial part of the Fund's portfolio may be comprised of tax-
exempt securities issued or credit enhanced by companies in similar businesses
or with other similar characteristics. As a result, the Fund will be more
susceptible to any economic, business, political, or other developments which
generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end
of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
To obtain the Fund's current yield and other information, please call 1-800-
341-7400.
How is the Fund Sold?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or non-Arizona taxpayers because it invests in
Arizona tax-exempt securities. The Distributor and its affiliates may pay out of
their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time)
. You will become the owner of Shares and receive dividends when the Fund
receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New
Account Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time).
INVESTMENT PROFESSIONALS ARE RESPONSIBLE FOR PROMPTLY SUBMITTING REDEMPTION
REQUESTS AND PROVIDING PROPER WRITTEN REDEMPTION INSTRUCTIONS AS OUTLINED BELOW.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired to you
the following business day. You will receive that day's dividends. Under limited
circumstances, arrangements may be made with the Distributor for same-day
payment of redemption proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time).
By Mail
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed
within the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established
when the account was opened:
. an electronic transfer to your account at a financial institution that
is an ACH member; or
. wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund, if
those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis
. Complete the appropriate section of the New Account Form or an Account Service
Options Form or contact your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program
is established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your fund shares. Your account will continue to
Receive the daily dividend declared on the shares being redeemed until a check
Is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares for
purchases.
There is an annual fee for this service that the Fund will automatically deduct
from your account.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund will not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain.
Contact your investment professional or the Fund for information concerning
when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Arizona income tax to the extent they are derived from
interest on obligations exempt from Arizona income taxes. Capital gains and non-
exempt dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222- 3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on Page 21.
<TABLE>
<S> <C>
Period Ended October 31 1998/1/
Net Asset Value, Beginning of Period $ 1.00
Income from Investment Operations:
Net investment income 0.01
Less Distributions:
Distributions from net investment income (0.01)
Net Asset Value, End of Period $ 1.00
Total Return2 1.28%
Ratios to Average Net Assets:
Expenses 0.32%/3/
Net investment income 3.24%/3/
Expense waiver/reimbursement4 2.21%/3/
Supplemental Data:
Net assets, end of period (000 omitted) $34,728
</TABLE>
1 Reflects operations for the period from June
10, 1998 (date of initial public investment) to October 31, 1998.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Principal Value
Amount
<S> <C> <C>
/1/ SHORT-TERM MUNICIPALS 97.2%
Arizona 83.2%
$ 2,000,000 Apache County, AZ IDA, 1983 (Series A) Weekly VRDNs (Tucson Electric Power Co.) $ 2,000,000
(Toronto-Dominion Bank LOC)
150,000 Arizona Agricultural Improvement & Power District, 3.45% CP (Salt River Project, AZ 150,000
Agricultural Improvement & Power District), Mandatory Tender 12/17/1998
800,000 Arizona Health Facilities Authority Weekly VRDNs (University Physicians, Inc.)/(Bank One, 800,000
Arizona N.A. LOC)
1,000,000 Arizona Health Facilities Authority, Pooled Loan Program Revenue Bonds (Series 1985B) 1,000,000
Weekly VRDNs (FGIC INS)/(Chase Manhattan Bank N.A., New York LIQ)
150,000 Arizona State Development Authority, (Series 1998), 5.50% Bonds (MBIA INS),8/1/1999 152,352
500,000 Chandler, AZ Unified School District No. 80, (Series E), 3.75% Bonds (FGIC INS),7/1/1999 500,000
500,000 Cochise County, AZ Pollution Control Corp., (Pooled Series 1994A), 3.55% TOBs (Arizona 500,000
Electric Power Cooperative, Inc. Project)/(National Rural Utilities Cooperative Finance
Corp. GTD), Optional Tender 3/1/1999
2,450,000 Eloy, AZ IDA, (Series 1996) Weekly VRDNs (The Marley Cooling Tower Co.)/(First Union 2,450,000
National Bank, Charlotte, N.C. LOC)
1,100,000 Glendale, AZ IDA, Variable Rate Senior Living Facilities Revenue Bonds Weekly VRDNs 1,100,000
(Friendship Retirement Corporation)/(Norwest Bank Minnesota, N.A. LOC)
2,300,000 Maricopa County, AZ Pollution Control Corp., (Series 1984) Weekly VRDNs (El Paso Electric 2,300,000
Co.)/(Barclays Bank PLC, London LOC)
500,000 Maricopa County, AZ Pollution Control Corp., (Series 1994F) Daily VRDNs (Arizona Public 500,000
Service Co. - Palo Verde)/(Bank of America NT and SA, San Francisco LOC)
350,000 Maricopa County, AZ School District No. 45, (Series 198B), 5.50% Bonds (FSA INS), 7/1/1999 354,533
500,000 Maricopa County, AZ Unified School District No. 48, 6.00% Bonds, 7/1/1999 507,040
2,740,000 Maricopa County, AZ, IDA (Series 1984) Weekly VRDNs (Gannett Co., Inc.) 2,740,000
170,000 Maricopa County, AZ, IDA, 3.55% CP (Citizens Utilities Co.), Mandatory Tender 2/10/1999 170,000
750,000 Mesa, AZ Municipal Development Corp., (Series 1985), 3.20% CP (Westdeutsche Landesbank 750,000
Girozentrale LOC), Mandatory Tender 12/9/1998
1,600,000 Phoenix, AZ IDA, (Series 1984) Weekly VRDNs (Del Mar Terrace Apartments)/(Bank of America 1,600,000
NT and SA, San Francisco LOC)
450,000 Phoenix, AZ IDA, (Series 1997) Weekly VRDNs (Interface Data Systems, Inc.)/ (Bank One, 450,000
Arizona N.A. LOC)
500,000 Phoenix, AZ IDA, (Series 1998) Weekly VRDNs (Standard Printing Company, Inc.)/(Bank One, 500,000
Arizona N.A. LOC)
$ 1,000,000 Phoenix, AZ, (Series B), 6.00% Bonds, 7/1/1999 $ 1,018,855
500,000 Phoenix, AZ, GO UT Bonds Daily VRDNs (Morgan Guaranty Trust Co., New York LIQ) 500,000
1,520,000 Phoenix, AZ, PA-236 Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 1,520,000
300,000 Pima County, AZ IDA Weekly VRDNs (Tucson Electric Power Co.)/(Toronto-Dominion Bank LOC) 300,000
1,350,000 Pima County, AZ IDA, Single Family Mortgage (PA-159) Weekly VRDNs (GNMA COL)/ (Merrill 1,350,000
Lynch Capital Services, Inc. LIQ)
1,000,000 Pinal County, AZ IDA, PCR Bonds Daily VRDNs (Magma Copper Co.)/(National Westminster 1,000,000
Bank, PLC, London LOC)
1,150,000 Scottsdale, AZ IDA Weekly VRDNs (Scottsdale (Memorial Hospitals))/(AMBAC INS)/ (Credit 1,150,000
Local de France LIQ)
425,000 Sunnyside, AZ Unified School District No.12, 4.50% Bonds (FGIC INS), 7/1/1999 427,187
750,000 Tolleson, AZ Municipal Finance Corporation, Revenue Refunding Bonds (Series of 1998) 750,000
Weekly VRDNs (Citizens Utilities Co.)
1,550,000 Yavapai, AZ IDA, (Series 1997B) Weekly VRDNs (Yavapai Regional Medical Center)/(FSA 1,550,000
INS)/(Credit Local de France LIQ)
800,000 Yuma County, AZ Airport Authority, Inc., (Series 1997A) Weekly VRDNs (Bank One, Arizona 800,000
N.A. LOC)
TOTAL 28,889,967
------------
Puerto Rico 14.0%
2,255,387 Commonwealth of Puerto Rico Municipal Revenues Collection Center, 1997A LeaseTOPS Trust 2,255,387
Weekly VRDNs (ABN AMRO Bank N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC)
1,500,000 Commonwealth of Puerto Rico, Municipal Securities Trust Receipts, (Series 1998-CMC4) 1,500,000
Weekly VRDNs (MBIA INS)/(Chase Manhattan Corp. LIQ)
1,100,000 Government Development Bank for Puerto Rico (GDB) Weekly VRDNs (MBIA INS)/ (Credit Suisse 1,100,000
First Boston LIQ)
TOTAL 4,855,387
------------
/2/ TOTAL INVESTMENTS (AT AMORTIZED COST) $ 33,745,354
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 18.4% of the
portfolio as calculated based on total portfolio market value.
1 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 , MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-
1+, F-1 and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value(Unaudited)
<TABLE>
<CAPTION>
First Second Tier
Tier
<S> <C>
100% 0.00%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($34,727,746) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC American Municipal Bond Assurance Corporation
COL Collateralized
CP Commercial Paper
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GO General Obligation
GTD Guaranty
IDA Industrial Development Authority
INS Insured
LIQ Liquidity Agreement
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
PCR Pollution Control Revenue
PLC Public Limited Company
SA Support Agreement
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
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at amortized cost and value $ 33,745,354
Cash 1,277,300
Income receivable 231,547
Receivable for shares sold 9,800
Deferred organizational costs 9,979
TOTAL ASSETS 35,273,980
Liabilities:
Payable for investments purchased $ 514,384
Income distribution payable 25,520
Accrued expenses 6,330
TOTAL LIABILITIES 546,234
Net Assets for 34,727,746 shares outstanding $ 34,727,746
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$34,727,746 / 34,727,746 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE>
Statement of Operations
PERIOD ENDED OCTOBER 31, 19981
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $ 171,083
Expenses:
Investment advisory fee $ 24,043
Administrative personnel and services fee 48,973
Custodian fees 304
Transfer and dividend disbursing agent fees and expenses 3,920
Directors'/Trustees' fees 250
Legal fees 5,190
Portfolio accounting fees 9,796
Shareholder services fee 12,021
Share registration costs 13,743
Printing and postage 3,321
Miscellaneous 126
TOTAL EXPENSES 121,687
Waivers:
Waiver of investment advisory fee $ (24,043)
Waiver of other operating expenses (82,140)
TOTAL WAIVERS (106,183)
Net expenses 15,504
Net investment income $ 155,579
</TABLE>
1 Reflects operations for the period from June 10, 1998 (date of initial public
investment) to October 31, 1998.
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<S> <C>
Period Ended October 31 1998/1/
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 155,579
Distributions to Shareholders:
Distributions from net investment income (155,579)
Share Transactions:
Proceeds from sale of shares 46,101,572
Net asset value of shares issued to shareholders in payment of distributions declared 98,402
Cost of shares redeemed (11,472,228)
Change in net assets resulting from share transactions 34,727,746
Change in net assets 34,727,746
Net Assets:
Beginning of period --
End of period $ 34,727,746
</TABLE>
1 Reflects operations for the period from June 10, 1998 (date of initial
public investment) to October 31, 1998.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1998
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 17 portfolios. The financial
statements included herein are only those of Arizona 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 Arizona income taxes 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). At
October 31, 1998, capital paid-in aggregated $34,727,746. Transactions in shares
were as follows:
<TABLE>
<S> <C>
Period Ended October 31 1998/1/
Shares sold 46,101,572
Shares issued to shareholders in payment of distributions declared 98,402
Shares redeemed (11,472,228)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 34,727,746
</TABLE>
1 Reflects operations for the period from June 10, 1998 (date of initial
public investment) to October 31, 1998.
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, Inc. 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, 1998, 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 $36,215,387 and $9,800,000, 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, 1998, 72.7% 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 8% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF ARIZONA MUNICIPAL CASH TRUST:
We have audited the accompanying statement of assets and liabilities of Arizona
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1998, the related statement of operations for the period then
ended, the statement of changes in net assets for the period then ended, and the
financial highlights for the period 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1998, by
correspondence with the custodian and the broker. As to security purchased but
not received, we requested the confirmation from the broker and, when the reply
was not received, we carried out alternative auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Arizona Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1998, the results of its operations for the period then
ended, the changes in its net assets for the period then ended, and its
financial highlights for the period presented, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
Arizona Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
DECEMBER 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at 1-
800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No. 811-5911
Cusip 314229696
G02372-01 (12/98)
Federated is a registered mark
of Federated Investors, Inc.
1998 (C)Federated Investors, Inc.
STATEMENT OF ADDITIONAL INFORMATION
Arizona Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Arizona Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling 1-800-341-
7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229626
G02372-02 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund, known as Institutional Service Shares (Shares).
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and Arizona
income taxes. This policy is fundamental and cannot be changed without
shareholder approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings.
Lending Cash or Securities
The Fund will not lend any assets, except portfolio securities. This shall not
prevent the Fund from engaging in transactions permitted by its investment
objective, policies, and limitations or the Trust's Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any one
industry, or in industrial development bonds or other securities the interest
upon which is paid from revenues of similar types of projects, except that the
Fund may invest 25% or more of the value of its total assets in cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies, or instrumentalities and repurchase agreements collateralized
by such U.S. government securities.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if as a result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or if it would own more than 10% of the
outstanding voting securities of that issuer.
Under this limitation, each governmental subdivision, including states and the
District of Columbia, territories, possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and the security is
backed only by its own assets and revenues. Industrial development bonds backed
only by the assets and revenues of a nongovernmental user are considered to be
issued solely by that user.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to
be liquid under criteria established by the Board, non-negotiable time deposits
and repurchase agreements providing for settlement in more than seven days after
notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund does not intend to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Norwest Investment Services Inc., Minneapolis, Minnesota, owned
approximately 12,393,449 Shares (34.95%); Zions First National Bank, Salt Lake
City, Utah, owned approximately 10,082,093 Shares (28.43%); Colonial Trust Co.,
Personal Division, Phoenix, Arizona, owned approximately 4,981,743 Shares
(14.05%); Dain Rauscher Incorporated, Money Market Operations, Minneapolis,
Minnesota, owned approximately 3,268,207 Shares (9.22%); and PJH Prime Account,
Sundown Equipment LLC, Phoenix, Arizona, owned approximately 2,035,896 Shares
(5.74%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Arizona laws, distributions made by the Fund will not be subject
to Arizona individual or corporate income taxes to the extent that such
distributions qualify as exempt-interest dividends under Internal Revenue Code
and represent (I) interest income received on obligations of the United States
or its territories or possessions; and (ii) interest income received on
obligations of Arizona or its political subdivisions. Conversely, to the
extent that distributions made by the Fund are attributable to other types of
obligations, such distributions will be subject to Arizona income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ------------------------------- ---------------------------------------------------------- ------------------ -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
]ohn E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESDIENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -------------------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998*
- -----------------------------------------------
Advisory Fee Earned $24,043
- -----------------------------------------------
Advisory Fee Reduction 24,043
- -----------------------------------------------
Brokerage Commissions 0
- -----------------------------------------------
Administrative Fee 48,973
- -----------------------------------------------
Shareholder Services Fee
- -----------------------------------------------
Institutional Service Shares 12,021
- -----------------------------------------------
* From the Fund's inception (June 10, 1998)
to October 31, 1998.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURN AND YIELD
Total returns given for the since inception period ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
Share Class
Institutional Service Shares 7-Day Period Since Inception on
June 10, 1998
- ------------------------------------------------------------------
Total Return -- 1.28%
Yield 2.89% --
Effective Yield 2.93% --
Tax-Equivalent Yield 5.31% --
- ------------------------------------------------------------------
- ------------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF ARIZONA
- ------------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
18.30% 32.80% 35.80% 41.17% 44.77%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.84% 2.23% 2.34% 2.55% 2.72%
2.00% 2.45% 2.98% 3.12% 3.40% 3.62%
2.50% 3.06% 3.72% 3.89% 4.25% 4.53%
3.00% 3.67% 4.46% 4.67% 5.10% 5.43%
3.50% 4.28% 5.21% 5.45% 5.95% 6.34%
4.00% 4.90% 5.95% 6.23% 6.80% 7.24%
4.50% 5.51% 6.70% 7.01% 7.65% 8.15%
5.00% 6.12% 7.44% 7.79% 8.50% 9.05%
5.50% 6.73% 8.18% 8.57% 9.35% 9.96%
6.00% 7.34% 8.93% 9.35% 10.20% 10.86%
6.50% 7.96% 9.67% 10.12% 11.05% 11.77%
7.00% 8.57% 10.42% 10.90% 11.90% 12.67%
7.50% 9.18% 11.16% 11.68% 12.75% 13.58%
8.00% 9.79% 11.90% 12.46% 13.60% 14.48%
</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 1998
STATE OF ARIZONA
- ------------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
18.30% 31.90% 35.80% 40.80% 44.77%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SINGLE $1 - $42,351 - $102,301 - $155,951 - OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.84% 2.20% 2.34% 2.53% 2.72%
2.00% 2.45% 2.94% 3.12% 3.38% 3.62%
2.50% 3.06% 3.67% 3.89% 4.22% 4.53%
3.00% 3.67% 4.41% 4.67% 5.07% 5.43%
3.50% 4.28% 5.14% 5.45% 5.91% 6.34%
4.00% 4.90% 5.87% 6.23% 6.76% 7.24%
4.50% 5.51% 6.61% 7.01% 7.60% 8.15%
5.00% 6.12% 7.34% 7.79% 8.45% 9.05%
5.50% 6.73% 8.08% 8.57% 9.29% 9.96%
6.00% 7.34% 8.81% 9.35% 10.14% 10.86%
6.50% 7.96% 9.54% 10.12% 10.98% 11.77%
7.00% 8.57% 10.28% 10.90% 11.82% 12.67%
7.50% 9.18% 11.01% 11.68% 12.67% 13.58%
8.00% 9.79% 11.75% 12.46% 13.51% 14.48%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
ARIZONA 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
225 Franklin Street
Boston, MA 02110-2812
California Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 9
Report of Independent Public Accountants 23
December 31, 1998
</TABLE>
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California consistent with stability of principal. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax and California state income
tax. Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in securities of
a single issuer, an investment in the Fund may involve additional risks compared
to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. The shares offered by this prospectus are not
deposits or obligations of any bank, are not endorsed or guaranteed by any bank
and are not insured or guaranteed by the U.S. government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency.
Risk/Return Bar Chart and Table
[Graphic] - See Appendix C-1
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Shares
total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares year-to-date total return as of the most recent
calendar quarter of September 30, 1998 was 2.42%.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 0.90% (quarter ended June 30, 1997). Its lowest quarterly
return was 0.79% (quarter ended March 31, 1997).
The Fund's Institutional Shares Seven-Day Net Yield as of
12/31/97 was 3.70%.
The following table represents the Fund's Institutional Shares Average Annual
Total Return through 12/31/97.
Calendar Period Fund
1 Year 3.47%
Start of Performance1 3.45%
1 The Fund's Institutional Shares start of performance date was March 4, 1996.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
California MUNICIPAL CASH TRUST
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy, hold and
redeem shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)............................ None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or
redemption proceeds, as applicable)............................................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price)............................................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
<CAPTION>
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/............................................................................................... 0.50%
Distribution (12b-1) Fee........................................................................................ None
Shareholder Services Fee/3/..................................................................................... 0.25%
Other Expenses.................................................................................................. 0.17%
Total Annual Fund Operating Expenses............................................................................ 0.92%
</TABLE>
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses....................................... 0.67%
Total Actual Annual Operating Expenses (after waivers)........ 0.25%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.08% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily waived. This voluntary
waiver can be terminated at any time. There was no shareholder services fee paid
by the Fund (after the voluntary reduction) for the year ended October 31, 1998.
Example
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are before
waivers as shown above and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Expenses assuming
no redemption $94 $293 $509 $1,131
What are the Fund's
Investment Strategies?
The Fund invests in a portfolio of high-quality
tax-exempt securities maturing in 13 months or less. The average maturity of the
Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
Temporary defensive Investments
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and California state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
What are the Principal Securities in Which the Fund Invests?
Tax-exempt securities
Tax-exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment.
Fixed Income securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
Variable rate demand instruments
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
Municipal notes
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
Investment Ratings
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating
services or be of comparable quality to securities having such ratings.
Credit Enhancement
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a tax-exempt money market fund are described
below.
Credit Risk
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
Sector Risk
Most of the Fund's securities will be invested in issuers located in California.
In addition, a substantial part of the Fund's portfolio may be comprised of tax-
exempt securities issued or credit enhanced by companies in similar businesses
or with other similar characteristics. As a result, the Fund will be more
susceptible to any economic, business, political, or other developments which
generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a sales charge.
NAV is determined at 9:00 a.m. Pacific time (12:00 noon Eastern time), 10:00
a.m. Pacific time (1:00 p.m. Eastern time), and as of the end of regular trading
(normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) each day the NYSE is
open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum is calculated by
combining all accounts it maintains with the Fund. Accounts established through
investment professionals may be subject to a smaller minimum investment amount.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-California taxpayers because it
invests in California tax-exempt securities. The Distributor and its affiliates
may pay out of their assets amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before 10:00
a.m. Pacific time (1:00 p.m. Eastern time). You will receive that day's dividend
if the investment professional forwards the order to the Fund and the Fund
receives payment by 12:00 noon Pacific time (3:00 p.m. Eastern time). You will
become the owner of Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number,
or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 1:00 p.m. Pacific time or 4:00 p.m.
Eastern time). Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions as
outlined below.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 9:00 a.m. Pacific time (12:00 noon Eastern time) your
redemption will be wired to you the same day. You will not receive that day's
dividend.
If you call after 9:00 a.m. Pacific time (12:00 noon Eastern time) your
redemption will be wired to you the following business day. You will receive
that day's dividend.
By Mail
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of
record;
. your redemption will be sent to an address of record that was changed
within the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is
an ACH member; or
. wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend of capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from California state personal income tax to the extent they are
derived from interest on obligations exempt from California personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax adviser regarding your federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
Advisory Fees
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in the prospectus.
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 d1998 1997 1996/1/
<C> <S> <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 0.02
Less Distributions:
Distributions from net investment income (0.03) (0.03) (0.02)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00
Total Return2 3.31% 3.44% 2.24%
Ratios to Average Net Assets:
Expenses 0.25% 0.21% 0.20%/3/
Net investment income 3.25% 3.45% 3.33%/3/
Expense 0.67% 0.74% 0.90%/3/
waiver/reimbursement/4/
Supplemental Data:
Net assets, end of period (000 omitted) $41,574 $41,956 $20,089
</TABLE>
1 Reflects operations for the period from March 4, 1996 (date of initial public
investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized
basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
/1/ SHORT-TERM MUNICIPALS-99.6%
California-95.9%
$ 5,600,000 ABAG Finance Authority for
Non-Profit Corporations,
(Series 1998) Weekly VRDNs
(The Harker School
Foundation)/(U.S. Bank,
NA, Minneapolis LOC) $ 5,600,000
15,705,000 ABN AMRO MuniTOPS
Certificates Trust
(California Non-AMT)
Series 1998-10 Weekly
VRDNs (San Diego, CA Water
Utility Fund)/(FGIC
INS)/(ABN AMRO Bank N.V.,
Amsterdam LIQ) 15,705,000
8,000,000 /2/California Community College
Financing Authority, Trust
Receipts (Series 1998 FR/RI-A24),
3.60% TOBs (FSA INS)/(Bank of
New York, New York LIQ), Optional
Tender 12/9/1998 8,000,000
13,495,000 California Educational
Facilities Authority,
PA-190 Weekly VRDNs
(Stanford
University)/(Merrill Lynch
Capital Services, Inc. LIQ) 13,495,000
2,055,000 California HFA, Home
Mortgage (Series 1989F),
3.55% TOBs (Citibank NA,
New York LIQ), Optional
Tender 2/1/1999 2,055,000
5,220,000 California HFA, PT-1037 Weekly
VRDNs (Merrill Lynch Capital
Services, Inc. LIQ) 5,220,000
14,995,000 /2/ California HFA, Variable
Rate Certificates (Series
1998E), 3.25% TOBs (Bank of
America NT and SA, San Francisco
LIQ), Optional Tender 5/6/1999 14,995,000
2,000,000 California Public Capital
Improvements Financing
Authority, Trust Receipts
(Series 1996 FR-3) Weekly
VRDNs (MBIA INS)/(Bank of
New York, New York LIQ) 2,000,000
4,840,000 California State, CDC
Municipal Products, Inc.
(Series 1996L) Weekly
VRDNs (FGIC INS)/(CDC
Municipal Products, Inc.
LIQ) 4,840,000
8,000,000 California State, Tender
Option Certificates
(Series 1998A) Weekly
VRDNs (MBIA INS)/(First
National Bank of Chicago
LIQ) 8,000,000
3,100,000 California Statewide
Communities Development
Authority, (Series A)
Weekly VRDNs (Barton
Memorial Hospital)/(Banque
Nationale de Paris LOC) 3,100,000
14,000,000 California Transit Finance
Authority, VRDB's (Series
1997) Weekly VRDNs (FSA
INS)/(Credit Suisse First
Boston LIQ) 14,000,000
5,560,000 Central Unified School
District, CA, Certificates
of Participation (1995
Financing Project) Weekly
VRDNs (Union Bank of
California LOC) 5,560,000
4,000,000 Clipper, CA Tax-Exempt
Trust, (1996 Issue A)
Weekly VRDNs (California
Rural Home Mortgage
Finance Authority)/(MBIA
INS)/(State Street Bank
and Trust Co. LIQ) 4,000,000
7,330,000 /2/ Clipper, CA Tax-Exempt
Trust, 3.60% TOBs (California
HFA)/(MBIA INS)/(State Street
Bank and Trust Co. LIQ),
Mandatory Tender 1/14/1999 7,330,000
8,000,000 /2/ Contra Costa County,
CA, Trust Receipts (1998 A-27),
3.60% TOBs (Bank of New York,
New York LIQ), Mandatory Tender
12/9/1998 8,000,000
8,000,000 Cupertino, CA Union School
District, 3.90% TRANs, 6/30/1999 8,010,170
1,900,000 East Bay Municipal Utility
District, CA, 3.15% CP
(Westdeutsche Landesbank
Girozentrale LIQ),
Mandatory Tender 11/12/1998 1,900,000
1,500,000 East Bay Municipal Utility
District, CA, 3.25% CP
(Westdeutsche Landesbank
Girozentrale LIQ),
Mandatory Tender 1/14/1999 1,500,000
/1/ SHORT-TERM MUNICIPALS-continued
California-continued
$ 3,000,000 East Bay Municipal Utility
District, CA, 3.25% CP
(Westdeutsche Landesbank
Girozentrale LIQ),
Mandatory Tender 11/12/1998 $ 3,000,000
7,100,000 Glendale, CA, (Series
1984A) Monthly VRDNs
(Reliance Development
Company, Inc.)/(Barclays
Bank PLC, London LOC) 7,100,000
700,000 Golden West Schools, CA
Financing Authority,
(Series A), 5.55% Bonds (MBIA
INS), 2/1/1999 703,346
1,085,000 Golden West Schools, CA
Financing Authority, (Series A),
5.55% Bonds (MBIA INS), 8/1/1999 1,099,596
8,500,000 Long Beach, CA, 4.00% TRANs,
10/5/1999 8,564,090
10,000,000 Los Angeles County, CA
Metropolitan
Transportation Authority,
Municipal Securities Trust
Receipts (Series
1998-CMC2) Weekly VRDNs
(AMBAC INS)/(Chase
Manhattan Corp. LIQ) 10,000,000
1,600,000 Los Angeles, CA Department of
Water & Power, 9.00% Bonds,
1/15/1999 1,617,028
4,000,000 Los Angeles, CA Department
of Water & Power, Electric
Plant Short-Term Revenue
Certificates, 3.25% CP
(Bank of Nova Scotia,
Toronto and
Toronto-Dominion Bank
LOCs), Mandatory Tender
11/10/1998 4,000,000
12,500,000 Los Angeles, CA Department
of Water & Power, Trust
Receipts (Series 1998
FR/RI-18) Weekly VRDNs
(FGIC INS)/(Bank of New
York, New York LIQ) 12,500,000
3,100,000 Los Angeles, CA Public Works
Financing Authority, Trust
Receipts (Series 1998 FR/RI-A47)
Daily VRDNs (AMBAC INS)/(National
Westminster Bank, PLC, London LIQ) 3,100,000
32,195,000 Monterey Peninsula, CA Water
Management District, Trust Receipts
(Series 1998 FR/RI-C7) Weekly VRDNs
(Wastewater Reclaimation)/(Bank of
America NT and SA, San Fransisco
SWP) 32,195,000
3,000,000 Moreland, CA Elementary School
District, 3.90% TRANs, 6/30/1999 3,003,814
2,100,000 Northern California
Transmission Agency, Trust
Receipts (Series 1998
FR/RI-16) Weekly VRDNs
(California-Oregon
Transmission
Project)/(MBIA INS)/(Bank
of New York, New York LIQ) 2,100,000
6,000,000 Oceanside, CA Community
Development Commission,
(Series 1985) Weekly VRDNs
(Shadow Way
Apartments)/(Bank One,
Arizona N.A. LOC) 6,000,000
11,900,000 Orange County, CA Housing
Authority, (Issue I of
1998) Weekly VRDNs (Oasis
Martinique)/(Federal
National Mortgage
Association LOC) 11,900,000
7,100,000 Orange County, CA IDA,
(Series 1991A) Weekly
VRDNs (The Lakes)/(Chase
Manhattan Bank N.A., New
York LOC) 7,100,000
5,900,000 Orange County, CA Local
Transportation Authority,
Trust Receipts (Series 1998
FR/RI-A15) Weekly VRDNs
(MBIA INS)/(Commerzbank AG,
Frankfurt LIQ) 5,900,000
10,330,000 Oxnard Harbor District,
CA, (Series 1995 II),
PT-105, Weekly VRDNs
(Asset Guaranty
INS)/(Credit Suisse First
Boston LIQ) 10,330,000
25,160,276 PBCC LeaseTOPS Trust
(California Non-AMT)
Series 1998-1 Weekly VRDNs
(AMBAC INS)/(Pitney Bowes
Credit Corp. LIQ) 25,160,276
4,500,000 Perris, CA Union High School
District, 3.50% TRANs,
10/26/1999 4,522,324
/1/ SHORT-TERM MUNICIPALS-continued
California-continued
$12,266,838 Pitney Bowes Credit Corp.
Leasetops Trust, Leasetops
Certificates (Series
1996A) Weekly VRDNs (San
Diego County, CA, Regional
Communications
System)/(Pitney Bowes
Credit Corp.
LIQ)/(Bayerische
Landesbank Girozentrale
LOC) $12,266,838
1,570,000 Placer County, CA Office of
Education, 4.00% TRANs, 9/21/1999 1,578,413
6,000,000 Pleasanton, CA Unified School
District, 3.90% TRANs, 6/30/1999 6,007,627
2,400,000 Redding, CA School District,
3.90% TRANs, 6/30/1999 2,403,051
8,000,000 Regents of University of
California, (Series A),
3.30% CP (Bank of America
NT and SA, San Francisco,
Bank of Montreal, Caisse
Nationale De Credit
Agricole, Paris, Canadian
Imperial Bank of Commerce,
Toronto and Societe
Generale, Paris LIQs),
Mandatory Tender 11/10/1998 8,000,000
3,455,000 Riverside, CA, Municipal
Securities Trust Receipts
(Series 1998-CMC5) Weekly
VRDNs (AMBAC INS)/(Chase
Manhattan Corp. LIQ) 3,455,000
3,510,000 Roseville, CA Joint Union
High School District, 4.00% TRANs,
9/21/1999 3,528,808
850,000 Roseville, CA, Hospital Facilities
Authority, (Series 1989A) Weekly
VRDNs (Toronto-Dominion
Bank LOC) 850,000
19,000,000 San Diego, CA Area Local
Governments, Trust
Receipts (Series
FR/RI-A25) Weekly VRDNs
(Bank of New York, New
York LIQ) 19,000,000
3,175,000 San Francisco, CA
Redevelopment Finance
Agency, (PT-125) Weekly
VRDNs (Northridge
Cooperative Homes)/(MBIA
INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 3,175,000
16,500,000 San Francisco, CA
Redevelopment Finance
Agency, (Series B1) Weekly
VRDNs (Fillmore
Center)/(Bank of Nova
Scotia, Toronto LOC) 16,500,000
4,065,000 San Francisco, CA
Redevelopment Finance
Agency, CDC Municipal
Products, Inc. (Series
1997T) Weekly VRDNs
(Northridge Cooperative
Homes)/(MBIA INS)/(CDC
Municipal Products, Inc.
LIQ) 4,065,000
2,000,000 San Francisco, CA Unified
School District, 4.50% TRANs,
9/22/1999 2,019,060
2,500,000 Sanger, CA Unified School
District, 4.00% TRANs, 1/27/1999 2,502,878
400,000 Santa Clara, CA, (Series
1985C) Weekly VRDNs (Santa
Clara, CA Electric
System)/(National
Westminster Bank, PLC,
London LOC) 400,000
6,000,000 Stanislaus County, CA Office of
Education, 4.50% TRANs, 7/30/1999 6,036,450
325,000 Stockton, CA, (Series 1993)
Weekly VRDNs (La Quinta Inns, Inc.)/
(Nationsbank, N.A., Charlotte LOC) 325,000
1,000,000 Vallejo, CA Unified School District,
7.60% Bonds (FGIC INS), 8/1/1999 1,034,426
1,930,000 Western Placer, CA Unified School
District, 4.00% TRANs, 9/21/1999 1,940,342
Total 388,293,537
Puerto Rico-3.7%
4,000,000 /2/ Commonwealth of Puerto Rico,
(Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank
AG, Frankfurt LIQ), Mandatory
Tender 1/14/1999 4,000,000
9,750,000 Commonwealth of Puerto
Rico, Floating Rate Trust
Receipts (Series 1997)
Weekly VRDNs (Commerzbank
AG, Frankfurt
LIQ)/(Commerzbank AG,
Frankfurt LOC) 9,750,000
/1/ SHORT-TERM MUNICIPALS-continued
Puerto Rico-continued
$ 1,115,000 Puerto Rico Industrial,
Medical & Environmental
PCA, (1983 Series A),
4.00% TOBs (Merck & Co.,
Inc.), Optional Tender
12/1/1998 $ 1,115,178
Total 14,865,178
/3/ Total Investments (at amortized
cost) $403,158,715
</TABLE>
1 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, MIG-1, or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2
by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
First Tier Second Tier
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities amounted to
$42,325,000 which represents 10.4% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($404,776,382) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
CP -Commercial Paper
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
HFA -Housing Finance Authority
IDA -Industrial Development Authority
INS -Insured
LIQ -Liquidity Agreement
LOCs -Letter(s) of Credit
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCA -Pollution Control Authority
PLC -Public Limited Company
SA -Support Agreement
TOBs -Tender Option Bonds
TRANs -Tax and Revenue Anticipation Notes
VRDB -Variable Rate Demand Bond
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at amortized cost and value $ 403,158,715
Cash 273,872
Income receivable 2,919,735
Receivable for shares sold 2,815
Total assets 406,355,137
Liabilities:
Payable for shares redeemed $ 1,023,729
Income distribution payable 411,217
Accrued expenses 143,809
Total liabilities 1,578,755
Net Assets for 404,776,382 shares outstanding $ 404,776,382
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Service Shares:
$363,202,187 / 363,202,187 shares outstanding $1.00
Institutional Shares:
$41,574,195 / 41,574,195 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 12,277,274
Expenses:
Investment advisory fee $ 1,757,809
Administrative personnel and services fee 265,101
Custodian fees 5,993
Transfer and dividend disbursing agent fees and expenses 132,557
Directors'/Trustees' fees 3,032
Auditing fees 12,692
Legal fees 16,004
Portfolio accounting fee 88,219
Shareholder services fee-Institutional Service Shares 774,950
Shareholder services fee-Institutional Shares 103,682
Share registration costs 55,187
Printing and postage 25,298
Insurance premiums 27,166
Miscellaneous 2,094
Total expenses 3,269,784
Waivers:
Waiver of investment advisory fee $ (1,496,779)
Waiver of shareholder services fee-Institutional Shares (103,682)
Total waivers (1,600,461)
Net expenses 1,669,323
Net investment income $ 10,607,951
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 10,607,951 $ 6,655,913
Distributions to Shareholders:
Distributions from net investment income:
Institutional Service Shares (9,261,806) (5,624,269)
Institutional Shares (1,346,145) (1,031,644)
Change in net assets resulting from distributions to shareholders (10,607,951) (6,655,913)
Share Transactions:
Proceeds from sale of shares 1,401,854,420 905,107,252
Net asset value of shares issued to shareholders
in payment of distributions declared
5,742,314
3,335,040
Cost of shares redeemed (1,279,540,519) (783,969,559)
Change in net assets resulting from share transactions 128,056,215 124,472,733
Change in net assets 128,056,215 124,472,733
Net Assets:
Beginning of period 276,720,167 152,247,434
End of period $ 404,776,382 $ 276,720,167
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 Service Shares and Institutional Shares.
The investment objective of the Fund is current income exempt from federal
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 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, 1998 is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
California Community College Financing 7/8/1998 8,000,000
California HFA, Variable Rate Certificate 9/25/1998 14,995,000
Clipper, CA Tax-Exempt Trust, 3.60% 6/24/1998 7,330,000
Commonwealth of Puerto Rico 2/4/1998-2/12/1998 4,000,000
Contra Costa County, CA Trust Receipts 7/1/1998 8,000,000
</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.
<TABLE>
<CAPTION>
Transactions in shares were as follows:
Year Ended October 31 1998 1997
<S> <C> <C>
Institutional Shares:
Shares sold 117,311,375 95,368,952
Shares issued to shareholders in payment of distributions declared 11,638 62,298
Shares redeemed (117,704,612) (73,564,054)
Net change resulting from Institutional share transactions (381,599) 21,867,196
<CAPTION>
Year Ended October 31 1998 1997
Institutional Service Shares:
Shares sold 1,284,543,045 809,738,300
Shares issued to shareholders in payment of distributions declared 5,730,676 3,272,742
Shares redeemed (1,161,835,907) (710,405,505)
Net change resulting from Institutional Service share transactions 128,437,814 102,605,537
Net change resulting from share transactions 128,056,215 124,472,733
</TABLE>
At October 31, 1998, capital paid-in aggregated $404,776,382.
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, Inc. 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, 1998, 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
purchases and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $550,207,000 and $499,025,000,
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, 1998, 59% 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.
Year 2000 (Unaudited)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF CALIFORNIA MUNICIPAL CASH TRUST:
We have audited the accompanying statements 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, 1998, the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights 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, 1998, 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, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[LOGO OF FEDERATED]
California Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and semi-
annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[LOGO OF FEDERATED]
Investment Company Act File No. 811-5911
Cusip 314229675
G00300-01-IS (12/98)
[RECYCLED PAPER LOGO] December 31, 1998
PROSPECTUS
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Public Accountants 24
DECEMBER 31, 1998
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California consistent with stability of principal. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax and California state income
tax. Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in securities of
a single issuer, an investment in the Fund may involve additional risks compared
to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is possible
to lose money investing in the Fund. The shares offered by this prospectus are
not deposits or obligations of any bank, are not endorsed or guaranteed by any
bank and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency.
Risk/Return Bar Chart and Table
[Graphic] - See Appendix C-2
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Service
Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Service Shares year to-date-total return as of the most
recent calendar quarter of September 30, 1998 was 2.23%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.35% (quarter ended June 30, 1990). Its lowest quarterly return was 0.44%
(quarters ended March 31, 1993 and March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97 was
3.45%.
The following table represents the Fund's Institutional Service Shares Average
Annual Total Return through 12/31/97.
Calendar Period Fund
1 Year 3.21%
5 Years 2.82%
Start of Performance/1/ 3.44%
1 The Fund's Institutional Service Shares start of performance date was April
3, 1989. Investors may call the Fund at 1-800-341-7400 to acquire the Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees And Expenses?
CALIFORNIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy, hold and
redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
Shareholder Fees
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses 0.18%
Total Annual Fund Operating Expenses 0.93%
1 Although not contractually obligated to do so, the adviser waived certain amounts. This is shown below along with
the net expenses the Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.43%
Total Actual Annual Fund Operating Expenses (after waivers) 0.50%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary waiver at any
time. The management fee paid by the Fund (after voluntary waiver) was 0.07% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Service Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Institutional Service Shares operating
expenses are before waivers as shown above and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
Expenses assuming no
redemption $95 $296 $515 $1,143
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax- exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum credit
standards. The Adviser targets an average portfolio maturity based upon its
interest rate outlook and the tax-exempt securities available. The Adviser
structures the portfolio by combining variable rate demand instruments and
municipal notes. Depending on the supply of tax-exempt securities, the Adviser
generally shortens the portfolio's maturity when it expects interest rates to
rise and extends the maturity when it expects interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and California state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a tax-exempt money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in California.
In addition, a substantial part of the Fund's portfolio may be comprised of tax-
exempt securities issued or credit enhanced by companies in similar businesses
or with other similar characteristics. As a result, the Fund will be more
susceptible to any economic, business, political, or other developments which
generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a sales charge.
NAV is determined at 9:00 a.m. Pacific time (12:00 noon Eastern time), 10:00
a.m. Pacific time (1:00 p.m. Eastern time), and as of the end of regular trading
(normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) each day the NYSE is
open.
The required minimum initial investment for Fund Shares is $25,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum
is reached within 90 days. An institutional investor's minimum is calculated by
combining all accounts it maintains with the Fund. Accounts established through
investment professionals may be subject to a smaller minimum investment amount.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-California taxpayers because it
invests in California tax-exempt securities. The Distributor and its affiliates
may pay out of their assets amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before 10:00 a.m.
Pacific time (1:00 p.m. Eastern time). You will receive that day's dividend if
the investment professional forwards the order to the Fund and the Fund
receives payment by 12:00 noon Pacific time (3:00 p.m. Eastern time). You will
become the owner of Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 1:00 p.m. Pacific time or 4:00 p.m.
Eastern time). Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions as
outlined below.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 9:00 a.m. Pacific time (12:00 noon Eastern time) your
redemption will be wired to you the same day. You will not receive that day's
dividend.
If you call after 9:00 a.m. Pacific time (12:00 noon Eastern time) your
redemption will be wired to you the following business day. You will receive
that day's dividend. Under limited circumstances, arrangements may be made with
the Distributor for same-day payment of redemption proceeds, without that day's
dividend, for redemption requests received before 11:00 a.m. Pacific time (2:00
p.m. Eastern time).
By Mail
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until a check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from California state personal income tax to the extent they are
derived from interest on obligations exempt from California personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax adviser regarding your federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information had been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights--Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 24.
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997 1996 1995 19941
<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 0.03 0.002
Net realized loss on investment -- -- -- (0.01) --
TOTAL FROM INVESTMENT OPERATIONS 0.03 0.03 0.03 0.02 0.002
Capital Contributions -- -- -- 0.01 --
Less Distributions:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.002)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return2 3.05% 3.19% 3.22% 3.37% 0.23%
Ratios to Average Net Assets:
Expenses 0.50% 0.46% 0.49% 0.59% 0.59%3
Net investment income 2.99% 3.13% 3.17% 3.33% 2.71%3
Expense waiver/reimbursement4 0.43% 0.49% 0.62% 0.50% 0.44%3
Supplemental Data:
Net assets, end of period (000 omitted) $363,202 $234,764 $132,159 $96,534 $81,563
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Principal Value
Amount
- ---------------------------------------------------------------------------------------------------------------------
1SHORT-TERM MUNICIPALS--99.6%
- ---------------------------------------------------------------------------------------------------------------------
California--95.9%
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 5,600,000 ABAG Finance Authority for Non-Profit Corporations, (Series 1998) Weekly VRDNs $ 5,600,000
(The Harker School Foundation)/(U.S. Bank, NA, Minneapolis LOC)
- ---------------------------------------------------------------------------------------------------------------------
15,705,000 ABN AMRO MuniTOPS Certificates Trust (California Non-AMT) Series 1998-10 15,705,000
Weekly VRDNs (San Diego, CA Water Utility Fund)/(FGIC INS)/(ABN AMRO Bank
N.V., Amsterdam LIQ)
- ---------------------------------------------------------------------------------------------------------------------
8,000,000 /2/California Community College Financing Authority, Trust Receipts (Series 1998 8,000,000
FR/RI-A24), 3.60% TOBs (FSA INS)/(Bank of New York, New York LIQ), Optional
Tender 12/9/1998
- ---------------------------------------------------------------------------------------------------------------------
13,495,000 California Educational Facilities Authority, PA-190 Weekly VRDNs (Stanford 13,495,000
University)/(Merrill Lynch Capital Services, Inc. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
2,055,000 California HFA, Home Mortgage (Series 1989F), 3.55% TOBs (Citibank NA, New 2,055,000
York LIQ), Optional Tender 2/1/1999
- ---------------------------------------------------------------------------------------------------------------------
5,220,000 California HFA, PT-1037 Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 5,220,000
- ---------------------------------------------------------------------------------------------------------------------
14,995,000 /2/California HFA, Variable Rate Certificates (Series 1998E), 3.25% TOBs (Bank 14,995,000
of America NT and SA, San Francisco LIQ), Optional Tender 5/6/1999
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 California Public Capital Improvements Financing Authority, Trust Receipts 2,000,000
(Series 1996 FR-3) Weekly VRDNs (MBIA INS)/(Bank of New York, New York LIQ)
- ---------------------------------------------------------------------------------------------------------------------
4,840,000 California State, CDC Municipal Products, Inc. (Series 1996L) Weekly VRDNs 4,840,000
(FGIC INS)/(CDC Municipal Products, Inc. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
8,000,000 California State, Tender Option Certificates (Series 1998A) Weekly VRDNs (MBIA 8,000,000
INS)/(First National Bank of Chicago LIQ)
- ---------------------------------------------------------------------------------------------------------------------
3,100,000 California Statewide Communities Development Authority, (Series A) Weekly 3,100,000
VRDNs (Barton Memorial Hospital)/(Banque Nationale de Paris LOC)
- ---------------------------------------------------------------------------------------------------------------------
14,000,000 California Transit Finance Authority, VRDB's (Series 1997) Weekly VRDNs (FSA 14,000,000
INS)/ (Credit Suisse First Boston LIQ)
- ---------------------------------------------------------------------------------------------------------------------
5,560,000 Central Unified School District, CA, Certificates of Participation (1995 5,560,000
Financing Project) Weekly VRDNs (Union Bank of California LOC)
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 Clipper, CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs (California Rural 4,000,000
Home Mortgage Finance Authority)/(MBIA INS)/(State Street Bank and Trust Co.
LIQ)
- ---------------------------------------------------------------------------------------------------------------------
7,330,000 /2/Clipper, CA Tax-Exempt Trust, 3.60% TOBs (California HFA)/(MBIA INS)/(State 7,330,000
Street Bank and Trust Co. LIQ), Mandatory Tender 1/14/1999
- ---------------------------------------------------------------------------------------------------------------------
8,000,000 /2/Contra Costa County, CA, Trust Receipts (1998 A-27), 3.60% TOBs (Bank of New 8,000,000
York, New York LIQ), Mandatory Tender 12/9/1998
- ---------------------------------------------------------------------------------------------------------------------
8,000,000 Cupertino, CA Union School District, 3.90% TRANs, 6/30/1999 8,010,170
- ---------------------------------------------------------------------------------------------------------------------
1,900,000 East Bay Municipal Utility District, CA, 3.15% CP (Westdeutsche Landesbank 1,900,000
Girozentrale LIQ), Mandatory Tender 11/12/1998
- ---------------------------------------------------------------------------------------------------------------------
1,500,000 East Bay Municipal Utility District, CA, 3.25% CP (Westdeutsche Landesbank 1,500,000
Girozentrale LIQ), Mandatory Tender 1/14/1999
- ---------------------------------------------------------------------------------------------------------------------
$ 3,000,000 East Bay Municipal Utility District, CA, 3.25% CP (Westdeutsche Landesbank $ 3,000,000
Girozentrale LIQ), Mandatory Tender 11/12/1998
- ---------------------------------------------------------------------------------------------------------------------
7,100,000 Glendale, CA, (Series 1984A) Monthly VRDNs (Reliance Development Company, 7,100,000
Inc.)/ (Barclays Bank PLC, London LOC)
- ---------------------------------------------------------------------------------------------------------------------
700,000 Golden West Schools, CA Financing Authority, (Series A), 5.55% Bonds (MBIA 703,346
INS), 2/1/1999
- ---------------------------------------------------------------------------------------------------------------------
1,085,000 Golden West Schools, CA Financing Authority, (Series A), 5.55% Bonds (MBIA 1,099,596
INS), 8/1/1999
- ---------------------------------------------------------------------------------------------------------------------
8,500,000 Long Beach, CA, 4.00% TRANs, 10/5/1999 8,564,090
- ---------------------------------------------------------------------------------------------------------------------
10,000,000 Los Angeles County, CA Metropolitan Transportation Authority, Municipal 10,000,000
Securities Trust Receipts (Series 1998-CMC2) Weekly VRDNs (AMBAC INS)/(Chase
Manhattan Corp. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
1,600,000 Los Angeles, CA Department of Water & Power, 9.00% Bonds, 1/15/1999 1,617,028
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 Los Angeles, CA Department of Water & Power, Electric Plant Short-Term Revenue 4,000,000
Certificates, 3.25% CP (Bank of Nova Scotia, Toronto and Toronto-Dominion Bank
LOCs), Mandatory Tender 11/10/1998
- ---------------------------------------------------------------------------------------------------------------------
12,500,000 Los Angeles, CA Department of Water & Power, Trust Receipts (Series 1998 12,500,000
FR/RI-18) Weekly VRDNs (FGIC INS)/(Bank of New York, New York LIQ)
- ---------------------------------------------------------------------------------------------------------------------
3,100,000 Los Angeles, CA Public Works Financing Authority, Trust Receipts (Series 1998 3,100,000
FR/RI-A47) Daily VRDNs (AMBAC INS)/(National Westminster Bank, PLC, London LIQ)
- ---------------------------------------------------------------------------------------------------------------------
32,195,000 Monterey Peninsula, CA Water Management District, Trust Receipts (Series 1998 32,195,000
FR/RI-C7) Weekly VRDNs (Wastewater Reclaimation)/(Bank of America NT and SA,
San Fransisco SWP)
- ---------------------------------------------------------------------------------------------------------------------
3,000,000 Moreland, CA Elementary School District, 3.90% TRANs, 6/30/1999 3,003,814
- ---------------------------------------------------------------------------------------------------------------------
2,100,000 Northern California Transmission Agency, Trust Receipts (Series 1998 FR/RI-16) 2,100,000
Weekly VRDNs (California-Oregon Transmission Project)/(MBIA INS)/(Bank of New
York, New York LIQ)
- ---------------------------------------------------------------------------------------------------------------------
6,000,000 Oceanside, CA Community Development Commission, (Series 1985) Weekly VRDNs 6,000,000
(Shadow Way Apartments)/(Bank One, Arizona N.A. LOC)
- ---------------------------------------------------------------------------------------------------------------------
11,900,000 Orange County, CA Housing Authority, (Issue I of 1998) Weekly VRDNs (Oasis 11,900,000
Martinique)/(Federal National Mortgage Association LOC)
- ---------------------------------------------------------------------------------------------------------------------
7,100,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The Lakes)/(Chase 7,100,000
Manhattan Bank N.A., New York LOC)
- ---------------------------------------------------------------------------------------------------------------------
5,900,000 Orange County, CA Local Transportation Authority, Trust Receipts (Series 1998 5,900,000
FR/RI-A15) Weekly VRDNs (MBIA INS)/(Commerzbank AG, Frankfurt LIQ)
- ---------------------------------------------------------------------------------------------------------------------
10,330,000 Oxnard Harbor District, CA, (Series 1995 II), PT-105, Weekly VRDNs (Asset 10,330,000
Guaranty INS)/(Credit Suisse First Boston LIQ)
- ---------------------------------------------------------------------------------------------------------------------
25,160,276 PBCC LeaseTOPS Trust (California Non-AMT) Series 1998-1 Weekly VRDNs (AMBAC 25,160,276
INS)/(Pitney Bowes Credit Corp. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
4,500,000 Perris, CA Union High School District, 3.50% TRANs, 10/26/1999 4,522,324
- ---------------------------------------------------------------------------------------------------------------------
$ 12,266,838 Pitney Bowes Credit Corp. Leasetops Trust, Leasetops Certificates (Series $ 12,266,838
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, 4.00% TRANs, 9/21/1999 1,578,413
- ---------------------------------------------------------------------------------------------------------------------
6,000,000 Pleasanton, CA Unified School District, 3.90% TRANs, 6/30/1999 6,007,627
- ---------------------------------------------------------------------------------------------------------------------
2,400,000 Redding, CA School District, 3.90% TRANs, 6/30/1999 2,403,051
- ---------------------------------------------------------------------------------------------------------------------
8,000,000 Regents of University of California, (Series A), 3.30% CP (Bank of America NT 8,000,000
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 11/10/1998
- ---------------------------------------------------------------------------------------------------------------------
3,455,000 Riverside, CA, Municipal Securities Trust Receipts (Series 1998-CMC5) Weekly 3,455,000
VRDNs (AMBAC INS)/(Chase Manhattan Corp. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
3,510,000 Roseville, CA Joint Union High School District, 4.00% TRANs, 9/21/1999 3,528,808
- ---------------------------------------------------------------------------------------------------------------------
850,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) Weekly VRDNs 850,000
(Toronto- Dominion Bank LOC)
- ---------------------------------------------------------------------------------------------------------------------
19,000,000 San Diego, CA Area Local Governments, Trust Receipts (Series FR/RI-A25) Weekly 19,000,000
VRDNs (Bank of New York, New York LIQ)
- ---------------------------------------------------------------------------------------------------------------------
3,175,000 San Francisco, CA Redevelopment Finance Agency, (PT-125) Weekly VRDNs 3,175,000
(Northridge Cooperative Homes)/(MBIA INS)/(Merrill Lynch Capital Services,
Inc. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
16,500,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly VRDNs 16,500,000
(Fillmore Center)/(Bank of Nova Scotia, Toronto LOC)
- ---------------------------------------------------------------------------------------------------------------------
4,065,000 San Francisco, CA Redevelopment Finance Agency, CDC Municipal Products, Inc. 4,065,000
(Series 1997T) Weekly VRDNs (Northridge Cooperative Homes)/(MBIA INS)/(CDC
Municipal Products, Inc. LIQ)
- ---------------------------------------------------------------------------------------------------------------------
2,000,000 San Francisco, CA Unified School District, 4.50% TRANs, 9/22/1999 2,019,060
- ---------------------------------------------------------------------------------------------------------------------
2,500,000 Sanger, CA Unified School District, 4.00% TRANs, 1/27/1999 2,502,878
- ---------------------------------------------------------------------------------------------------------------------
400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA Electric 400,000
System)/ (National Westminster Bank, PLC, London LOC)
- ---------------------------------------------------------------------------------------------------------------------
6,000,000 Stanislaus County, CA Office of Education, 4.50% TRANs, 7/30/1999 6,036,450
- ---------------------------------------------------------------------------------------------------------------------
325,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/(Nationsbank, 325,000
N.A., Charlotte LOC)
- ---------------------------------------------------------------------------------------------------------------------
1,000,000 Vallejo, CA Unified School District, 7.60% Bonds (FGIC INS), 8/1/1999 1,034,426
- ---------------------------------------------------------------------------------------------------------------------
1,930,000 Western Placer, CA Unified School District, 4.00% TRANs, 9/21/1999 1,940,342
- ---------------------------------------------------------------------------------------------------------------------
Total 388,293,537
- ---------------------------------------------------------------------------------------------------------------------
Puerto Rico--3.7%
- ---------------------------------------------------------------------------------------------------------------------
4,000,000 /2/Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140, 3.65% TOBs (FSA 4,000,000
INS)/(Commerzbank AG, Frankfurt LIQ), Mandatory Tender 1/14/1999
- ---------------------------------------------------------------------------------------------------------------------
9,750,000 Commonwealth of Puerto Rico, Floating Rate Trust Receipts (Series 1997) Weekly 9,750,000
VRDNs (Commerzbank AG, Frankfurt LIQ)/(Commerzbank AG, Frankfurt LOC)
- ---------------------------------------------------------------------------------------------------------------------
$ 1,115,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983 Series A), 4.00% $ 1,115,178
TOBs (Merck & Co., Inc.), Optional Tender 12/1/1998
- ---------------------------------------------------------------------------------------------------------------------
Total 14,865,178
- ---------------------------------------------------------------------------------------------------------------------
/3/Total Investments (at amortized cost) $403,158,715
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1 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, MIG-1, or MIG-2 by Moody's Investors Service, Inc. or
F-1+, F-1, and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
First Tier Second Tier
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities amounted
to $42,325,000 which represents 10.4% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($404,776,382) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CP Commercial Paper
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
HFA Housing Finance Authority
IDA Industrial Development Authority
INS Insured
LIQ Liquidity Agreement
LOC's Letter(s) of Credit
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
PCA Pollution Control Authority
PLC Public Limited Company
SA Support Agreement
TOB's Tender Option Bonds
TRAN's Tax and Revenue Anticipation Notes
VRDB Variable Rate Demand Bond
VRDN's Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at amortized cost and value $403,158,715
Cash 273,872
Income receivable 2,919,735
Receivable for shares sold 2,815
TOTAL ASSETS 406,355,137
Liabilities:
Payable for shares redeemed $1,023,729
Income distribution payable 411,217
Accrued expenses 143,809
TOTAL LIABILITIES 1,578,755
Net Assets for 404,776,382 shares outstanding $404,776,382
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Service Shares:
$363,202,187 / 363,202,187 shares outstanding $ 1.00
Institutional Shares:
$41,574,195 / 41,574,195 shares outstanding $ 1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $12,277,274
Expenses:
Investment advisory fee $ 1,757,809
Administrative personnel and services fee 265,101
Custodian fees 5,993
Transfer and dividend disbursing agent fees and expenses 132,557
Directors'/Trustees' fees 3,032
Auditing fees 12,692
Legal fees 16,004
Portfolio accounting fee 88,219
Shareholder services fee--Institutional Service Shares 774,950
Shareholder services fee--Institutional Shares 103,682
Share registration costs 55,187
Printing and postage 25,298
Insurance premiums 27,166
Miscellaneous 2,094
TOTAL EXPENSES 3,269,784
Waivers:
Waiver of investment advisory fee $(1,496,779)
Waiver of shareholder services fee--Institutional Shares (103,682)
TOTAL WAIVERS (1,600,461)
Net expenses 1,669,323
Net investment income $10,607,951
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C>
Net investment income $ 10,607,951 $ 6,655,913
Distributions to Shareholders:
Distributions From Net Investment Income:
Institutional Service Shares (9,261,806) (5,624,269)
Institutional Shares (1,346,145) (1,031,644)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (10,607,951) (6,655,913)
Share Transactions:
Proceeds from sale of shares 1,401,854,420 905,107,252
Net asset value of shares issued to shareholders in payment of distributions 5,742,314 3,335,040
declared
Cost of shares redeemed (1,279,540,519) (783,969,559)
Change in net assets resulting from share transactions 128,056,215 124,472,733
Change in net assets 128,056,215 124,472,733
Net Assets:
Beginning of period 276,720,167 152,247,434
End of period $ 404,776,382 $ 276,720,167
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1998
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 17 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 Service Shares and Institutional Shares.
The investment objective of the Fund is current income exempt from federal
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 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, 1998 is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
California Community College Financing 7/8/1998 8,000,000
California HFA, Variable Rate Certificate 9/25/1998 14,995,000
Clipper, CA Tax-Exempt Trust, 3.60% 6/24/1998 7,330,000
Commonwealth of Puerto Rico 2/4/1998-2/12/1998 4,000,000
Contra Costa County, CA Trust Receipts 7/1/1998 8,000,000
</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.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997
Institutional Service Shares:
<S> <C> <C>
Shares sold 1,284,543,045 809,738,300
Shares issued to shareholders in payment of distributions declared 5,730,676 3,272,742
Shares redeemed (1,161,835,907) (710,405,505)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS 128,437,814 102,605,537
Year Ended October 31 1998 1997
Institutional Shares:
Shares sold 117,311,375 95,368,952
Shares issued to shareholders in payment of distributions declared 11,638 62,298
Shares redeemed (117,704,612) (73,564,054)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS (381,599) 21,867,196
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 128,056,215 124,472,733
</TABLE>
At October 31, 1998, capital paid-in aggregated $404,776,382.
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, Inc. 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, 1998, the Fund engaged in purchase and sales
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 $550,207,000 and $499,025,000,
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, 1998, 59% 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.
Year 2000 (Unaudited)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Independent Public accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST AND SHAREHOLDERS OF
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, 1998, the related statement of operations for the
year ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights 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 include confirmation of securities owned as of
October 31, 1998, 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, 1998, the results of its operations for the year then
ended, the changes in its nets assets for each of the two years in the period
then ended, and its financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[FEDERATED LOGO]
World-Class Investment Manager
California Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
DECEMBER 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and semi-
annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at http://
www.sec.gov. You can call 1-800-SEC-0330 for information on the Public Reference
Room's operations and copying charges.
[FEDERATED LOGO]
California Municipal Cash Trust
Federated Investors Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp.
Investment Company Act File No. 811-5911
Cusip 314229766
G00329-01-SS (12/98)
Federated is a registered mark
of federated Investors, Inc.
1998 (C)Federated Investors, Inc. [RECYCLED PAPER LOGO]
STATEMENT OF ADDITIONAL INFORMATION
California Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for California Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling 1-
800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229675
Cusip 314229766
G00329-02 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to all of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"), MIG-1 or
MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by
Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
TAX RISK
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and California
state income tax or so that at least 80% of its net assets is invested in
obligations, the interest income from which is exempt from federal regular
income and California state income tax. This policy is fundamental and cannot be
changed without shareholder approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued California tax-exempt securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations and the Trust's Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash, or
certain money market instruments, securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
Investments in Any One Issuer
With respect to securities comprising 75% of its assets, the Fund will not
invest more than 10% of its total assets in the securities of any one issuer
(except cash and cash items, repurchase agreements collateralized by U.S.
government securities, and U.S. government obligations.) Under this limitation,
each governmental subdivision, including states, territories, possessions of the
United States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate issuer if
its assets and revenues are separate from those of the government body creating
it and the security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a non-
governmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government-issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
The above limitations cannot be changed unless authorized be the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days after notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by nationally recognized rating services,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Repub & Co., Imperial Trust Company, Los Angeles, California, owned
approximately 13,133,200 shares (28.38%); Cupertino National Bank & Trust Co.,
Palo Alto, California, owned approximately 8,712,521 shares (18.82%); Santa
Monica Bank, Santa Monica, California, owned approximately 6,166,381 shares
(13.32%); Union Safe Deposit Bank, Stockton, California, owned approximately
5,908,694 shares (12.77%), Palsan Company, California Bank and Trust, San
Francisco, California, owned approximately 4,393,034 shares (9.49%) and Bank of
Stockton, Stockton, California, owned approximately 4,231,542 shares (9.14%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Piper Jaffray Inc., for the exclusive benefit of its customers,
Minneapolis, Minnesota, owned approximately 58,841,320 shares (16.38%); Capital
Network Services, Inc., San Francisco, California, owned approximately
34,465,220 shares (9.59%) and UBS AG, Omnibus Reinvest Account, New York, New
York, owned approximately 26,239,348 shares (7.30%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing California laws, distributions made by the Fund will not be
subject to California individual income taxes to the extent that such
distributions qualify as exempt-interest dividends under the California Revenue
and Taxation Code, and provided further that at the close of each quarter, at
least 50 percent of the value of the total assets of the Fund consists of
obligations the interest on which is exempt from California taxation under
either the Constitution or laws of California or the Constitution or laws of the
United States. The Fund will furnish its shareholders with a written note
designating exempt- interest dividends within 60 days after the close of its
taxable year. Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
California individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ------------------------------- ---------------------------------------------------------- ------------------ -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESDIENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -----------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $1,757,809 $1,047,530 $501,955
Advisory Fee Reduction $1,496,779 $1,026,075 $501,955
Brokerage Commissions $ 0 $ 0 $ 0
Administrative Fee $ 265,101 $ 167,256 $145,082
Shareholder Services Fee
Institutional Shares $ 0 --- ---
Institutional Service $ 774,950 --- ---
Shares
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing fees and shareholder services fees, which are borne only by
the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on March 4, 1996
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.31% -- 3.38%
Yield 3.02% -- -- --
Effective Yield 3.06% -- -- --
Tax-Equivalent Yield 5.99% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on March 03, 1989
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.05% 2.99% 3.40%
Yield 2.77% -- -- --
Effective Yield 2.81% -- -- --
Tax-Equivalent Yield 5.50% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income
and capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning
of the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the
unannualized base-period return by: adding 1 to the base-period return, raising
the sum to the 365/7th power; and subtracting 1 from the result. The tax-
equivalent yield of Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that Shares would have had to earn to
equal the actual yield, assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally
remains free from federal regular income tax and is often free from state and
local taxes as well. However, some of the Fund's income may be subject to the
federal alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF CALIFORNIA
- -----------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 37.30% 40.30% 45.30% 48.90%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</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 1998
- -----------------------------------------------------------------------------------------------------------------------------------
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
21.00% 37.30% 40.30% 45.30% 48.90%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1 - $42,351 - $102,301 - $155,951 - OVER
RETURN 42,350 102,300 155,950 278,450 278,450
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.39% 2.51% 2.74% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91%
2.50% 3.16% 3.99% 4.19% 4.57% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78%
5.50% 6.96% 8.77% 9.21% 10.05% 10.76%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
CALIFORNIA MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Connecticut Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and Connecticut dividend and interest income
tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in
Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and Connecticut dividend and interest
income tax consistent with the stability of principal. While there is no
assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the strategies and policies described in this
prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Connecticut
dividend and interest income tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-3
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon the net
asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998, was 2.20%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 1.34% (quarter ended December 31,
1990). Its lowest quarterly return was 0.44% (quarter ended March 31,
1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.28%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.05%
5 Years 2.71%
Start of Performance 1 3.20%
1 The Fund's Institutional Service Shares start of performance date was
November 1, 1989.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
CONNECTICUT MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <S>
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of original purchase 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 (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 0.89%
1 Although not contractually obligated to do so, the adviser ahd shareholder services provider waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year
ended October 31, 1998.
Waiver of Fund Expenses 0.29%
Total Actual Annual Operating Expenses (after waivers) 0.60%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.32% for the
year ended October 31, 1998.
3 The shareholder services fee for the Fund has been voluntarily reduced. This voluntary reduction can be
terminated at any time. The shareholder service fee paid by the Fund (after the voluntary reduction) was
0.14% for the year ended October 31, 1998
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Connecticut Municipal Cash Trust with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Connecticut Municipal
Cash Trust for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Connecticut Municipal
Cash Trust operating expenses are BEFORE WAIVERS as estimated above and
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $91 $284 $493 $1,096
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Connecticut dividend and interest income
tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Connecticut. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your
Share transactions.
How is the Fund Sold?
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Connecticut taxpayers
because it invests in Connecticut tax-exempt securities. The
Distributor and its affiliates may pay out of their assets amounts
(including items of material value) to investment professionals for
marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner
of Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number,
or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives
your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends, and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Connecticut state personal income tax
to the extent they are derived from interest on obligations exempt from
Connecticut personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
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 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 2.98% 3.01% 3.02% 3.31% 2.12%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.60% 0.60% 0.60% 0.59%
Net investment income 2.93% 2.97% 2.97% 3.26% 2.11%
Expense waiver/reimbursement 2 0.29% 0.31% 0.32% 0.30% 0.18%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $339,567 $271,316 $227,089 $184,718 $190,423
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.8% 1
CONNECTICUT-91.5%
$ 10,000,000 Bridgeport, CT, UT GO, 4.25% BANs, 3/18/1999 $ 10,016,440
1,155,000 Bridgeport, CT, UT GO, 5.25% Bonds (AMBAC INS), 9/1/1999 1,175,347
10,928,041 Clipper Connecticut Tax Exempt Trust, (Series 1994-1) Weekly
VRDNs (State Street Bank and Trust Co. LIQ) 10,928,041
1,920,000 Connecticut Development Authority Weekly VRDNs (Banta
Associates)/(Marine Midland Bank N.A., Buffalo, NY LOC) 1,920,000
1,025,600 Connecticut Development Authority Weekly VRDNs (RSA Corp.)/
(Barclays Bank PLC, London LOC) 1,025,600
2,200,000 Connecticut Development Authority, (Series 1986) Weekly
VRDNs (United Illuminating Co.)/(Union Bank of Switzerland,
Zurich LOC) 2,200,000
2,300,000 Connecticut Development Authority, (Series 1993) Weekly
VRDNs (Rand-Whitney Containerboard Limited Parntership)/
(Chase Manhattan Bank N.A., New York LOC) 2,300,000
10,500,000 Connecticut Development Authority, (Series 1996A) Weekly
VRDNs (Connecticut
Light & Power Co.)/(AMBAC INS)/(Societe Generale, Paris LIQ) 10,500,000
2,555,000 Connecticut Development Authority, (Series 1997) Weekly
VRDNs (Porcelen Ltd., CT LLC)/(Star Bank, N.A., Cincinnati
LOC) 2,555,000
7,600,000 Connecticut Development Authority, (Series 1997A) Weekly
VRDNs (Bradley Airport Hotel Project)/(Kredietbank N.V.,
Brussels LOC) 7,600,000
4,000,000 Connecticut Development Authority, (Series 1998) Weekly
VRDNs (Capital District Energy Center)/(Fleet National Bank,
Springfield, MA LOC) 4,000,000
26,594,000 Connecticut Development Authority, Trust Receipts (Series
1998 FR/RI-C6) Weekly VRDNs (Exeter Energy)/(Bank of America
NT and SA, San Francisco SWP) 26,594,000
30,000 Connecticut Development Health Care Facilities Weekly VRDNs
(Independence Living)/(Chase Manhattan Bank N.A., New York
LOC) 30,000
7,900,000 Connecticut Development Health Care Facilities Weekly VRDNs
(Independence Living)/(Credit Local de France LOC) 7,900,000
9,000,000 Connecticut Municipal Electric Energy Cooperative, Power
Supply System Revenue Bonds (1995 Series A), 3.35% CP (Fleet
National Bank, Springfield, MA LOC), Mandatory Tender
11/6/1998 9,000,000
3,200,000 Connecticut State HEFA, (Series A) Weekly VRDNs (Forman
School Issue)/(National Westminster Bank, PLC, London LOC) 3,200,000
20,300,000 Connecticut State HEFA, (Series B) Weekly VRDNs (Edgehill)/
(Banque Paribas, Paris LOC) 20,300,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
CONNECTICUT-CONTINUED
$ 1,800,000 Connecticut State HEFA, (Series C) Weekly VRDNs (Charlotte
Hungerfield Hospital)/(Bank of Boston, Connecticut LOC) $ 1,800,000
11,500,000 Connecticut State HEFA, (Series J) Weekly VRDNs (Hospital of
Saint Raphael)/(Kredietbank N.V., Brussels LOC) 11,500,000
1,900,000 Connecticut State HEFA, (Series K) Weekly VRDNs (Hospital of
Saint Raphael)/(Kredietbank N.V., Brussels LOC) 1,900,000
6,500,000 Connecticut State HEFA, (Series T-2) Weekly VRDNs (Yale
University) 6,500,000
1,000,000 Connecticut State HEFA, Revenue Bonds (Series A) Weekly
VRDNs (Pomfret School Issue)/(Credit Local de France LOC) 1,000,000
1,000,000 Connecticut State HEFA, Series A Weekly VRDNs (Sharon
Hospital)/(BankBoston, N.A. LOC) 1,000,000
8,600,000 Connecticut State HEFA, Series S, 2.95% CP (Yale
University), Mandatory Tender 1/22/1999 8,600,000
5,000,000 Connecticut State HEFA, Series S, 3.35% CP (Yale
University), Mandatory Tender 11/6/1998 5,000,000
3,930,000 Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank
Nederland, Utrecht LIQ) 3,930,000
7,025,000 Connecticut State HFA, (Series 1990C), 3.05% CP (Morgan
Guaranty Trust Co., New York LIQ), Mandatory Tender 3/11/1999 7,025,000
3,245,000 Connecticut State HFA, (Series 1990D), 3.05% CP (Morgan
Guaranty Trust Co., New York LIQ), Mandatory Tender 3/11/1999 3,245,000
12,260,000 2 Connecticut State HFA, PT-1003 Weekly VRDNs (Merrill Lynch
Capital Services, Inc. LIQ) 12,260,000
2,100,000 Connecticut State HFA, Trust Receipts (Series 1998 FR/RI-A4)
Weekly VRDNs (Bayerische Hypotheken-Und Wechsel-Bank AG LIQ) 2,100,000
9,745,000 Connecticut State HFA, Variable Rate Certificates (Series
1998S), 3.50% TOBs (Bank of America NT and SA, San Francisco
LIQ), Optional Tender 8/20/1999 9,745,000
6,930,000 Connecticut State Transportation Infrastructure Authority
Weekly VRDNs (Connecticut State)/(Commerzbank AG, Frankfurt
LOC) 6,930,000
7,100,000 Connecticut State, (1997 Series B) Weekly VRDNs (Bayerische
Landesbank Girozentrale LIQ) 7,100,000
2,000,000 Connecticut State, (Series A), 6.00% Bonds, 3/1/1999 2,015,380
11,700,000 Connecticut State, Special Assessment Second Injury Fund,
3.15% CP (Caisse Nationale De Credit Agricole, Paris and
Credit Communal de Belgique, Brussles LIQs), Mandatory
Tender 11/23/1998 11,700,000
11,000,000 Connecticut State, Special Assessment Unemployment
Compensation Advance Fund, Revenue Bonds (Series 1993C),
3.60% TOBs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ),
Mandatory Tender 7/1/1999 11,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
CONNECTICUT-CONTINUED
$ 3,605,000 Connecticut State, Trust Receipts (Series 1998 FR/RI-A60),
3.45% TOBs (Bradley International Airport)/(FGIC INS)/(Bank
of New York, New York LIQ), Optional Tender 2/1/1999 $ 3,605,000
4,400,000 Connecticut State, UT GO, 4.00% Bonds, 3/15/1999 4,404,678
2,330,000 East Granby, CT, 3.75% BANs, 8/12/1999 2,332,618
7,900,000 East Haven, CT, 3.65% BANs, 7/15/1999 7,906,372
1,080,000 Fairfield, CT, 6.00% Bonds, 1/1/1999 1,083,947
11,900,000 Hartford, CT Redevelopment Authority Weekly VRDNs (Underwood
Towers)/(FSA INS)/(Barclays Bank PLC, London LIQ) 11,900,000
700,000 Hartford, CT, 4.00% BANs, 1/28/1999 700,487
8,500,000 New Britain, CT, 3.70% BANs, 4/13/1999 8,504,514
1,500,000 New Haven, CT Weekly VRDNs (Starter Sportswear)/(Fleet Bank
N.A. LOC) 1,500,000
10,000,000 New Haven, CT, 3.90% BANs, 2/1/1999 10,004,891
3,335,000 Plymouth, CT, 3.75% BANs, 8/5/1999 3,338,655
1,500,000 Rocky Hill, CT, 3.50% BANs, 6/15/1999 1,502,698
1,800,000 Shelton, CT Housing Authority, (Series 1998) Weekly VRDNs
(Crosby Commons)/(First Union National Bank, Charlotte,
N.C. LOC) 1,800,000
8,000,000 South Central CT Regional Water Authority, 4.00% BANs,
7/28/1999 8,023,648
798,000 Southeastern CT Water Authority, 3.70% BANs (Connecticut
State GTD), 3/18/1999 798,144
7,500,000 Stamford, CT Housing Authority, Multi-Modal Interchangeable
Rate Revenue Bonds (Series 1994) Weekly VRDNs (Morgan Street
Project)/(Deutsche Bank, AG LOC) 7,500,000
Total 310,500,460
PUERTO RICO-8.3%
16,291,598 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) 16,291,598
3,000,000 2 Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank AG, Frankfurt LIQ),
Mandatory Tender 1/14/1999 3,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PUERTO RICO-CONTINUED
6,000,000 Commonwealth of Puerto Rico, Municipal Securities Trust
Receipts, (Series 1998-CMC4) Weekly VRDNs (MBIA INS)/(Chase
Manhattan Corp. LIQ) 6,000,000
3,000,000 Puerto Rico Highway and Transportation Authority, PA-284
Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 3,000,000
Total 28,291,598
Total Investments (at amortized cost) 3 $ 338,792,058
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 24.9% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited).
FIRST TIER SECOND TIER
100% 0%
2 Denotes a restricted security which is subject to restriction on resales
under federal securities laws. At October 31, 1998, these securities
amounted to $15,260,000 which represents 4.5% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($339,566,645) at October 31, 1998.
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
GTD -Guaranty
HEFA -Health and Education Facilities Authority
HFA -Housing Finance Authority
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PLC -Public Limited Company
SA -Support Agreement
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 338,792,058
Cash 588,660
Income receivable 805,231
Prepaid expenses 6,866
Total assets 340,192,815
LIABILITIES:
Income distribution payable 564,055
Accrued expenses 62,115
Total liabilities 626,170
NET ASSETS for 339,566,645 shares outstanding $ 339,566,645
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$339,566,645 / 339,566,645 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 11,490,107
EXPENSES:
Investment advisory fee $ 1,625,027
Administrative personnel and services fee 245,077
Custodian fees 13,117
Transfer and dividend disbursing agent fees and expenses 50,748
Directors'/Trustees' fees 2,338
Auditing fees 12,000
Legal fees 18,603
Portfolio accounting fees 73,525
Shareholder services fee 812,514
Share registration costs 21,367
Printing and postage 20,507
Insurance premiums 17,946
Miscellaneous 4,448
Total expenses 2,917,217
WAIVERS:
Waiver of investment advisory fee $ (595,412)
Waiver of shareholder services fee (357,506)
Total waivers (952,918)
Net expenses 1,964,299
Net investment income $ 9,525,808
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 9,525,808 $ 7,830,678
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (9,525,808) (7,830,678)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,057,554,443 889,231,384
Net asset value of shares issued to shareholders in payment
of distributions declared 3,189,470 2,819,845
Cost of shares redeemed (992,493,610) (847,823,630)
Change in net assets resulting from share transactions 68,250,303 44,227,599
Change in net assets 68,250,303 44,227,599
NET ASSETS:
Beginning of period 271,316,342 227,088,743
End of period $ 339,566,645 $ 271,316,342
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. Many restricted securities may be resold in the
secondary market in transactions exempt from registration. In some cases,
the restricted securities may be resold without registration upon exercise
of a demand feature. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees ("Trustees").
The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule
2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31,
1998, is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Connecticut State HFA
PT-1003 11/14/1997 - 7/27/1998 $12,260,000
Commonwealth of
Puerto Rico
(Series 1992A)
P-Floats PT-140 2/12/1998 3,000,000
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).
At October 31, 1998, capital paid-in aggregated $339,566,645. Transactions
in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
Shares sold 1,057,554,443 889,231,384
Shares issued to shareholders in payment of distributions
declared 3,189,470 2,819,845
Shares redeemed (992,493,610) (847,823,630)
Net change resulting from share transactions 68,250,303 44,227,599
</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, Inc.
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, 1998, the Fund engaged in purchase
and sale transactions with funds that have a common investment adviser
(or affiliated investment advisors), 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
$491,040,000 and $428,445,000, 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, 1998, 48.2% 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 6.0% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Connecticut Municipal
Cash Trust
PROSPECTUS
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by
visiting or writing the Public Reference Room of the Securities and
Exchange Commission in Washington, DC 20549-6009 or from the Commission's
Internet site at http://www.sec.gov. You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying charges.
[Graphic]
Connecticut Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229105
9101004A-SS (12/98)
[Graphic]
Statement of Additional Information December 31, 1998
Connecticut Municipal Cash Trust
A Portfolio of Federated Municipal Trust
Institutional Service Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Connecticut Municipal Cash
Trust dated December 31, 1998. Obtain the prospectus without charge by
calling 1-800-341-7400.
-----------------------------------------------------------------------------
Table of Contents
-----------------------------------------------------------------------------
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides
Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229105
9101004B-SS (12/98)
HOW IS THE FUND ORGANIZED?
================================================================================
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund, known as Institutional Service Shares (Shares).
SECURITIES IN WHICH THE FUND INVESTS
================================================================================
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings A nationally recognized rating service's two highest rating
categories are determined without regard for sub-categories and gradations. For
example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"),
MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or
F-2 by Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one rating
service can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two rating services in
one of their two highest rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
TAX RISK
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and Connecticut
dividend and interest income tax. This policy is fundamental and cannot be
changed without shareholder approval.
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.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may acquire publicly or
nonpublicly issued Connecticut tax-exempt 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.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund 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 Board, 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 for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
HOW IS THE FUND SOLD?
================================================================================
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
SUBACCOUNTING SERVICES
================================================================================
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
================================================================================
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV.
The portfolio securities will be selected in a manner that the Fund's Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
- --------------------------------------------------------------------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
================================================================================
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Fleet Securities Corp., Rochester, New York, owned approximately
86,541,323 shares (23.56%) and First Union National Bank (trust accounts),
Charlotte, North Carolina, owned approximately 55,983,095 shares (15.24%).
TAX INFORMATION
================================================================================
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
================================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Institutional Service Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ------------------------------- ---------------------------------------------------------- ------------------ -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESDIENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and
its affiliates exercise reasonable business judgment in selecting those brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
------------------ -----------------------------
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year ended
October 31,
1998 1997 1996
Advisory Fee Earned....... $1,625,027 $1,319,478 $1,125,360
Advisory Fee Reduction.... $ 595,412 $ 518,584 $ 468,496
Brokerage Commissions..... $ 0 $ 0 $ 0
Administrative Fee........ $ 245,077 $ 199,252 $ 170,171
Shareholder Services Fee.. $ 455,008 --- ---
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
================================================================================
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon
such variables as: portfolio quality; average portfolio maturity; type and value
of portfolio securities; changes in interest rates; changes or differences in
the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-year, five-year and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on
November 1, 1989
Institutional Service Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 2.98% 2.89% 3.18%
Yield 2.63% -- -- --
Effective Yield 2.67% -- -- --
Tax-Equivalent Yield 4.78% -- -- --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF CONNECTICUT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE:19.50% 32.50% 35.50% 40.50% 44.10%
- -------------------------------------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951 OVER
RETURN: 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN: 25,350 61,400 128,100 278,450 $278,450
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.22% 2.33% 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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
WHO IS FEDERATED INVESTORS, INC.?
================================================================================
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of tax-exempt
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
Equity Funds In the equity sector, Federated has more than 27 years'
experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--
is backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the asset-
backed securities market, a market totaling more than $200 billion.
Government Funds In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
Money Market Funds In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund.
As of December 31, 1997, Federated managed more than $63.1 billion in assets
across 51 money market funds, including 18 government, 11 prime and 22
municipal with assets approximating $35 billion, $17.1 billion and $10.9
billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Bank Marketing Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the country--
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
INVESTMENT RATINGS
================================================================================
APPENDIX
Standard & Poor's Short-Term Municipal Obligation Ratings
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
Commercial Paper (CP) Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
Long-Term Debt Ratings
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Moody's Investors Service, Inc., Short-Term Municipal Obligation Ratings
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
Commercial Paper (CP) Ratings
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Long-Term Debt Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
Fitch Investors Service, L.P. Short-Term Debt Rating Definitions
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
ADDRESSES
================================================================================
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 Auditors
Arthur Andersen LLP 225 Franklin Street
Boston, MA 02110-2812
- --------------------------------------------------------------------------------
PROSPECTUS
Florida Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
A money market mutual fund seeking current income exempt from federal
regular income tax and the Florida intangibles tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities
in Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 24
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax consistent with stability of
principal and liquidity and to maintain an investment portfolio that will
cause its Shares to be exempt from the Florida state intangibles tax. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the Florida
intangibles tax. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-4
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Cash II Shares
total returns on a yearly basis.
The Fund's Cash II Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Cash II Shares year-to-date total return as of the most recent
calendar quarter of September 30, 1998, was 2.08%.
Within the period shown in the Chart, the Fund's Cash II Shares highest
quarterly return was 0.77% (quarter ended June 30, 1997 and December 31,
1997). Its lowest quarterly return was 0.66% (quarter ended March 31,
1997).
The Fund's Cash II Shares Seven-Day Net Yield as of 12/31/97 was 3.19%.
The following table represents the Fund's Cash II Shares Average Annual
Total Return through 12/31/97.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 2.97%
Start of Performance 1 2.99%
</TABLE>
1 The Fund's Cash II Shares start of performance date was November 27,
1995.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
FLORIDA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy, hold
and redeem shares of the Fund's Cash II Shares.
<TABLE>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 1.04%
</TABLE>
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
Waiver of Fund Expenses 0.19%
Total Actual Annual Fund Operating Expenses (after waivers) 0.85%
</TABLE>
2 The adviser voluntary waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management
fee paid by the Fund (after the voluntary waiver) was 0.26% for the
year ended October 31, 1998.
3 The distribution (12b-1) fee for the Fund has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary reduction) was 0.20%
for the fiscal year ended October 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of
investing in the Florida Municipal Cash Trust's Cash II Shares with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Cash II Shares
for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a
5% return each year and that the Florida Municipal Cash Trust's Cash II
Shares operating expenses are BEFORE WAIVERS as shown above and remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $106 $331 $574 $1,271
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the Florida intangibles tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Florida. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep
in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Cash II Shares
each representing interests in a single portfolio of securities.
This prospectus relates only to Cash II Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment
professionals. The Fund may not be a suitable investment for retirement
plans or for non-Florida taxpayers because it invests in Florida tax-exempt
securities. When the Distributor receives marketing fees, it may pay some
or all of them to investment professionals. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Cash II Shares. Because
these Shares pay marketing fees on an ongoing basis, your investment cost
may be higher over time than other shares with different sales charges and
marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment
professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).
You will receive that day's dividend if the investment professional
forwards the order to the Fund and the Fund receives payment by 3:00 p.m.
(Eastern time). You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distributions in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from the Florida intangibles tax to the
extent they are derived from interest on obligations exempt from the
Florida intangibles tax. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.Year 2000 problems would also increase the risks of the Fund's
investments. To assess the potential effect of the Year 2000 problem, the
Adviser is reviewing information regarding the Year 2000 readiness of
issuers of securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Cash II Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1
<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 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD: $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 2.83% 2.94% 2.80%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.85% 0.80% 0.65% 3
Net investment income 2.83% 2.88% 3.07% 3
Expense waiver/reimbursement 4 0.19% 0.24% 0.43% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $71,839 $62,756 $31,824
</TABLE>
1 Reflects operations for the period from November 27, 1995 (date of
initial public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.5% 1
ALABAMA-1.7%
$ 2,000,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) $ 2,000,000
1,900,000 Gadsen, AL IDB, IDRB's (Series 1997) Weekly VRDNs (Chicago
Steel, (Alabama), LLC)/(Marshall & Ilsley Bank, Milwaukee
LOC) 1,900,000
Total 3,900,000
CALIFORNIA-2.6%
6,000,000 Los Angeles County, CA Unified School District, Trust
Receipts FR/RI-A26, 3.60% TOBs (Bank of New York, New York
LIQ), Mandatory Tender 12/9/1998 6,000,000
COLORADO-1.5%
3,380,000 Colorado HFA, MERLOTS (Series C), 3.40% TOBs (Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 11/1/1998 3,380,000
FLORIDA-82.2%
550,000 Brevard County, FL, Greywater Investments II, Ltd 1997
Weekly VRDNs (Greywater Investments)/(Huntington National
Bank, Columbus, OH LOC) 550,000
2,755,000 Broward County, FL HFA, (CR-5), 3.85% TOBs (GNMA COL)/
(Citibank NA, New York LIQ), Optional Tender 11/1/1998 2,755,000
700,000 Broward County, FL HFA, (Series 1997) Weekly VRDNs
(Jacaranda Village Apartments)/(Marine Midland Bank N.A.,
Buffalo, NY LOC) 700,000
1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs
(American Whirlpool Products Corp. Project)/(Nationsbank,
N.A., Charlotte LOC) 1,130,000
1,000,000 Broward County, FL, IDRB's (Series 1997) Weekly VRDNs (Fast
Real Estate Partners, Ltd.)/(SunTrust Bank, Central Florida
LOC) 1,000,000
7,665,000 Clipper, FL Tax-Exempt Trust, Class A Certificates of
Participation, Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State Street Bank and Trust Co. LOC) 7,665,000
9,635,000 Dade County, FL, PT-1083 Weekly VRDNs (Miami International
Airport)/(FSA INS)/(Merrill Lynch Capital Services, Inc.
LOC) 9,635,000
1,710,000 Escambia County, FL HFA, P-Floats PA-129 Weekly VRDNs (GNMA
COL)/(Merrill Lynch Capital Services, Inc. LIQ) 1,710,000
8,675,000 2 Escambia County, FL HFA, PT-121, 3.75% TOBs (GNMA COL)/
(Banco Santander LIQ), Mandatory Tender 3/11/1999 8,675,000
5,220,000 Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series
1996-3) Weekly VRDNs (GNMA COL)/(Banco Santander LIQ) 5,220,000
4,570,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series
M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC
Bank, N.A. LOC) 4,570,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
FLORIDA-CONTINUED
$ 4,000,000 Florida HFA, Series OO, Oaks at Mill Creek Project, 3.85%
TOBs (Oaks at Mills Creek)/(Chase Manhattan Bank N.A., New
York LOC), Mandatory Tender 11/1/1998 $ 4,000,000
4,465,000 Florida HFA, Trust Receipts, Series 1998 FR/RI-12 Weekly
VRDNs (MBIA INS)/(Bank of New York, New York LIQ) 4,465,000
19,550,000 2 Florida State Board of Education Administration, Trust
Receipts (Series 1998 A-64), 3.45% TOBs (FGIC INS)/(Bank of
New York, New York LIQ), Optional Tender 2/1/1999 19,550,000
1,000,000 Florida State Department of Environmental Protection, Trust
Receipts FR/RI-A18
(Series 1998) Weekly VRDNs (FGIC INS)/(National Westminster
Bank, PLC, London LIQ) 1,000,000
1,375,000 Greater Orlando (FL) Aviation Authority, Adjustable Rate
(Series 1997), 3.90% TOBs (Signature Flight Support Corp.)/
(Bayerische Landesbank Girozentrale LOC), Optional Tender
12/1/1998 1,375,000
7,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities
Subordinated CP Notes (Series B), 3.15% CP, Mandatory Tender
1/25/1999 7,000,000
10,312,000 Greater Orlando (FL) Aviation Authority, Airport Facilities
Subordinated CP Notes (Series B), 3.50% CP, Mandatory Tender
12/28/1998 10,311,897
4,500,000 Hillsborough County, FL Aviation Authority, Bond
Anticipation Comercial Paper Notes, 3.25% CP (Tampa
International Airport)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 2/10/1999 4,500,000
2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager
Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000
1,390,000 Hillsborough County, FL IDA, IDRB's (Series 1996) Weekly
VRDNs (VIGO Importing Company Project)/(Barnett Bank, N.A.
LOC) 1,390,000
1,115,000 Hillsborough County, FL IDA, Variable Rate Demand IRDB's
(Series 1996) Weekly
VRDNs (Trident Yacht Building Partnership Project)/(First
Union National Bank,
Charlotte, N.C. LOC) 1,115,000
4,100,000 Hillsborough County, FL IDA, Variable Rate IDRB's (Series
1998) Weekly VRDNs (SIFCO Industries, Inc.)/(National City
Bank, Ohio LOC) 4,100,000
4,080,000 Indian River County, FL, IDRB's (Series 1997) Weekly VRDNs
(Ocean Spray
Cranberries, Inc.)/(Wachovia Bank of NC, NA, Winston-Salem
LOC) 4,080,000
6,500,000 Jacksonville, FL IDA, IDRBs (series 1996) Weekly VRDNs
(Portion Pac, Inc.)/(Heinz (H.J.) Co. GTD) 6,500,000
600,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City
Bank, Kentucky LOC) 600,000
3,200,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader
North America Corp.)/(Deutsche Bank, AG LOC) 3,200,000
1,500,000 Lynn Haven, FL, (Series 1998A) Weekly VRDNs (Merrick
Industries, Inc.)/(Bank One,
Ohio, N.A. LOC) 1,500,000
5,500,000 Manatee County, FL, IDR Improvement Bonds (Series 1998 B)
Weekly VRDNs
(CFI Manufacturing, Inc. Project)/(Huntington National Bank,
Columbus, OH LOC) 5,500,000
2,700,000 Manatee County, FL, Variable/Fixed Rate IDRB's (Series 1998)
Weekly VRDNs
(Mader Electric, Inc.)/(SouthTrust Bank of Alabama,
Birmingham LOC) 2,700,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM MUNICIPALS-continued 1
FLORIDA-CONTINUED
<C> <S> <C>
$ 2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds
(Series 1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust Banks, Inc. LOC) $ 2,400,000
2,100,000 Okeechobee County, FL, (Series 1992) Weekly VRDNs (Morgan
Guaranty Trust Co.,
New York LOC) 2,100,000
5,893,000 Orange County, FL HFA, (Series 1997A) Weekly VRDNs (Regal
Pointe Apartments Project)/(Nationsbank, N.A., Charlotte
LOC) 5,893,000
5,000,000 Orange County, FL HFA, (Series 1998 D) Weekly VRDNs (Falcon
Trace Apartments)/(Amsouth Bank N.A., Birmingham LOC) 5,000,000
12,500,000 Orange County, FL School District, (Series 1998), 3.10%
TANs, 9/15/1999 12,520,059
6,200,000 Orlando, FL (City of), Capital Improvement Commerial Paper
Notes, (1994 Series-A), 3.10% CP, Mandatory Tender 2/11/1999 6,200,000
6,000,000 Osceola County, FL HFA, Multifamily Housing Revenue Bonds
(Series 1998A) Weekly VRDNs (Arrow Ridge Apartments)/
(Amsouth Bank N.A., Birmingham LOC) 6,000,000
3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994)
Weekly VRDNs (Genca Corporation Project)/(PNC Bank, N.A.
LOC) 3,500,000
2,453,000 Pinellas County Industry Council, FL, IDRB (Series 1995)
Weekly VRDNs (ATR International Inc., Project)/(First Union
National Bank, Charlotte, N.C. LOC) 2,453,000
65,000 Pinellas County Industry Council, FL, Variable/Fixed Rate
Development Revenue Bonds (Series 1997) Weekly VRDNs (Boyd
Industries, Inc.)/(SouthTrust Bank of Alabama, Birmingham
LOC) 65,000
3,300,000 Pinellas County, FL HFA, Single Family Housing Revenue Bonds
(1998 Series B), 3.70% TOBs (Trinity Funding Co.), Mandatory
Tender 2/1/1999 3,300,000
1,740,000 Pinellas County, FL Health Facility Authority, SFM Revenue
Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch
Capital Services, Inc. LIQ) 1,740,000
1,520,000 Sarasota County, FL IDRB, IDRB (Series 1994) Monthly VRDNs
(Resource Recovery Systems of Sarasota Project)/(Fleet
National Bank, Springfield, MA LOC) 1,520,000
1,100,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood
Preserving Co.)/(SouthTrust Bank of Alabama, Birmingham LOC) 1,100,000
3,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum
& Glass Co., Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 3,300,000
2,600,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc.
Project)/(Barnett Bank,
N.A. LOC) 2,600,000
Total 188,187,956
LOUISIANA-4.1%
9,420,000 Louisiana HFA, MERLOTS (Series 1988A), 3.90% TOBs (GNMA
COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional
Tender 11/1/1998 9,420,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MINNESOTA-1.9%
$ 4,420,000 Dakota County & Washington County MN Housing & Redevelopment
Authority, MERLOTs (Series J), 3.80% TOBs (United States
Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1998 $ 4,420,000
TEXAS-5.5%
2,400,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds
(Series 1993), 3.90% CP (Temple-Eastex Inc.)/(Temple-Inland,
Inc. GTD), Mandatory Tender 11/9/1998 2,400,000
2,600,000 Angelina and Neches River Authority, Texas, Waste Disposal
Revenue Bonds (Series 1998), 3.80% CP (Temple-Inland Forest
Products Corp.)/(Temple-Inland, Inc. GTD), Mandatory Tender
11/6/1998 2,600,000
7,500,000 Harris County, TX HFDC, Revenue Refunding Bonds (Series
1986), 4.50% CP (Young Men's Christian Association of the
Greater Houston Area)/(Bank of Tokyo-Mitsubishi Ltd. LOC),
Mandatory Tender 11/12/1998 7,500,000
Total 12,500,000
Total Investments (at amortized cost) 3 $ 227,807,956
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 74.5% of
the portfolio as calculated upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $28,225,000 which represents 12.3% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($229,032,990) at October 31, 1998.
The following acronyms are used throughout this portfolio:
COL -Collateralized
CP -Commercial Paper
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
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts-Liquidity Optional Tender Series
PAC -Planned Amortization Class
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 227,807,956
Cash 502,337
Income receivable 1,258,999
Receivable for shares sold 6,544
Prepaid expenses 16,981
Deferred organizational costs 4,163
Other assets 7,539
Total assets 229,604,519
LIABILITIES:
Payable for shares redeemed $ 45,172
Income distribution payable 461,424
Accrued expenses 64,933
Total liabilities 571,529
Net Assets for 229,032,990 shares outstanding $ 229,032,990
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$157,193,583 / 157,193,583 shares outstanding $1.00
CASH II SHARES:
$71,839,407/71,839,407 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C>
<C>
INVESTMENT INCOME:
Interest $
18,486,082
EXPENSES:
Investment advisory fee $
2,032,071
Administrative personnel and services fee
383,094
Custodian fees
6,855
Transfer and dividend disbursing agent fees and expenses
67,532
Directors'/Trustees' fees
4,449
Auditing fees
12,500
Legal fees
15,686
Portfolio accounting fees
102,872
Distribution services fee-Cash II Shares
297,018
Shareholder services fee-Institutional Shares
973,027
Shareholder services fee-Cash II Shares
297,018
Share registration costs
25,571
Printing and postage
29,087
Insurance premiums
50,385
Miscellaneous
10,902
Total expenses
4,308,067
WAIVERS:
Waiver of investment advisory fee $ (686,562)
Waiver of distribution services fee-Cash II Shares (59,404)
Waiver of shareholder services fee-Institutional Shares (233,527)
Total waivers (979,493)
Net expenses
3,328,574
Net investment income $
15,157,508
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998
1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 15,157,508 $ 18,019,018
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (11,792,073) (15,508,497)
Cash II Shares (3,365,435) (2,510,521)
Change in net assets resulting from distributions to
shareholders (15,157,508) (18,019,018)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,197,187,196 1,742,878,407
Net asset value of shares issued to shareholders in payment
of distributions declared 7,838,269 11,374,153
Cost of shares redeemed (2,518,608,888) (1,744,452,792)
Change in net assets resulting from share transactions (313,583,423) 9,799,768
Change in net assets (313,583,423) 9,799,768
NET ASSETS:
Beginning of period 542,616,413 532,816,645
End of period $ 229,032,990 $ 542,616,413
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 investment 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,
1998, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Escambia County, FL
HFA, PT-121, 3.75% 8/19/1997-
9/18/1998 $ 8,675,000
Florida State Board of Education 9/30/1998 19,550,000
</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 1998 1997
<S> <C> <C>
CASH II SHARES
Shares sold 645,934,032 334,505,856
Shares issued to shareholders in payment of
distributions declared 147,766 4,443
Shares redeemed (636,998,304) (303,578,126)
Net change resulting from Cash II share transactions 9,083,494 30,932,173
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 1,551,253,164 1,408,372,551
Shares issued to shareholders in payment
of distributions declared 7,690,503 11,369,710
Shares redeemed (1,881,610,584) (1,440,874,666)
Net change resulting from Institutional share transactions (322,666,917) (21,132,405)
Net change resulting from share transactions (313,583,423) 9,799,768
</TABLE>
At October 31, 1998, capital paid-in aggregated $229,032,990.
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, Inc.
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 Class II Shares. The Plan provides
that the Fund may incur distribution expenses according to the following
schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NET ASSETS OF CLASS
<S> <C>
Institutional Shares 0.25%
Class II Shares 0.25%
</TABLE>
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.
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
effective date.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $1,568,341,160 and
$1,877,477,340, 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, 1998, 58% of the securities in
the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 9% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely
affected if the computer systems used by the Trust's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Trust's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Trust's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Trust.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Florida Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and
semi-annual report and other information without charge call your
investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information
on the Public Reference Room's operations and copying charges.
[Graphic]
Florida Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229683
G00537-02-CII (12/98)
[Graphic]
[Graphic]
PROSPECTUS
Florida Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the Florida intangibles tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
Contents
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities
in Which the Fund Invests? 3
What are the Specific Risks of
Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 24
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax consistent with stability of
principal and liquidity and to maintain an investment portfolio that will
cause its shares to be exempt from the Florida state intangibles tax. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the Florida
intangibles tax. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-5
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998, was 2.28%.
Within the period shown in the Chart, the Fund's Institutional Shares
highest quarterly return was 0.93% (quarter ended June 30, 1995). Its
lowest quarterly return was 0.72% (quarter ended March 31, 1997).
The Fund's Institutional Shares Seven-Day Net Yield as of 12/31/97
was 3.45%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.23%
Start of Performance 1 3.33%
1 The Fund's Institutional Shares start of performance date was September
21, 1994.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
FLORIDA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 4 0.25%
Other Expenses 0.12%
Total Annual Fund Operating Expenses 1.02%
1 Although not contractually obligated to do so, the adviser, distributor,
and shareholder services provider waived certain amounts. These are shown
below along with the net expenses the Fund actually paid for the fiscal
year ended October 31, 1998.
Waiver of Fund Expenses 0.44%
Total Actual Annual Fund Operating Expenses (after waivers) 0.58%
2 The adviser voluntary waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management
fee paid by the Fund (after the voluntary waiver) was 0.27% for the year
ended October 31, 1998.
3 The Fund did not pay or accrue the distribution (12b-1) fee during
the fiscal year ended October 31, 1998. The Fund has no present
intention of paying or accruing the distribution (12b-1) fee
during the fiscal year ending October 31, 1999.
4 The shareholder services fee for the Fund has been voluntarily
reduced. This voluntary reduction can be terminated at any time.
The shareholder services fee paid by the Fund (afte the voluntary
reduction) was 0.19% for the fiscal year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Florida Municipal Cash Trust's Institutional Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Florida Municipal Cash Trust's
Institutional Shares' operating expenses are BEFORE WAIVERS as shown above
and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $104 $325 $563 $1,248
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality, tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the Florida intangibles tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed-income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Florida. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Cash II Shares
each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Florida taxpayers
because it invests in Florida tax-exempt securities. When the Distributor
receives marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution, and customer servicing of the Fund's Institutional Shares.
Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different
sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment
professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund receives
payment by 3:00 p.m. (Eastern time). You will become the owner of Shares
and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by A PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promtply submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including
the day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange. A
NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve
System member.Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including dividends and capital
gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from the Florida intangibles tax to the
extent they are derived from interest on obligations exempt from the
Florida intangibles tax. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights-Institutional Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994 1
<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 0.04 0.004
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.004)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.09% 3.20% 3.20% 3.60% 0.35%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.58% 0.54% 0.49% 0.45% 0.28% 3
Net investment income 2.96% 3.15% 3.17% 3.58% 3.28% 3
Expense waiver/reimbursement 4 0.19% 0.25% 0.34% 0.42% 1.03% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $157,194 $479,860 $500,993 $153,347 $53,966
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.5% 1
ALABAMA-1.7%
$ 2,000,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) $ 2,000,000
1,900,000 Gadsen, AL IDB, IDRB's (Series 1997) Weekly VRDNs (Chicago
Steel, (Alabama), LLC)/(Marshall & Ilsley Bank, Milwaukee
LOC) 1,900,000
Total 3,900,000
CALIFORNIA-2.6%
6,000,000 Los Angeles County, CA Unified School District, Trust
Receipts FR/RI-A26, 3.60% TOBs (Bank of New York, New York
LIQ), Mandatory Tender 12/9/1998 6,000,000
COLORADO-1.5%
3,380,000 Colorado HFA, MERLOTS (Series C), 3.40% TOBs (Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 11/1/1998 3,380,000
FLORIDA-82.2%
550,000 Brevard County, FL, Greywater Investments II, Ltd 1997
Weekly VRDNs (Greywater Investments)/(Huntington National
Bank, Columbus, OH LOC) 550,000
2,755,000 Broward County, FL HFA, (CR-5), 3.85% TOBs (GNMA COL)/
(Citibank NA, New York LIQ), Optional Tender 11/1/1998 2,755,000
700,000 Broward County, FL HFA, (Series 1997) Weekly VRDNs
(Jacaranda Village Apartments)/(Marine Midland Bank N.A.,
Buffalo, NY LOC) 700,000
1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs
(American Whirlpool Products Corp. Project)/(Nationsbank,
N.A., Charlotte LOC) 1,130,000
1,000,000 Broward County, FL, IDRB's (Series 1997) Weekly VRDNs (Fast
Real Estate Partners, Ltd.)/(SunTrust Bank, Central Florida
LOC) 1,000,000
7,665,000 Clipper, FL Tax-Exempt Trust, Class A Certificates of
Participation, Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State Street Bank and Trust Co. LOC) 7,665,000
9,635,000 Dade County, FL, PT-1083 Weekly VRDNs (Miami International
Airport)/(FSA INS)/(Merrill Lynch Capital Services, Inc.
LOC) 9,635,000
1,710,000 Escambia County, FL HFA, P-Floats PA-129 Weekly VRDNs (GNMA
COL)/(Merrill Lynch Capital Services, Inc. LIQ) 1,710,000
8,675,000 2 Escambia County, FL HFA, PT-121, 3.75% TOBs (GNMA COL)/
(Banco Santander LIQ), Mandatory Tender 3/11/1999 8,675,000
5,220,000 Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series
1996-3) Weekly VRDNs (GNMA COL)/(Banco Santander LIQ) 5,220,000
4,570,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series
M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC
Bank, N.A. LOC) 4,570,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
FLORIDA-CONTINUED
$ 4,000,000 Florida HFA, Series OO, Oaks at Mill Creek Project, 3.85%
TOBs (Oaks at Mills Creek)/(Chase Manhattan Bank N.A., New
York LOC), Mandatory Tender 11/1/1998 $ 4,000,000
4,465,000 Florida HFA, Trust Receipts, Series 1998 FR/RI-12 Weekly
VRDNs (MBIA INS)/(Bank of New York, New York LIQ) 4,465,000
19,550,000 2 Florida State Board of Education Administration, Trust
Receipts (Series 1998 A-64), 3.45% TOBs (FGIC INS)/(Bank of
New York, New York LIQ), Optional Tender 2/1/1999 19,550,000
1,000,000 Florida State Department of Environmental Protection, Trust
Receipts FR/RI-A18
(Series 1998) Weekly VRDNs (FGIC INS)/(National Westminster
Bank, PLC, London LIQ) 1,000,000
1,375,000 Greater Orlando (FL) Aviation Authority, Adjustable Rate
(Series 1997), 3.90% TOBs (Signature Flight Support Corp.)/
(Bayerische Landesbank Girozentrale LOC), Optional Tender
12/1/1998 1,375,000
7,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities
Subordinated CP Notes (Series B), 3.15% CP, Mandatory Tender
1/25/1999 7,000,000
10,312,000 Greater Orlando (FL) Aviation Authority, Airport Facilities
Subordinated CP Notes (Series B), 3.50% CP, Mandatory Tender
12/28/1998 10,311,897
4,500,000 Hillsborough County, FL Aviation Authority, Bond
Anticipation Comercial Paper Notes, 3.25% CP (Tampa
International Airport)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 2/10/1999 4,500,000
2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager
Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000
1,390,000 Hillsborough County, FL IDA, IDRB's (Series 1996) Weekly
VRDNs (VIGO Importing Company Project)/(Barnett Bank, N.A.
LOC) 1,390,000
1,115,000 Hillsborough County, FL IDA, Variable Rate Demand IRDB's
(Series 1996) Weekly
VRDNs (Trident Yacht Building Partnership Project)/(First
Union National Bank,
Charlotte, N.C. LOC) 1,115,000
4,100,000 Hillsborough County, FL IDA, Variable Rate IDRB's (Series
1998) Weekly VRDNs (SIFCO Industries, Inc.)/(National City
Bank, Ohio LOC) 4,100,000
4,080,000 Indian River County, FL, IDRB's (Series 1997) Weekly VRDNs
(Ocean Spray
Cranberries, Inc.)/(Wachovia Bank of NC, NA, Winston-Salem
LOC) 4,080,000
6,500,000 Jacksonville, FL IDA, IDRBs (series 1996) Weekly VRDNs
(Portion Pac, Inc.)/(Heinz (H.J.) Co. GTD) 6,500,000
600,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City
Bank, Kentucky LOC) 600,000
3,200,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader
North America Corp.)/(Deutsche Bank, AG LOC) 3,200,000
1,500,000 Lynn Haven, FL, (Series 1998A) Weekly VRDNs (Merrick
Industries, Inc.)/(Bank One,
Ohio, N.A. LOC) 1,500,000
5,500,000 Manatee County, FL, IDR Improvement Bonds (Series 1998 B)
Weekly VRDNs
(CFI Manufacturing, Inc. Project)/(Huntington National Bank,
Columbus, OH LOC) 5,500,000
2,700,000 Manatee County, FL, Variable/Fixed Rate IDRB's (Series 1998)
Weekly VRDNs
(Mader Electric, Inc.)/(SouthTrust Bank of Alabama,
Birmingham LOC) 2,700,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM MUNICIPALS-continued 1
FLORIDA-CONTINUED
<C> <S> <C>
$ 2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds
(Series 1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust Banks, Inc. LOC) $ 2,400,000
2,100,000 Okeechobee County, FL, (Series 1992) Weekly VRDNs (Morgan
Guaranty Trust Co.,
New York LOC) 2,100,000
5,893,000 Orange County, FL HFA, (Series 1997A) Weekly VRDNs (Regal
Pointe Apartments Project)/(Nationsbank, N.A., Charlotte
LOC) 5,893,000
5,000,000 Orange County, FL HFA, (Series 1998 D) Weekly VRDNs (Falcon
Trace Apartments)/(Amsouth Bank N.A., Birmingham LOC) 5,000,000
12,500,000 Orange County, FL School District, (Series 1998), 3.10%
TANs, 9/15/1999 12,520,059
6,200,000 Orlando, FL (City of), Capital Improvement Commerial Paper
Notes, (1994 Series-A), 3.10% CP, Mandatory Tender 2/11/1999 6,200,000
6,000,000 Osceola County, FL HFA, Multifamily Housing Revenue Bonds
(Series 1998A) Weekly VRDNs (Arrow Ridge Apartments)/
(Amsouth Bank N.A., Birmingham LOC) 6,000,000
3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994)
Weekly VRDNs (Genca Corporation Project)/(PNC Bank, N.A.
LOC) 3,500,000
2,453,000 Pinellas County Industry Council, FL, IDRB (Series 1995)
Weekly VRDNs (ATR International Inc., Project)/(First Union
National Bank, Charlotte, N.C. LOC) 2,453,000
65,000 Pinellas County Industry Council, FL, Variable/Fixed Rate
Development Revenue Bonds (Series 1997) Weekly VRDNs (Boyd
Industries, Inc.)/(SouthTrust Bank of Alabama, Birmingham
LOC) 65,000
3,300,000 Pinellas County, FL HFA, Single Family Housing Revenue Bonds
(1998 Series B), 3.70% TOBs (Trinity Funding Co.), Mandatory
Tender 2/1/1999 3,300,000
1,740,000 Pinellas County, FL Health Facility Authority, SFM Revenue
Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch
Capital Services, Inc. LIQ) 1,740,000
1,520,000 Sarasota County, FL IDRB, IDRB (Series 1994) Monthly VRDNs
(Resource Recovery Systems of Sarasota Project)/(Fleet
National Bank, Springfield, MA LOC) 1,520,000
1,100,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood
Preserving Co.)/(SouthTrust Bank of Alabama, Birmingham LOC) 1,100,000
3,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum
& Glass Co., Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 3,300,000
2,600,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc.
Project)/(Barnett Bank,
N.A. LOC) 2,600,000
Total 188,187,956
LOUISIANA-4.1%
9,420,000 Louisiana HFA, MERLOTS (Series 1988A), 3.90% TOBs (GNMA
COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional
Tender 11/1/1998 9,420,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MINNESOTA-1.9%
$ 4,420,000 Dakota County & Washington County MN Housing & Redevelopment
Authority, MERLOTs (Series J), 3.80% TOBs (United States
Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1998 $ 4,420,000
TEXAS-5.5%
2,400,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds
(Series 1993), 3.90% CP (Temple-Eastex Inc.)/(Temple-Inland,
Inc. GTD), Mandatory Tender 11/9/1998 2,400,000
2,600,000 Angelina and Neches River Authority, Texas, Waste Disposal
Revenue Bonds (Series 1998), 3.80% CP (Temple-Inland Forest
Products Corp.)/(Temple-Inland, Inc. GTD), Mandatory Tender
11/6/1998 2,600,000
7,500,000 Harris County, TX HFDC, Revenue Refunding Bonds (Series
1986), 4.50% CP (Young Men's Christian Association of the
Greater Houston Area)/(Bank of Tokyo-Mitsubishi Ltd. LOC),
Mandatory Tender 11/12/1998 7,500,000
Total 12,500,000
Total Investments (at amortized cost) 3 $ 227,807,956
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 74.5% of
the portfolio as calculated upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $28,225,000 which represents 12.3% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($229,032,990) at October 31, 1998.
The following acronyms are used throughout this portfolio:
COL -Collateralized
CP -Commercial Paper
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
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts-Liquidity Optional Tender Series
PAC -Planned Amortization Class
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 227,807,956
Cash 502,337
Income receivable 1,258,999
Receivable for shares sold 6,544
Prepaid expenses 16,981
Deferred organizational costs 4,163
Other assets 7,539
Total assets 229,604,519
LIABILITIES:
Payable for shares redeemed $ 45,172
Income distribution payable 461,424
Accrued expenses 64,933
Total liabilities 571,529
Net Assets for 229,032,990 shares outstanding $ 229,032,990
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$157,193,583 / 157,193,583 shares outstanding $1.00
CASH II SHARES:
$71,839,407/71,839,407 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C>
<C>
INVESTMENT INCOME:
Interest $
18,486,082
EXPENSES:
Investment advisory fee $
2,032,071
Administrative personnel and services fee
383,094
Custodian fees
6,855
Transfer and dividend disbursing agent fees and expenses
67,532
Directors'/Trustees' fees
4,449
Auditing fees
12,500
Legal fees
15,686
Portfolio accounting fees
102,872
Distribution services fee-Cash II Shares
297,018
Shareholder services fee-Institutional Shares
973,027
Shareholder services fee-Cash II Shares
297,018
Share registration costs
25,571
Printing and postage
29,087
Insurance premiums
50,385
Miscellaneous
10,902
Total expenses
4,308,067
WAIVERS:
Waiver of investment advisory fee $ (686,562)
Waiver of distribution services fee-Cash II Shares (59,404)
Waiver of shareholder services fee-Institutional Shares (233,527)
Total waivers (979,493)
Net expenses
3,328,574
Net investment income $
15,157,508
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998
1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 15,157,508 $ 18,019,018
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (11,792,073) (15,508,497)
Cash II Shares (3,365,435) (2,510,521)
Change in net assets resulting from distributions to
shareholders (15,157,508) (18,019,018)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,197,187,196 1,742,878,407
Net asset value of shares issued to shareholders in payment
of distributions declared 7,838,269 11,374,153
Cost of shares redeemed (2,518,608,888) (1,744,452,792)
Change in net assets resulting from share transactions (313,583,423) 9,799,768
Change in net assets (313,583,423) 9,799,768
NET ASSETS:
Beginning of period 542,616,413 532,816,645
End of period $ 229,032,990 $ 542,616,413
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 investment 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,
1998, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Escambia County, FL
HFA, PT-121, 3.75% 8/19/1997-
9/18/1998 $ 8,675,000
Florida State Board of Education 9/30/1998 19,550,000
</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 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 1,551,253,164 1,408,372,551
Shares issued to shareholders in payment
of distributions declared 7,690,503 11,369,710
Shares redeemed (1,881,610,584) (1,440,874,666)
Net change resulting from Institutional share transactions (322,666,917) (21,132,405)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH II SHARES
Shares sold 645,934,032 334,505,856
Shares issued to shareholders in payment of
distributions declared 147,766 4,443
Shares redeemed (636,998,304) (303,578,126)
Net change resulting from Cash II share transactions 9,083,494 30,932,173
Net change resulting from share transactions (313,583,423) 9,799,768
</TABLE>
At October 31, 1998, capital paid-in aggregated $229,032,990.
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, Inc.
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 Class II Shares. The Plan provides
that the Fund may incur distribution expenses according to the following
schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NET ASSETS OF CLASS
<S> <C>
Institutional Shares 0.25%
Class II Shares 0.25%
</TABLE>
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.
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
effective date.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $1,568,341,160 and
$1,877,477,340, 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, 1998, 58% of the securities in
the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 9% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely
affected if the computer systems used by the Trust's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Trust's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Trust's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Trust.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust
and Shareholders of 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Florida Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information
on the Public Reference Room's operations and copying charges.
[Graphic]
Florida Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229758
005392 (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Florida Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
CASH II SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Florida Municipal Cash Trust dated
December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229758
Cusip 314229683
G00537-01 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Cash II Shares (Shares). This SAI
relates to both of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating service
or be of comparable quality to securities having such ratings. A rating
service's two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by
Standard & Poor's (S&P), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
(Moody's), or F-1+, F-1, or F-2 by Fitch IBCA, Inc. (Fitch) are all considered
rated in one of the two highest short-term rating categories. The Fund will
follow applicable regulations in determining whether a security rated by more
than one rating service can be treated as being in one of the two highest short-
term rating categories; currently, such securities must be rated by two rating
services in one of their two highest rating categories. See "Regulatory
Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax. This policy
is fundamental and cannot be changed without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board, non-negotiable time deposits and
repurchase agreements providing for settlement in more than seven days after
notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 9, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Calhoun & Co., Detroit, Michigan, owned approximately 22,647,323 shares
(13.69%); MIFLA & Co., Milwaukee, Wisconsin, owned approximately 10,060,785
shares (6.08%); and Saxon & Co., Lester, Pennsylvania, owned approximately
8,386,826 shares (5.07%).
As of December 9, 1998, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Cash II Shares: Trustman, Atlanta,
Georgia, owned approximately 324,002,510 Shares (97.86%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Florida Intangibles Tax
Shareholders of the Fund that are subject to the Florida intangibles tax will
not be required to include the value of their Fund shares in their taxable
intangible property if all of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. government obligations. As described
earlier, the Fund will normally attempt to invest substantially all of its
assets in securities which are exempt from the Florida intangibles tax.
Accordingly, the value of the Fund shares held by a shareholder should under
normal circumstances be exempt from the Florida intangibles tax.
However, if the portfolio consists of any assets which are not so exempt on the
annual assessment date, only the portion of the shares of the Fund which relate
to securities issued by the United States and its possessions and territories
will be exempt from the Florida intangibles tax, even if they partly relate to
Florida tax-exempt securities.
Florida State Municipal Taxation
In a majority of states that have an income tax, dividends paid by a mutual fund
attributable to investments in a particular state's municipal obligations are
exempt from both federal and such state's income tax. If Florida were to adopt
an income tax in the future, and assuming that its income tax policy with
respect to mutual funds investing in Florida state and local municipal
obligations would be similar to the general tax policy of other states,
dividends paid by the Fund would be exempt from Florida state income tax. A
constitutional amendment approved by referendum would be required before an
individual tax could be imposed.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 9, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation
Address Principal Occupations
Compensation From Trust and
Position With Trust for Past 5 Years From
Trust Fund Complex
- ------------------------------ ---------------------------------------------------------
- --------------- -------------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of
$0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and
Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management,
and companies in the
Pittsburgh, PA Federated Research; Chairman and Director,
Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee,
Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior
Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group,
Inc.; investment
TRUSTEE Director, Member of Executive Committee,
University companies in the
of
Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation;
Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates,
Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real
estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly:
President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and
Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive
Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman
and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank
Corp.; investment
TRUSTEE Director, Ryan Homes,
Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany
Fund, Trust and
571 Hayward Mill Road
Inc. 56 other
Concord,
MA
investment
TRUSTEE Retired: President, Boston Stock Exchange,
Inc.; companies in the
Regional Administrator, United States Securities
and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of
Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore
Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia
Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny &
Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.;
formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western
Region; investment
Kochuba Partner, Meyer and
Flaherty. companies in the
205 Ross
Street
Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth
of Trust and
One Royal Palm Way Massachusetts General Court; President, State
Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street
Corporation. investment
Palm Beach,
FL
companies in the
TRUSTEE Retired: Director, VISA USA and VISA
International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne
University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica &
Murray. 56 other
President,
Duquesne
investment
University Retired: Dean and Professor of Law, University
of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of
Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics,
Athens; Trust and
1925 Professor, International Politics;
Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment
for investment
University of Pittsburgh International Peace, RAND Corporation,
Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National
Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference
Planning. Trust and
4905 Bayard
Street 56
other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company
of investment
TRUSTEE America; business
owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
$0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities
Corp. and
Federated Investors
Tower 8 other
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA Fund
Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the
$0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of
some and
Federated Investors Tower of the Funds in the Federated Fund Complex;
President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.;
President investment
Pittsburgh, PA and Trustee, Federated Advisers,
Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President
and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the
$0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive
Vice and
Federated Investors Tower President and Treasurer of some of the Funds in
the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman,
Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated
Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the
$0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice
President, and
Federated Investors Tower Secretary, and Director, Federated Investors,
Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated
Management, investment
Pittsburgh, PA and Federated Research; Director, Federated
Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.;
Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
$0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services
Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly:
various 56 other
1001 Liberty Avenue management positions within Funds Financial
Services investment
Pittsburgh, PA Division of Federated Investors,
Inc. companies in the
TREASURER
Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in
$0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee
of and
Federated Investors Tower some of the Funds in the Federated Fund
Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors,
Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities
Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various
$0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex;
Executive and
Federated Investors Tower Vice President, Federated Investment
Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated
Advisers, investment
Pittsburgh, PA Federated Management, Federated Research,
and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered
Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
$0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund
Complex; Trust and
1953 Senior Vice President, Federated
Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated
Global companies
1001 Liberty Avenue Research Corp., Federated Management,
Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
$0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund
Complex; Trust and
Federated Investors Tower Vice President, Federated Investment
Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research
Corp., companies
Pittsburgh, PA Federated Management, Federated Research,
Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- --------------------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $2,032,071 $2,318,654 $1,558,498
- -------------------------------------------------------------------------------------
Advisory Fee Reduction $ 686,562 $1,092,531 $1,071,607
- -------------------------------------------------------------------------------------
Brokerage Commissions $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------
Administrative Fee $ 383,094 $ 437,669 $ 294,886
- -------------------------------------------------------------------------------------
12b-1 Fee
- -------------------------------------------------------------------------------------
Institutional Shares $ 0 --- ---
------------------------------------------------------------------------------------
Cash II Shares $ 237,614 ---
------------------------------------------------------------------------------------
Shareholder Services Fee
- -------------------------------------------------------------------------------------
Institutional Shares $ 739,500 --- ---
------------------------------------------------------------------------------------
Cash Series Shares $ 297,018 --- ---
------------------------------------------------------------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-year and since inception periods ended October
31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year Since Inception on September 21, 1994
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.09% 3.27%
Yield 2.77% -- --
Effective Yield 2.81% -- --
Tax-Equivalent Yield 4.65% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year Since Inception on November 27, 1995
Cash II Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 2.83% 2.92%
Yield 2.51% -- --
Effective Yield 2.55% -- --
Tax-Equivalent Yield 4.22% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to-the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00%
39.60%
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951-
OVER
RETURN 42,350 102,300 155,950 278,450
$278,450
SINGLE $1- $25,351- $61,401- $128,101-
OVER
RETURN 25,350 61,400 128,100 278,450
$278,450
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
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 $42,351 $102,301 $155,951
OVER
RETURN 42,350 102,300 155,950 278,450
278,450
SINGLE $1 $25,351 $61,401 $128,101
OVER
RETURN 25,350 61,400 128,100 278,450
278,450
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when the demand
characteristics. Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions
for the long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTOR SERVICES, L.L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
FLORIDA MUNICIPAL CASH TRUST
Institutional Shares
Cash II Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Georgia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of
Georgia.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in
Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Public Accountants 24
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the income tax imposed by
the State of Georgia consistent with stability of principal and liquidity.
While there is not assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the strategies and policies
described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Georgia state
income tax. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B2.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on
a yearly basis.
The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's Shares year-to-date total return as of the most recent calendar
quarter of September 30, 1998 was 2.45%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.89% (quarter ended June 30, 1997). Its lowest quarterly return was
0.77% (quarter ended March 31, 1997).
The Fund's Seven-Day Net Yield as of 12/31/97 was 3.69%.
The following table represents the Fund's Average Annual Total Return
through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.42%
Start of Performance 1 3.43%
1 The Fund's start of performance date was August 22, 1995.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
GEORGIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <S>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.18%
Total Annual Fund Operating Expenses 0.93%
1 Although not contractually obligated to do so, the adviser and shareholder services
provider waived certain amounts. These are shown below along with the net expenses the
Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.44%
Total Actual Annual Fund Operating Expenses (after waivers) 0.49%
2 The Adviser voluntarily waived a portion of the management fee. The Adviser can terminate
this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary
waiver) was 0.12% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can
be terminated at any time. The shareholder services fee paid by the Fund (after the
voluntary reduction) was 0.19% for the fiscal year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and
that the Fund's operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $95 $296 $515 $1,143
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Georgia state income tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Georgia. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$10,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-Georgia taxpayers because
it invests in Georgia tax-exempt securities. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividends.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Georgia state income tax to the extent
they are derived from interest on obligations exempt from Georgia state
income taxes. Capital gains and non-exempt dividends are taxable whether
paid in cash or reinvested in the Fund. Redemptions are taxable sales.
Please consult your tax adviser regarding your federal, state and local tax
liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights
(For a share outstanding throughout each period)
Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1
<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 2 3.33% 3.38% 3.37% 0.73%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.49% 0.46% 0.25% 3
Net investment income 3.28% 3.33% 3.31% 3.81% 3
Expense waiver/reimbursement 4 0.44% 0.43% 0.52% 0.75% 3
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $168,098 $121,858 $122,940 $111,278
</TABLE>
1 Reflects operations for the period from August 22, 1995 (date of initial
public investment) to October 31, 1995.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.1% 1
GEORGIA-99.1%
$ 5,100,000 Athens-Clarke County, GA IDA, (Series 1988), 3.15% CP (Rhone
Merieux, Inc. Project)/(Societe Generale, Paris LOC),
Mandatory Tender 2/23/1999 $ 5,100,000
1,500,000 Athens-Clarke County, GA IDA, (Series 1997) Weekly VRDNs
(Armagh Capital Resource, LLC)/(Wachovia Bank of NC, N.A.,
Winston-Salem LOC) 1,500,000
2,000,000 Atlanta, GA, Airport Facilities Revenue Refunding Bonds
(Series 1996), 5.25% Bonds (Hartsford Atlanta International
Airport)/(AMBAC INS), 1/1/1999 2,004,589
1,600,000 Atlanta, GA, Urban Residential Finance Authority,
Multifamily Housing Revenue Bonds (Series 1995) Weekly VRDNs
(West End Housing Development Project)/(First Union National
Bank, Charlotte, NC LOC) 1,600,000
4,760,000 Augusta, GA HFA, (Series 1998) Weekly VRDNs (Sterling Ridge
Apartments)/(Amsouth Bank N.A., Birmingham LOC) 4,760,000
2,000,000 2 Bibb County, GA, PT-199, 3.70% TOBs (Georgia State GTD)/
(Bayerische Vereinsbank AG, Munich LIQ), Optional Tender 5/
20/1999 2,000,000
2,000,000 Brunswick and Glynn County, GA Development Authority, Multi-
Mode Variable Rate IDRB's (Series 1996) Weekly VRDNs (Daewoo
Equipment Corp.)/(KeyBank, N.A. LOC) 2,000,000
3,800,000 Brunswick, GA, Housing Authority, (Series S93) Weekly VRDNs
(Island Square Apartments)/(Columbus Bank and Trust Co., GA
LOC) 3,800,000
1,090,000 Carrollton, GA, (Series 1998), 3.60% Bonds, 2/1/1999 1,090,000
1,345,000 Cherokee County, GA Development Authority, IDRB Weekly VRDNs
(Morrison Products, GA)/(KeyBank, N.A. LOC) 1,345,000
2,000,000 Cherokee County, GA School System, 3.875% TANs, 12/31/1998 2,000,396
2,500,000 Clayton County, GA Development Authority, (Series 1994)
Weekly VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank
N.A., New York LOC) 2,500,000
550,000 Clayton County, GA Housing Authority, Revenue Refunding
Bonds (Series 1992) Weekly VRDNs (Oxford Townhomes Project)/
(Amsouth Bank N.A., Birmingham LOC) 550,000
1,965,000 Cobb County, GA IDA Weekly VRDNs (Atlanta RDC Co.)/(First
Union National Bank, Charlotte, NC LOC) 1,965,000
1,600,000 Cobb County, GA IDA, IDRB (Series 1995) Weekly VRDNs
(Consolidated Engineering Company, Inc. Project)/
(Nationsbank, N.A., Charlotte LOC) 1,600,000
870,000 Columbia County, GA Development Authority, (Series 1991)
Weekly VRDNs (Augusta Sportswear, Inc.)/(Wachovia Bank of
Georgia, N.A., Atlanta LOC 870,000
735,000 Columbus, GA IDA, (Series 90B) Weekly VRDNs (R. P. Real
Estate, Inc.)/(Columbus Bank and Trust Co., GA LOC) 735,000
4,200,000 Conyers-Rockdale-Big Haynes, GA Impoundment Authority,
(Series 1997), 4.00% BANs, 12/1/1998 4,200,499
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco
L.L.C. Project)/(NBD Bank, Michigan LOC) $ 3,000,000
6,000,000 Crisp County, GA Development Authority, (Series B), 4.20%
TOBs (Masonite Corporation)/(International Paper Co. GTD),
Optional Tender 9/1/1999 6,000,000
5,000,000 Dalton, GA, 4.05% TANs, 12/31/1998 5,001,603
1,275,000 De Kalb County, GA Development Authority, (Series 1992)
Weekly VRDNs (House of Cheatham, Inc. Project)/(Nationsbank,
N.A., Charlotte LOC) 1,275,000
600,000 De Kalb County, GA Development Authority, (Series 1993)
Weekly VRDNs (Pet, Inc.)/(PNC Bank, N.A. LOC) 600,000
2,000,000 De Kalb County, GA Development Authority, (Series 1995)
Weekly VRDNs (Rock-Tenn Converting Co.)/(SunTrust Bank,
Atlanta LOC) 2,000,000
1,215,000 De Kalb County, GA Development Authority, (Series 1996)
Weekly VRDNs (DeKalb Steel, Inc.)/(SouthTrust Bank of
Georgia, Atlanta LOC) 1,215,000
4,000,000 De Kalb County, GA Multi Family Housing Authority,
Multifamily Housing Revenue Bonds (Series 1996) Weekly VRDNs
(Bryton Hill Apartments)/(PNC Bank, Kentucky LOC) 4,000,000
3,000,000 Douglas County, GA Development Authority, (Series 1997)
Weekly VRDNs (Austral Insulated Products, Inc.)/(Regions
Bank, Alabama LOC) 3,000,000
740,000 Douglas County, GA Development Authority, (Series 1997)
Weekly VRDNs (Paul B. Goble)/(Wachovia Bank of Georgia,
N.A., Atlanta LOC) 740,000
3,500,000 Douglas County, GA, 3.80% TANs, 12/30/1998 3,500,499
3,000,000 Forsyth County, GA School District, 5.50% Bonds, 2/1/1999 3,013,941
1,000,000 Forsythe County, GA Development Authority, IDRB (Series
1995) Weekly VRDNs (American BOA, Inc. Project)/(Dresdner
Bank AG, Frankfurt LOC) 1,000,000
2,000,000 Franklin County, GA Industrial Building Authority, (Series
1995) Weekly VRDNs (Bosal Industries, Inc.)/(Bank of New
York, NY LOC) 2,000,000
3,400,000 Fulton County, GA Development Authority, (Series 1998)
Weekly VRDNs (Morehouse School of Medicine)/(SunTrust Bank,
Atlanta LOC) 3,400,000
2,200,000 Fulton County, GA IDA Weekly VRDNs (Automatic Data
Processing, Inc.) 2,200,000
2,930,000 Fulton County, GA IDA Weekly VRDNs (C.K.S. Packaging, Inc.)/
(SouthTrust Bank of Georgia, Atlanta LOC) 2,930,000
2,000,000 Fulton County, GA IDA, (Series 1997) Weekly VRDNs (In-Store
Media Corp.)/(SunTrust Bank, Atlanta LOC) 2,000,000
2,815,000 Gainesville, GA Redevelopment Authority, Downtown
Developments, Ltd (Series 1987) Weekly VRDNs (Downtown
Developments, Ltd.)/(Regions Bank, Alabama LOC) 2,815,000
300,000 Gainesville, GA Redevelopment Authority, IDRB (Series 1986)
Weekly VRDNs (Hotel of Gainesville Associates Project)/
(Regions Bank, Alabama LOC) 300,000
2,000,000 Georgia Municipal Electric Authority, Series S, 7.25% Bonds
(United States Treasury PRF), 1/1/1999 (@102) 2,051,637
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 1,800,000 Georgia Ports Authority, (Series 1996A) Weekly VRDNs
(Colonel's Island Terminal)/(SunTrust Bank, Atlanta LOC) $ 1,800,000
3,200,000 Georgia State HFA, (Series 1990C), 3.80% TOBs (First
National Bank of Chicago LIQ), Optional Tender 12/1/1998 3,200,000
4,690,000 Georgia State, UT GO, 5.25% Bonds, 10/1/1999 4,780,873
4,800,000 Glynn County, GA, 4.00% TANs, 12/31/1998 4,802,316
3,135,000 Gwinnett County, GA IDA, (Series 1996) Weekly VRDNs (Sidel,
Inc. Project)/(Nationsbank, N.A., Charlotte LOC) 3,135,000
630,000 Gwinnett County, GA IDA, (Series 1997) Weekly VRDNs (Virgil
R. Williams, Jr.)/(Wachovia Bank of Georgia, N.A., Atlanta
LOC) 630,000
2,200,000 Gwinnett County, GA IDA, (Series 1998) Weekly VRDNs (Pace
Manufacturing, Inc.)/(Amsouth Bank N.A., Birmingham LOC) 2,200,000
1,500,000 Hart County, GA IDA, Revenue Bonds (Series 1996) Weekly
VRDNs (Rock-Tenn Converting Co. Project)/(SunTrust Bank,
Atlanta LOC) 1,500,000
2,750,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler
Quality Yarns Corp. Project)/Union Bank of Switzerland of
Zurich 2,750,000
1,250,000 Jackson County, GA IDA, (Series 1997) Weekly VRDNs (Mullett
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 1,250,000
1,300,000 Jefferson, GA Development Authority, (Series 1997) Weekly
VRDNs (Ringwood Containers, L.P.)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 1,300,000
3,145,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds,
4.40% TOBs (Lee's Crossing Project Phase II)/(Columbus Bank
and Trust Co., GA LOC), Optional Tender 11/1/1998 3,145,000
2,965,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds,
4.40% TOBs (Lee's Crossing Project Phase I)/(Columbus Bank
and Trust Co., GA LOC), Optional Tender 11/1/1998 2,965,000
2,750,000 Lowndes County Schools, GA, 4.15% TANs, 12/31/1998 2,750,874
500,000 Macon-Bibb County, GA Industrial Authority, IDRB (Series
1990) Weekly VRDNs (Diamond Plastics Corp. Project)/
(Nationsbank, N.A., Charlotte LOC) 500,000
4,470,000 Marietta, GA Housing Authority, Multifamily Housing Revenue
Bonds (Series 1995)\ Weekly VRDNs (Chalet Apartments
Project)/(General Electric Capital Corp. LOC) 4,470,000
565,000 Milledgeville & Baldwin County, GA Development Authority,
(Series 1997) Weekly VRDNs (Oconee Area Properties, Inc.)/
(Wachovia Bank of Georgia, N.A., Atlanta LOC) 565,000
5,330,000 Monroe County, GA Development Authority IDRB, (Series
1997A), 3.80% TOBs (Oglethorpe Power Corp.), Optional Tender
11/28/1998 5,330,000
5,435,000 Municipal Electric Authority of Georgia, (Series 1985A),
3.15% CP (Morgan Guaranty Trust Co., New York LOC),
Mandatory Tender 2/11/1999 5,435,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 2,000,000 Richmond County, GA Development Authority, (Series 1998)
Weekly VRDNs (Evergreen Nylon Recycling, LLC)/(Banque
Nationale de Paris LOC) $ 2,000,000
3,000,000 Rockdale County, GA Development Authority, (Series 1995)
Weekly VRDNs (Great Southern Wood Preserving Co.)/(SunTrust
Bank, Central Florida LOC) 3,000,000
600,000 Rockdale County, GA Hospital Authority, Revenue Anticipation
Certificates (Series 1994) Weekly VRDNs (Rockdale Hospital)/
(SunTrust Bank, Atlanta LOC) 600,000
5,280,000 Rockdale County, GA, 4.125% TANs, 12/31/1998 5,283,515
3,490,000 Rome, GA, 4.00% TANs, 12/31/1998 3,491,110
1,410,000 Walker County, GA, (Series 1998), 4.00% Bonds, 8/1/1999 1,412,530
1,000,000 Wayne County, GA, IDA, Revenue Bonds, (Series 1995) Weekly
VRDNs (Harsco Corp.)/(Nationsbank, N.A., Charlotte LOC) 1,000,000
3,665,000 Whitfield County, GA Development Authority Weekly VRDNs
(Franklin Industries Inc., Project)/(Nationsbank, N.A.,
Charlotte LOC) 3,665,000
1,880,000 Whitfield County, GA Development Authority, (Series 1996)
Weekly VRDNs (AMC International, Inc. Project)/(SouthTrust
Bank of Alabama, Birmingham LOC) 1,880,000
Total Investments (at amortized cost) 3 $ 166,504,382
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 53.3% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $2,000,000 which represents 1.2% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($168,097,785) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
CP -Commercial Paper
GO -General Obligation
GTD -Guaranty
HFA -Housing Finance Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
PRF -Prerefunded
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 166,504,382
Cash 274,812
Income receivable 1,518,134
Deferred organizational costs 8,307
Other assets 11,400
Total assets 168,317,035
LIABILITIES:
Income distribution payable 166,764
Accrued expenses 52,486
Total liabilities 219,250
Net Assets for 168,097,785 shares outstanding $ 168,097,785
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE: $168,097,785 / 168,097,785 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,464,815
EXPENSES:
Investment advisory fee $ 856,835
Administrative personnel and services fee 133,509
Custodian fees 10,230
Transfer and dividend disbursing agent fees and expenses 17,117
Directors'/Trustees' fees 2,035
Auditing fees 12,000
Legal fees 10,723
Portfolio accounting fees 47,486
Shareholder services fee 428,418
Share registration costs 39,409
Printing and postage 14,172
Insurance premiums 9,131
Miscellaneous 10,490
Total expenses 1,591,555
WAIVERS:
Waiver of investment advisory fee $ (649,041)
Waiver of shareholder services fee (102,820)
Total waivers (751,861)
Net expenses 839,694
Net investment income $ 5,625,121
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,625,121 $ 5,103,583
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (5,625,121) (5,103,583)
SHARE TRANSACTIONS:
Proceeds from sale of shares 632,771,755 584,493,087
Net asset value of shares issued to shareholders in payment
of distributions declared 3,758,781 2,937,442
Cost of shares redeemed (590,290,954) (588,512,359)
Change in net assets resulting from share transactions 46,239,582 (1,081,830)
Change in net assets 46,239,582 (1,081,830)
NET ASSETS:
Beginning of period 121,858,203 122,940,033
End of period $ 168,097,785 $ 121,858,203
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
ORGANIZATION
Federated Municipal Cash Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of 17 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.
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,
1998 is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Bibb County, GA,
PT-199, 3.70% TOBs 6/19/1998 $2,000,000
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).
At October 31, 1998, capital paid-in aggregated $168,097,785.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
Shares sold 632,771,755 584,493,087
Shares issued to shareholders in payment of distributions
declared 3,758,781 2,937,442
Shares redeemed (590,290,954) (588,512,359)
Net change resulting from share transactions 46,239,582 (1,081,830)
</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, Inc.
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 $13,648 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.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Director/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $428,379,497 and
$412,471,824, 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, 1998, 61% of the securities in
the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 7% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To the Board of Trustees of FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Georgia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations and
copying charges.
[Graphic]
Georgia Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229691
G01204-01 (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Georgia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Georgia Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling 1-800-341-
7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229691
G01204-02 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax and Georgia state income tax. This policy
is fundamental and cannot be changed without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: Wachovia Bank of
North Carolina, Winston-Salem, North Carolina, owned approximately 48,461806
Shares (22.15%); Cobatco, Synovus Trust Company, Columbus, Georgia, owned
approximately 36,144,368 Shares (16.52%); BHC Securities Inc., Philadelphia,
Pennsylvania, owned approximately 22,761,748 Shares (10.40%); and Harmut
Lademacher, Alpharetta, Georgia, owned approximately 11,666,601 Shares (5.33%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing 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.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation From
Address Principal Occupations
Compensation Trust and Fund
Position With Trust for Past 5 Years From
Trust Complex
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of
$0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and
Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management,
and companies in the
Pittsburgh, PA Federated Research; Chairman and Director,
Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee,
Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior
Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group,
Inc.; investment
TRUSTEE Director, Member of Executive Committee,
University companies in the
of
Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation;
Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates,
Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real
estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly:
President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and
Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive
Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman
and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank
Corp.; investment
TRUSTEE Director, Ryan Homes,
Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany
Fund, Trust and
571 Hayward Mill Road
Inc. 56 other
Concord,
MA
investment
TRUSTEE Retired: President, Boston Stock Exchange,
Inc.; companies in the
Regional Administrator, United States Securities
and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of
Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore
Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia
Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny &
Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.;
formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western
Region; investment
Kochuba Partner, Meyer and
Flaherty. companies in the
205 Ross
Street
Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth
of Trust and
One Royal Palm Way Massachusetts General Court; President, State
Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street
Corporation. investment
Palm Beach,
FL
companies in the
TRUSTEE Retired: Director, VISA USA and VISA
International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne
University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica &
Murray. 56 other
President,
Duquesne
investment
University Retired: Dean and Professor of Law, University
of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of
Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics,
Athens; Trust and
1925 Professor, International Politics;
Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment
for investment
University of Pittsburgh International Peace, RAND Corporation,
Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National
Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference
Planning. Trust and
4905 Bayard
Street 56
other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company
of investment
TRUSTEE America; business
owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
$0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities
Corp. and
Federated Investors
Tower 8 other
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA Fund
Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the
$0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of
some and
Federated Investors Tower of the Funds in the Federated Fund Complex;
President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.;
President investment
Pittsburgh, PA and Trustee, Federated Advisers,
Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President
and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the
$0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive
Vice and
Federated Investors Tower President and Treasurer of some of the Funds in
the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman,
Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated
Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the
$0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice
President, and
Federated Investors Tower Secretary, and Director, Federated Investors,
Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated
Management, investment
Pittsburgh, PA and Federated Research; Director, Federated
Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.;
Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
$0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services
Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly:
various 56 other
1001 Liberty Avenue management positions within Funds Financial
Services investment
Pittsburgh, PA Division of Federated Investors,
Inc. companies in the
TREASURER
Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in
$0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee
of and
Federated Investors Tower some of the Funds in the Federated Fund
Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors,
Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities
Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various
$0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex;
Executive and
Federated Investors Tower Vice President, Federated Investment
Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated
Advisers, investment
Pittsburgh, PA Federated Management, Federated Research,
and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered
Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
$0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund
Complex; Trust and
1953 Senior Vice President, Federated
Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated
Global companies
1001 Liberty Avenue Research Corp., Federated Management,
Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
$0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund
Complex; Trust and
Federated Investors Tower Vice President, Federated Investment
Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research
Corp., companies
Pittsburgh, PA Federated Management, Federated Research,
Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- --------------------------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- ----------------------------------------------------------------
Advisory Fee Earned $856,835 $767,263 $586,560
- ----------------------------------------------------------------
Advisory Fee Reduction 649,041 569,196 559,762
- ----------------------------------------------------------------
Brokerage Commissions 0 0 0
- ----------------------------------------------------------------
Administrative Fee 133,509 125,351 125,000
- ----------------------------------------------------------------
Shareholder Services Fee 325,598 ---- ----
- ----------------------------------------------------------------
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, and since inception periods ended October 31,
1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception
on August 22, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.33% 3.39%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 3.01% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 3.05% -- --
Tax-Equivalent Yield 5.61% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF GEORGIA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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- $42,351- $102,301- $155,951-
OVER
RETURN 42,350 102,300 155,950 278,450
$278,450
SINGLE $1- $25,351- $61,401- $128,101-
OVER
RETURN 25,350 61,400 128,100 278,450
$278,450
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax-Exempt
Yield Taxable Yield Equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds;
. and information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
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
225 Franklin Street
Boston, MA 02110-2812
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares........................ 1
Shareholder Services................................................................ 4
How to reach the Fund............................................................... 4
Pricing of Fund Shares.............................................................. 4
How the Fund is sold................................................................ 4
How to open an account and purchase shares.......................................... 4
How to sell and exchange shares..................................................... 6
Account and share information....................................................... 7
Tax Information..................................................................... 9
More About Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares............. 10
Management.......................................................................... 12
Financial Highlights................................................................ 13
</TABLE>
Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares
This Risk/Return Summary briefly describes the principal risks of investing in
the Fund. For further information on the Fund, please read the section entitled
More About Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares.
What are the Fund's Goals?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00 per share. The Fund's investment objective is to provide current income
which is exempt from federal regular income tax and Massachusetts state income
tax consistent with stability of principal.
What are the Fund's Main Investment Strategies?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax and Massachusetts state income
tax. Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
What are the Main Risks of Investing in the Fund?
Because the Fund may invest a significant portion of its assets in securities of
a single issuer, an investment in the Fund may involve additional risks compared
to a fully diversified money market fund. Although the Fund seeks to maintain a
stable net asset value of $1.00 per share, it is possible to lose money by
investing in the Fund.
An investment in the Fund is not a deposit of BankBoston and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
How Has The Fund Performed?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows changes in the Fund's performance from year
to year. The table shows how the Fund's average annual returns for the
periods indicated compare to those of a broad measure of market
performance.
When you consider this information, please remember that the Fund's
performance in past years is not necessarily an indication of how the Fund
will do in the future.
Total Return
(per calendar year)
[Graphic] - See Appendix A-7
The year-to-date total return as of the most recent calendar quarter of
September 30, 1998 was 2.23%.
<TABLE>
<CAPTION>
Highest and Lowest Return
(Quarterly 1994-1997)
<S> <C> <C>
Quarter
Ending
Highest 0.88% June 30,
1995
Lowest 0.43% March 31,
1994
Average Annual Total Returns
(through December 31, 1997)
1 Year Life of Fund
(since
2/22/93)
MA Municipal Cash 3.11% 2.73%
Trust -- Boston
1784 Funds Shares
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
For up-to-date yield information, please call 1-800-BKB-1784.
Massachusetts Municipal Cash Trust--
Boston 1784 Funds Shares (CONTINUED)
What Are The Fees And Expenses Of The Fund?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares.
<TABLE>
<S>
<C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on
Purchases None
Maximum Deferred Sales Charge
(Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions). None
Redemption
Fee None
Exchange
Fee
None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee
(2) 0.50%
Shareholder Services Fee
(3) 0.25%
Distribution (12b-1)
Fee None
Other
Expenses
0.18%
Total Annual Fund Operating
Expenses 0.93%
(1) Although not contractually obligated to do so, the Adviser and shareholder services provider waived
certain amounts.
These are shown below along with the net expenses the Fund actually paid for the fiscal year ended
October 31, 1998.
Waiver of Fund
Expenses 0.36%
Total Actual Annual Fund Operating Expenses (after
waivers) 0.57%
(2) The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this
voluntary waiver
at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.39% for the year
ended October 31,
1998.
(3) The shareholder services fee was voluntarily reduced. This voluntary reduction can be terminated at
any time. There
was no shareholder services fee paid by the Fund (after the voluntary reduction) for the year ended
October 31, 1998.
</TABLE>
EXAMPLE
The following example is intended to help you compare the cost of investing in
the Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares with the cost
of investing in other mutual funds. The example assumes that you invest $10,000
in the Fund's Boston 1784 Funds Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Massachusetts
Municipal Cash Trust--Boston 1784 Funds Shares operating expenses are before
waivers as shown above and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5
YEARS 10 YEARS
<S> <C> <C>
<C> <C>
Boston 1784 Funds Shares $95 $296
$5,158 $1,143
</TABLE>
SHAREHOLDER SERVICES
How To Reach The Fund
By telephone 1-800-BKB-1784 Call for account or Fund information
or an account application.
By regular mail Boston 1784 Funds P.O. Box 8524 Boston, MA 02266-8524
By overnight Boston 1784 Fundscourier c/o Boston Financial Data
Services2 Heritage Drive North Quincy, MA 02171
Pricing Of Fund Shares
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) and the Federal Reserve Bank of Boston are open. When the Fund receives
your transaction request in proper form, it is processed at the next determined
net asset value (NAV). The Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end
of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment is $1,000. Subsequent investments must
be in amounts of at least $250. 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.
How The Fund Is Sold
The Fund offers two share classes: Boston 1784 Funds Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Boston 1784 Funds Shares. Each share class has
other expenses, which affect their performance. Please call 1-800-341-7400 for
more information concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or though investment professionals. The
Fund may not be a suitable investment for retirement plans or for non-
Massachusetts taxpayers because it invests in Massachusetts municipal
securities.
The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
How To Open An Account And Purchase Shares
You may purchase Shares through an investment professional or through an
exchange from another fund in the Boston 1784 Funds Family. You may also
purchase shares through certain financial institutions, including BankBoston.
These institutions may have their own procedures for buying and selling shares,
and may charge fees. Contact your financial institution for more information.
The Fund and the Distributor reserve the right to reject any request to purchase
or exchange Shares.
Complete and sign the appropriate account application. Purchase orders must be
received by 11:30 a.m. (Eastern time) in order to receive that day's dividend.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
By Wire. Purchases may also be made by wiring money from your bank account to
your Fund account. Each time you wish to send a wire, you must call 1-800-BKB-
1784 to receive wiring instructions before you send money.
By Check. If you wish to make your purchase by mail, please send a completed
application and check payable to Boston 1784 Funds to:
Boston 1784 Funds PO Box 8524 Boston, MA 02266-8524
If you send your check by overnight courier that requires a street address, see
"How to Reach the Fund."
By Electronic Transfer. Once you have opened an account, you may purchase
additional Shares by debiting your predesignated bank account. You can establish
this option by completing the "Electronic Transfer and Bank Wire" section of the
application.
By Automatic Investment. Automatic investing is an easy way to add to your
account on a regular basis. Boston 1784 Funds offer an automatic investment plan
to help you achieve your financial goals as simply and conveniently as possible.
Please note that minimum purchase amounts apply. Call 1-800-BKB-1784 for
information.
Through An Exchange. On any business day, you may exchange all or a portion of
your Shares into any other Fund in the Boston 1784 Funds family. To make
exchanges, call 1-800-BKB-1784. Exchanges are processed at the net asset value
next calculated after an exchange request in good order is received and
approved. Please read the prospectus for the Fund into which you are exchanging.
The Fund reserves the right to reject any exchange request or to change or
terminate the exchange privilege at any time. An exchange is the sale of Shares
of the Fund and purchase of shares of another fund, and could result in taxable
gains or losses.
Paying for Shares
. Payments should be made in U.S. dollars and drawn on a U.S. bank;
. Checks that are not made payable directly to Boston 1784 Funds ("third party
checks") are not accepted;
. Orders by mail are considered received when payment by check is converted
into immediately available funds (normally the business day after the check
is received) and Shares begin earning dividends the next day;
. Cash and credit cards are not accepted;
. If the check does not clear your bank, the Fund reserves the right to cancel
your purchase; or
. If the Fund is unable to debit your predesignated bank account on the day you
purchase Shares, the Fund may make additional attempts or cancel the
purchase.
How To Sell And Exchange Shares
Submit your redemption or exchange request by the end of regular trading on the
NYSE (normally 4:00 p.m. Eastern Time). Redemption or exchange requests received
by the Fund before 12:00 noon (Eastern time) will not include that day's
dividend. Requests for redemptions over $100,000 must be in writing with
signatures guaranteed (see below).
If the Shares being sold were recently purchased by check, telephone or through
an automatic investment program, the Fund may delay the mailing of your
redemption check for up to 10 business days after purchase to allow the purchase
to clear. You may gain or lose money when you redeem Shares.
By Telephone. If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-BKB-1784. You may not close
your account by telephone. If you would like to establish this option on an
existing account, please call 1-800-BKB-1784.
By Mail. To redeem all or part of your shares by mail, please send your request
in writing to one of the addresses listed above under "How To Open An Account"
and include the following information:
. the name of the Fund,
. the account number(s),
. the amount of money or number of shares being redeemed,
. the name(s) on the account,
. the signature of a registered account owner, and
. your daytime telephone number.
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 account you
previously designated on your account application. You will be charged a fee for
each wire redemption which will be deducted from your redemption proceeds.
Signature Guarantees. Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address on our
records;
. your redemption will be sent to an address on our records that was changed in
the past 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
The Fund may also require signature guarantees for other redemptions. A
signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
Payment Methods For Redemptions. Redemption proceeds may be credited to your
predesignated bank account, paid by check, or paid by wire or electronic
transfer as you previously designated on your account application.
By Check. Redemption proceeds will be sent to the shareholder(s) on our records
at the address on our records within seven days after receipt of a valid
redemption request.
By Wire. If you have selected this option, your redemption proceeds will be
wired directly into your predesignated bank account, normally within one
business day. There is no limitation on the number of redemption transactions by
wire. However, there is a fee for each wire and your bank may charge an
additional fee to receive the wire. If you would like to establish this option
on an existing account, please call 1-800-BKB-1784 to sign up for this service.
By Electronic Transfer. If you have established this option, your redemption
proceeds will be transferred electronically to your predesignated bank account.
To establish this option on an existing account, please call 1-800-BKB-1784 to
request the appropriate form.
Redemption In Kind. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Limitations On Redemption Proceeds. Redemption proceeds normally are wired or
mailed within one business day after receiving a request in proper form. Payment
may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
Additional Conditions
Telephone Transactions. The Fund and its agents will each follow reasonable
procedures to confirm that instructions received by telephone are genuine, which
may include taping telephone conversations. The Fund and its agents will not be
responsible for any losses that may result from acting on telephone instructions
that it reasonably believes to be genuine.
Share Certificates. The Fund does not issue share certificates.
Account And Share Information
Confirmations And Account Statements. You will receive confirmation of
purchases, redemptions and exchanges. In addition, you will receive periodic
statements reporting all account activity, including dividends and capital gains
paid.
Taxpayer Identification Number. On the account application or other appropriate
form, you will be asked to certify that your social security or taxpayer
identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you are subject to
backup withholding or you did not certify your taxpayer identification number,
the IRS requires the Fund to withhold 31% of any dividends and redemption or
exchange proceeds. The Fund reserves the right to reject any application that
does not include a certified social security or taxpayer identification number.
Address Changes. A change in address on your account must be made in writing and
be signed by all account owners. Include the name of the Fund, the account
number(s), the name(s) on the account and both the old and new addresses. Call
1-800-BKB-1784 if you need more information.
Dividends And Capital Gains. The Fund declares any dividends daily and pays them
monthly to shareholders. If you purchase shares by wire, you begin earning
dividends on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your check.
In either case, you earn dividends through the day your redemption request is
received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before the Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
Accounts With Low Balances. Accounts may be closed if redemptions or exchanges
cause the account balance to fall below the minimum initial investment amount.
Before an account is closed, the shareholder will be notified and allowed 60
days to purchase additional Shares to meet the minimum.
Tax Information
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. The Fund's dividends will be
exempt from Massachusetts state personal income tax if they are derived from
interest on obligations exempt from Massachusetts personal income taxes. Capital
gains and non-exempt dividends are taxable whether paid in cash or reinvested in
the Fund. Redemptions and exchanges are taxable sales. Please consult your
taxpreparer regarding your federal, state and local tax liability.
More About Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares
Principal Investment Strategies
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
Temporary Defensive Investments. The Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Massachusetts state income tax, all of comparable quality
to other securities in which the Fund invests. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders. This also may cause the Fund to receive and distribute
taxable income to investors.
Principal Securities In Which The Fund Invests
Tax-Exempt Securities. Tax-exempt securities are fixed income securities that
pay interest exempt from regular federal income taxes. States, counties, cities
and other political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their source
of repayment.
Fixed Income Securities. Fixed Income securities pay interest, dividends or
distributions at a specified rate. The rate may be fixed or adjusted
periodically. The issuer must also repay the principal amount of the security,
normally within a specified time.
Variable Rate Demand Instruments. Variable rate demand instruments are tax-
exempt securities that require the issuer or a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The securities
also bear interest at a variable rate intended to cause the securities to trade
at their face value. The Fund treats demand instruments as short-term
securities, even though their stated maturity may extend beyond thirteen months.
Municipal Notes. Municipal notes are short-term tax-exempt securities. Many
municipalities issue such notes to fund their current operations prior to
collecting taxes or other municipal revenues. Municipalities may also issue
notes to fund capital projects prior to issuing long-term bonds. The issuers
typically repay the notes at the end of their fiscal year, either with taxes,
other revenues or proceeds from newly issued notes or bonds.
Investment Ratings. The securities in which the Fund invests must be rated in
one of the two highest short-term rating categories by one or more nationally
recognized rating services or be of comparable quality to securities having such
ratings.
Credit Enhancement. Credit enhancement consists of an arrangement in which a
company agrees to pay amounts due on a fixed income security if the issuer
defaults. In some cases the company providing credit enhancement makes all
payments directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates the
credit risk of a fixed income security based solely upon its credit enhancement.
Specific Risks Of Investing In The Fund
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a tax-exempt money market fund are described
below.
Credit Risk. Credit risk is the possibility that an issuer or a credit enhancer
will default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try to
minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
Market Risk. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, the prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
Sector Risk. Most of the Fund's securities will be invested in issuers located
in Massachusetts. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies in
similar businesses or with other similar characteristics. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
Management
Investment Adviser
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
Management Fees
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse affect on the Fund.
Financial Highlights
Reference is made to the Report of Independent Public Accountants on page 26.
(For a share outstanding throughout each period.)
The following financial highlights will help you understand the Fund's financial
performance for the past five fiscal years or since inception if the life of the
Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
<TABLE>
<CAPTION>
Net Net
Net Ratio
Asset Distributions Asset
Assets Ratio of Net
Value Net from Net Value End
of Expenses Income
Beginning Investment Investment End Total of Period
to Average to Average
of Period Income Income of Period Return/2/ (000)
Net Assets Net Assets
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Boston 1784 Funds
Shares
For the Year Ended October 31, $1.00 0.03 (0.03) $1.00 3.03%
$162,557 0.57% 2.97%
1998
For the Year Ended October 31, $1.00 0.03 (0.03) $1.00 3.07% $
73,837 0.57% 3.03%
1997
For the Year Ended October 31, $1.00 0.03 (0.03) $1.00 3.05% $
54,667 0.58% 3.01%
1996
For the Year Ended October 31, $1.00 0.03 (0.03) $1.00 3.30% $
46,580 0.60% 3.25%
1995
For the Year Ended October 31, $1.00 0.02 (0.02) $1.00 2.05% $
41,912 0.64% 2.09%
1994
For the Year Ended October 31, $1.00 0.01 (0.01) $1.00 1.25% $
18,143 0.65% 1.85%
19931
<CAPTION>
Ratio of
Expense Waiver/
Reimbursements
to Average
Net Assets/3/
<S> <C>
Boston 1784 Funds Shares
For the Year Ended October 31, 0.36%
1998
For the Year Ended October 31, 0.39%
1997
For the Year Ended October 31, 0.42%
1996
For the Year Ended October 31, 0.45%
1995
For the Year Ended October 31, 0.35%
1994
For the Year Ended October 31, 0.43%
1993/1/
</TABLE>
* Computed on an annualized basis.
1 Reflects operations for the period from March 8, 1993 (date of initial public
investment) to October 31, 1993.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Portfolio of Investments
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount
Value
(1) Short-Term Municipals--99.2%
Massachusetts--95.6%
<C> <S>
<C>
$ 8,703,000 Ashland, MA, 4.00% BANs,
12/10/1998 $ 8,706,600
6,128,000 Attleboro, MA, 3.80% BANs,
7/2/1999 6,131,895
1,245,000 Attleboro, MA, 4.00% BANs,
12/22/1998 1,245,487
3,800,000 Boston, MA, UT GO, 4.50% Bonds (FGIC INS),
1/1/1999 3,805,545
1,000,000 Brockton, MA, 4.50% Bonds (MBIA INS),
4/1/1999 1,003,187
5,000,000 Central Berkshire, MA Regional School District, 4.10% BANs,
12/15/1998 5,002,646
26,721,542 Clipper, MA Tax-Exempt Trust, (Series A) Weekly VRDNs (Massachusetts
State 26,721,542
Lottery Commission)/(AMBAC INS)/(State Street Bank and Trust Co. LIQ)
23,130,000 Clipper, MA Tax-Exempt Trust 1994-2 Weekly VRDNs (State Street Bank and
Trust 23,130,000
Co. LIQ)
11,662,200 Clipper, MA Tax-Exempt Trust Weekly VRDNs (State Street Bank and Trust Co.
LIQ) 11,662,200
3,465,000 Clipper, MA Tax-Exempt Trust, (Series 1994-1) Weekly VRDNs (Massachusetts
State 3,465,000
HFA)/(MBIA INS)/(State Street Bank and Trust Co. LIQ)
3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/(Citibank NA, New
York 3,000,000
LIQ)
6,000,000 Commonwealth of Massachusetts, (1997 Series B) Weekly VRDNs
(Landesbank 6,000,000
Hessen-Thueringen, Frankfurt LIQ)
11,175,000 Commonwealth of Massachusetts, (Series 1998 FR/RI-A20) Weekly VRDNs
(MBIA 11,175,000
INS)/(National Westminster Bank, PLC, London LIQ)
8,855,000 Commonwealth of Massachusetts, Floater Certificates (Series 1998-41)
Weekly 8,855,000
VRDNs (Morgan Stanley, Dean Witter Municipal Funding, Inc. LIQ)
$ 5,000,000 Everett, MA, 4.00% BANs (Fleet National Bank, Springfield, MA LOC),
3/18/1999 $ 5,007,244
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London
LOC) 3,200,000
2,290,000 Framingham, MA, 4.00% BANs,
2/5/1999 2,292,021
2,430,000 Gloucester, MA, 3.75% BANs,
8/5/1999 2,441,697
2,100,000 Ipswich, MA, 4.00% BANs,
11/19/1998 2,100,402
2,190,000 Mansfield, MA, 3.40% BANs,
10/28/1999 2,196,277
15,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham &
Women's 15,800,000
Hospital)/(Landesbank Hessen-Thueringen, Frankfurt LOC)
3,125,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For
Little 3,125,000
Wanderers)/(BankBoston, N.A. LOC)
2,000,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/(Fleet Bank
N.A. 2,000,000
LOC)
4,725,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Endicott College)/(BankBoston,
N.A. 4,725,000
LOC)
9,915,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Hallmark Health
System)/(FSA 9,915,000
INS)/(Fleet National Bank, Springfield, MA LIQ)
8,415,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital
of 8,415,000
Boston)/(Sanwa Bank Ltd, Osaka LIQ)
2,300,000 Massachusetts HEFA, (Series I) Weekly VRDNs (Harvard
University) 2,300,000
7,395,000 Massachusetts HEFA, PA-362 Weekly VRDNs (Amherst College)/(Merrill Lynch
Capital 7,395,000
Services, Inc. LIQ)
3,120,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/(State Street Bank
and 3,120,000
Trust Co. LOC)
$ 1,800,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water
Power $ 1,800,000
Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC)
20,000,000 Massachusetts IFA, (Series 1992B), 3.40% CP (New England Power Co.),
Mandatory 20,000,000
Tender 12/7/1998
17,100,000 Massachusetts IFA, (Series 1992B), 3.40% CP (New England Power Co.),
Mandatory 17,100,000
Tender 12/9/1998
5,900,000 Massachusetts IFA, (Series 1994) Weekly VRDNs (Nova Realty
Trust)/(Fleet 5,900,000
National Bank, Springfield, MA LOC)
2,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/(Fleet Bank
N.A. 2,000,000
LOC)
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute
for 5,800,000
Biomedical Research)
7,009,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury
College)/(BankBoston, 7,009,000
N.A. LOC)
2,500,000 Massachusetts IFA, (Series 1997) Weekly VRDNs (Massachusetts Society for
the 2,500,000
Prevention of Cruelty to Animals)/(Fleet National Bank, Springfield, MA LOC)
6,000,000 Massachusetts IFA, (Series 1997) Weekly VRDNs (Mount Ida College)/(Credit
Local 6,000,000
de France LOC)
1,325,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/(Bank of
Nova 1,325,000
Scotia, Toronto LOC)
9,875,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North
Hampton 9,875,000
School)/(Fleet National Bank, Springfield, MA LOC)
5,755,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson
College 5,755,000
Issue)/(BankBoston, N.A. LOC)
$ 8,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System
Revenue $ 8,800,000
Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto
LOC)
9,000,000 Massachusetts Port Authority, PT-1073 (Series 1998-D) Weekly VRDNs
(Merrill 9,000,000
Lynch Capital Services, Inc. LIQ)
5,000,000 Massachusetts State HFA, Multi-Family Refunding Revenue Bonds (1995 Series
A) 5,000,000
Weekly VRDNs (Republic National Bank of New York LIQ)
2,215,000 Massachusetts Turnpike Authority, (PA-324) Weekly VRDNs (MBIA
INS)/(Merrill 2,215,000
Lynch Capital Services, Inc. LIQ)
8,295,000 Massachusetts Turnpike Authority, PT-135 Weekly VRDNs (MBIA
INS)/(Banco 8,295,000
Santander SA LIQ)
14,400,000 Massachusetts Turnpike Authority, Variable Rate Certificates (Series
1997N) 14,400,000
Weekly VRDNs (MBIA INS)/(Bank of America NT and SA, San Francisco LIQ)
6,205,000 Melrose, MA, 3.80% BANs,
8/19/1999 6,212,113
1,815,000 Middleborough, MA, 4.00% BANs,
3/5/1999 1,816,781
1,117,500 Newbury, MA, 4.00% BANs,
8/13/1999 1,119,175
3,625,000 Newburyport, MA, 4.00% BANs,
2/12/1999 3,626,971
7,044,000 Paxton, MA, 4.00% BANs,
6/18/1999 7,052,509
2,220,000 Plymouth, MA, 3.25% BANs,
10/21/1999 2,225,009
4,050,000 Quabbin Regional School District, MA, 4.00% BANs,
1/15/1999 4,051,602
1,257,000 Randolph, MA, 4.00% BANs,
6/18/1999 1,258,456
5,000,000 Randolph, MA, 4.00% BANs,
7/13/1999 5,006,681
1,595,000 Randolph, MA, 4.00% BANs,
8/20/1999 1,598,685
2,980,000 Springfield, MA, 4.00% BANs (Fleet National Bank, Springfield, MA LOC),
6/25/1999 2,985,564
$ 2,000,000 Stow, MA, 3.75% BANs,
3/31/1999 $ 2,000,789
5,768,000 Stow, MA, 3.80% BANs,
8/20/1999 5,770,215
1,424,000 Stow, MA, 4.00% BANs,
3/31/1999 1,425,972
2,000,000 Topsfield, MA, 3.75% BANs,
9/23/1999 2,007,744
2,100,000 Ware, MA, 4.00% BANs,
12/18/1998 2,100,932
2,750,000 Ware, MA, 4.00% BANs,
12/18/1998 2,751,211
1,540,000 Ware, MA, 4.00% BANs,
6/26/1999 1,542,400
3,200,000 Westfield, MA, 3.75% BANs,
10/22/1999 3,221,133
6,120,000 (2)Weymouth, MA Housing Authority, PT 1062, 3.80% TOBs (Queen
Ann 6,120,000
Apartments)/(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital
Services, Inc. LOC), Optional Tender 8/5/1999
2,500,000 Weymouth, MA, 4.25% BANs,
11/5/1998 2,500,061
7,375,000 Worcester, MA, 4.00% BANs,
8/26/1999 7,386,549
Total 400,491,295
- ------------
Puerto Rico--3.6%
15,000,000 Commonwealth of Puerto Rico, Floating Rate Trust Receipts (Series 1997)
Weekly 15,000,000
VRDNs (Commerzbank AG, Frankfurt LIQ)/(Commerzbank AG, Frankfurt LOC)
Total Investments (at amortized
cost)(3) $415,491,295
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-
1+, F-1 and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
First Tier Second Tier 100.00% 0.00%
</TABLE>
(2) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, restricted securities
amounted to $6,120,000 which represents 1.5% of net assets.
(3) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($418,943,091) at October 31, 1998.
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
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
RANS--Revenue Anticipation Notes
SA--Support Agreement
TOBS--Tender Option Bonds
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C>
<C>
Assets:
Total investments in securities, at amortized cost and
value $415,491,295
Cash
620,120
Income
receivable
3,419,558
Receivable for shares
sold 1,132
Prepaid
expenses
7,159
Total
assets
419,539,264
Liabilities:
Payable for shares redeemed $ 24,993
Income distribution payable 494,020
Accrued expenses 77,160
Total
liabilities
596,173
Net Assets for 418,943,091 shares
outstanding $418,943,091
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Service Shares:
$256,385,640 / 256,385,640 shares
outstanding $ 1.00
Boston 1784 Funds Shares:
$162,557,451 / 162,557,451 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, 1998
<TABLE>
<S> <C>
<C> <C>
Investment Income:
Interest
$12,817,374
Expenses:
Investment advisory fee $
1,810,446
Administrative personnel and services fee
273,047
Custodian fees
15,646
Transfer and dividend disbursing agent fees and expenses
72,296
Directors'/Trustees' fees
2,902
Auditing fees
12,692
Legal fees-- 11,251
Portfolio accounting fees
90,795
Shareholder services fee--Institutional Service Shares
563,458
Shareholder services fee--Boston 1784 Funds Shares
341,765
Share registration costs
79,768
Printing and postage
34,046
Insurance premiums
22,713
Miscellaneous
640
Total expenses
3,331,465
Waivers--
Waiver of investment advisory fee $ (397,073)
Waiver of shareholder services fee--Institutional Service Shares (563,458)
Waiver of shareholder services fee--Boston 1784 Funds Shares (341,765)
Total waivers
(1,302,296)
Net expenses 2,029,169
Net investment
income
$10,788,205
- ----------------------------------------------------------------------------------------------------------------------------------
</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,
1998 1997
<S> <C>
<C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $
10,788,205 $ 6,125,532
Change in net assets resulting from operations
10,788,205 6,125,532
Distributions to Shareholders--
Distributions from net investment income
Institutional Service Shares
(6,723,838) (4,462,883)
Boston 1784 Funds Shares
(4,064,367) (1,662,649)
Change in net assets resulting from distributions to shareholders
(10,788,205) (6,125,532)
Share Transactions--
Proceeds from sale of shares
1,191,190,660 682,162,039
Net asset value of shares issued to shareholders in payment of distributions
5,640,601 3,135,034
declared
Cost of shares redeemed
(993,594,809) (643,996,755)
Change in net assets resulting from share transactions
203,236,452 41,300,318
Change in net assets
203,236,452 41,300,318
Net Assets:Beginning of period
215,706,639 174,406,321
End of period $
418,943,091 $ 215,706,639
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Notes to Financial Statements
October 31, 1998
(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 17 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. 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 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 ("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, 1998, is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
Weymouth, MA Housing Authority 8/31/1998 $6,120,000
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
(3) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1998, capital paid-in aggregated $418,943,091.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year
Ended October 31,
1998 1997
<S>
<C> <C>
Institutional Service Shares
Shares sold
943,828,322 619,964,162
Shares issued to shareholders in payment of distributions declared
1,573,009 1,473,299
Shares redeemed
(830,885,045) (599,306,953)
Net change resulting from Institutional Service Share transactions
114,516,286 22,130,508
Boston 1784 Funds Shares
Shares sold
247,362,338 62,197,877
Shares issued to shareholders in payment of distributions declared
4,067,592 1,661,735
Shares redeemed
(162,709,764) (44,689,802)
Net change resulting from Boston 1784 Funds Share transactions
88,720,166 19,169,810
Net change resulting from share transactions
203,236,452 41,300,318
</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, Inc. 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
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, 1998, 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 $523,571,958 and $377,762,628,
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, 1998, 46.4% 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 6.4% of total investments.
(6) YEAR 2000 (Unaudited)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Independent 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, 1998 and the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights 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, 1998 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust), as of October 31, 1998 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.
Arthur Andersen LLP
Boston, Massachusetts December 23, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge, call the Fund at 1-800-BKB-1784.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Boston 1784 Fundssm
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
www.boston1784funds.com
FEDERATED World-Class Investment Manager
Federated Investors, Inc. Federated Investors Tower 1001 Liberty Avenue
Pittsburgh, PA 15222-3779 1-800-341-7400 www.federated investors.com
Cusip 314229832
G00507-01 (12/98)
File No. 811-5911 MF-0136
Prospectus
Massachusetts Municipal Cash Trust--Boston 1784 Funds Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
December 31, 1998
Statement of Additional Information December 31, 1998
Massachusetts Municipal Cash Trust
[A Portfolio of Federated Municipal Trust]
Boston 1784 Funds Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Massachusetts Municipal Cash
Trust - Boston 1784 Funds Shares dated December 31,1998. To obtain the
prospectus without charge, call 1-800-BKB-1784.
-----------------------------------------------------------------------------
Contents
-----------------------------------------------------------------------------
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides
Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229832
0032603B (12/98)
HOW IS THE FUND ORGANIZED?
===============================================================================
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Service Shares and Boston 1784 Funds Shares
(Shares). This SAI relates to Boston 1784 Funds Shares.
SECURITIES IN WHICH THE FUND INVESTS
===============================================================================
SECURITIES DESCRIPTIONS ANDTECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree to make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
Investment Risks
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and
Massachusetts state income tax. This policy is fundamental and cannot be
changed without shareholder approval.
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.
Lending Cash or Securities
The Fund will not lend any of its assets except that it may acquire publicly or
non publicly issued Massachusetts tax-exempt 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.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund 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 Board 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 for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
HOW IS THE FUND SOLD?
===============================================================================
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
SUBACCOUNTING SERVICES
===============================================================================
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
===============================================================================
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV.
The portfolio securities will be selected in a manner that the Fund's Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
===============================================================================
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
===============================================================================
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
Cambridge Trust Company, Cambridge, Massachusetts, owned approximately
16,619,664 shares (6.56%); Bob and Company, Boston, Massachusetts, owned
approximately 21,074,831 shares (8.32%); Turtle and Company, Boston,
Massachusetts, owned approximately 35,044,626 shares (13.84%); and State Street
Bank and Trust, North Quincy, Massachusetts, owned approximately 66,411,123
shares (26.22).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Boston 1784 Funds Shares:
BankBoston, Boston, Massachusetts, owned approximately 163,767,132 shares
(100.00%)
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
===============================================================================
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
===============================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Institutional Service Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation From
Address Principal Occupations
Compensation Trust and Fund
Position With Trust for Past 5 Years From
Trust Complex
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of
$0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and
Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management,
and companies in the
Pittsburgh, PA Federated Research; Chairman and Director,
Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee,
Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior
Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group,
Inc.; investment
TRUSTEE Director, Member of Executive Committee,
University companies in the
of
Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation;
Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates,
Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real
estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly:
President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and
Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive
Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman
and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank
Corp.; investment
TRUSTEE Director, Ryan Homes,
Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany
Fund, Trust and
571 Hayward Mill Road
Inc. 56 other
Concord,
MA
investment
TRUSTEE Retired: President, Boston Stock Exchange,
Inc.; companies in the
Regional Administrator, United States Securities
and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of
Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore
Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia
Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny &
Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.;
formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western
Region; investment
Kochuba Partner, Meyer and
Flaherty. companies in the
205 Ross
Street
Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth
of Trust and
One Royal Palm Way Massachusetts General Court; President, State
Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street
Corporation. investment
Palm Beach,
FL
companies in the
TRUSTEE Retired: Director, VISA USA and VISA
International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne
University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica &
Murray. 56 other
President,
Duquesne
investment
University Retired: Dean and Professor of Law, University
of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of
Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics,
Athens; Trust and
1925 Professor, International Politics;
Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment
for investment
University of Pittsburgh International Peace, RAND Corporation,
Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National
Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference
Planning. Trust and
4905 Bayard
Street 56
other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company
of investment
TRUSTEE America; business
owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
$0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities
Corp. and
Federated Investors
Tower 8 other
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA Fund
Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the
$0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of
some and
Federated Investors Tower of the Funds in the Federated Fund Complex;
President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.;
President investment
Pittsburgh, PA and Trustee, Federated Advisers,
Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President
and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the
$0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive
Vice and
Federated Investors Tower President and Treasurer of some of the Funds in
the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman,
Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated
Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the
$0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice
President, and
Federated Investors Tower Secretary, and Director, Federated Investors,
Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated
Management, investment
Pittsburgh, PA and Federated Research; Director, Federated
Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.;
Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
$0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services
Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly:
various 56 other
1001 Liberty Avenue management positions within Funds Financial
Services investment
Pittsburgh, PA Division of Federated Investors,
Inc. companies in the
TREASURER
Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in
$0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee
of and
Federated Investors Tower some of the Funds in the Federated Fund
Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors,
Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities
Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various
$0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex;
Executive and
Federated Investors Tower Vice President, Federated Investment
Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated
Advisers, investment
Pittsburgh, PA Federated Management, Federated Research,
and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered
Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
$0 $0 for the Trust
Birthdate: September 12, investment companies in the Federated Fund
Complex; and
1953 Senior Vice President, Federated
Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated
Global companies
1001 Liberty Avenue Research Corp., Federated Management,
Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
$0 $0 for the Trust
Birthdate: January 15, 1960 investment companies in the Federated Fund
Complex; and
Federated Investors Tower Vice President, Federated Investment
Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research
Corp., companies
Pittsburgh, PA Federated Management, Federated Research,
Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated Investors.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and
its affiliates exercise reasonable business judgment in selecting those brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund.
Federated Services Company provides these at the following annual rate of the
average aggregate daily net assets of all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
------------------ -----------------------------
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended October 31, 1998
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
Advisory Fee Earned $1,810,446 $1,006,548 $856,487
- -------------------------------------------------------------------------------------------------------------
Advisory Fee Reduction $397,073 $294,305 $297,835
- -------------------------------------------------------------------------------------------------------------
Brokerage Commissions $0
$0 $0
- -------------------------------------------------------------------------------------------------------------
Administrative Fee $273,047 $158,069
$155,108
- -------------------------------------------------------------------------------------------------------------
Shareholder Services Fee
- -------------------------------------------------------------------------------------------------------------
Boston 1784 Funds Shares $0 ----
- ----
- -------------------------------------------------------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
===============================================================================
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-years and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on March
8, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boston 1784 Funds Shares
- -------------------------------------------------------------------------------------------------------------
Total Return -- 3.03% 2.90%
2.77%
- -------------------------------------------------------------------------------------------------------------
Yield 2.75% --
- -- --
- -------------------------------------------------------------------------------------------------------------
Effective Yield 2.79% -- -- --
Tax-Equivalent Yield 4.62% -- -- --
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
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- $42,351- $102,301- $155,951-
OVER
RETURN 42,350 102,300 155,950 278,450
$278,450
SINGLE $1- $25,351- $61,401- $128,101-
OVER
RETURN 25,350 61,400 128,100 278,450
$278,450
- -------------------------------------------------------------------------------------------------------------------
<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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
WHO IS FEDERATED INVESTORS, INC.?
===============================================================================
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
- --------------------------------------------------------------------------------
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
ADDRESSES
================================================================================
Massachusetts Municipal Cash Trust
Boston 1784 Funds 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 Auditors
Arthur Andersen LLP 225 Franklin Street
Boston, MA 02110-2812
- -------------------------------------------------------------------------------
Prospectus
Massachusetts Municipal Cash Trust
A Portfolio of Federated Municipal Trust
Institutional Service Shares
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and Massachusetts state income tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Contents
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Accountants 24
December 31, 1998
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and Massachusetts state income tax
consistent with stability of principal. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax and Massachusetts state income
tax. Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in securities of
a single issuer, an investment in the Fund may involve additional risks compared
to a fully diversified money market fund. Although the Fund seeks to maintain a
stable net asset value, it is possible to lose money investing in the Fund.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[Graphic] - See Appendix A-8
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Service
Shares Class on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net asset
value.
The Fund's Institutional Service Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998 was 2.24%.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 1.14% (quarter ended March 31, 1991). Its lowest
quarterly return was 0.46% (quarter ended March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97 was
3.35%.
The following table represents the Fund's Institutional Service Shares Average
Annual Total Return through 12/31/97.
<TABLE>
<CAPTION>
Calendar Period Fund
- -----------------------------------------------------------------------
<S> <C>
1 Year 3.13%
- -----------------------------------------------------------------------
5 Years 2.76%
- -----------------------------------------------------------------------
Start of Performance1 3.18%
- -----------------------------------------------------------------------
</TABLE>
1 The Fund's Institutional Service Shares start of performance date was May 18,
1990.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-Day
Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you
can analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
Massachusetts Municipal Cash Trust
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy, hold,
and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
<S>
<C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price)......................... None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as
applicable)................................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering
price).......................................................................... None
Redemption Fee (as a percentage of amount redeemed, if
applicable)........................................... None
Exchange
Fee.................................................................................................
None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management
Fee/2/............................................................................................
0.50%
Distribution (12b-1)
Fee..................................................................................... None
Shareholder Services
Fee/3/.................................................................................. 0.25%
Other
Expenses...............................................................................................
0.16%
Total Annual Fund Operating
Expenses......................................................................... 0.91%
- ------------------------------------------------------------------------------------------------------------------------
/1/ Although not contractually obligated to do so, the adviser and the shareholder services provider
waived certain amounts. These are shown below along with the net expenses the Fund actually paid
for the fiscal year ended October 31, 1998.
Waiver of Fund
Expenses.................................................................................. 0.36%
Total Actual Annual Fund Operating Expenses (after
waivers).............................................. 0.55%
/2/ The adviser has voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was
0.39%
for the year ended October 31, 1998.
/3/ The shareholder services fee has been voluntarily reduced. This voluntary reduction can be terminated
at
any time. There was no shareholder services fee paid by the Fund (after the voluntary reduction) for
the
year ended October 31, 1998.
</TABLE>
Example
The following Example is intended to help you compare the cost of investing in
Massachusetts Municipal Cash Trust's Institutional Service Shares with the cost
of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Massachusetts Municipal Cash Trust's
Institutional Service Shares operating expenses are before waivers as shown
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Expenses assuming
no redemption $93 $290 $504 $1,120
- -------------------------------------------------------------------------------
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum credit
standards. The Adviser targets an average portfolio maturity based upon its
interest rate outlook and the tax-exempt securities available. The Adviser
structures the portfolio by combining variable rate demand instruments and
municipal notes. Depending on the supply of tax-exempt securities, the Adviser
generally shortens the portfolio's maturity when it expects interest rates to
rise and extends the maturity when it expects interest rates to fall.
Temporary Defensive Investments
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Massachusetts state income tax. Temporary investments
will be of comparable quality to other securities in which the Fund invests.
This may cause the Fund to give up greater investment returns to maintain the
safety of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
Tax-Exempt securities
Tax-exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
Variable Rate Demand Instruments
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
Municipal Notes
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
Investment Ratings
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating
services or be of comparable quality to securities having such ratings.
Credit Enhancement
Credit enhancement consist of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a tax-exempt money market fund are described
below.
Credit Risk
. Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try to
minimize this risk by purchasing higher quality securities.
. Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. If the security is unrated, greater reliance is
placed on the Adviser's credit assessment.
Market Risk
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
Sector Risk
. Most of the Fund's securities will be invested in issuers located in
Massachusetts. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies in
similar businesses or with other similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end
of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum
is reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Service Shares and Boston 1784
Funds Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-Massachusetts taxpayers because it
invests in Massachusetts tax-exempt securities. The Distributor and its
affiliates may pay out of their assets other amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time) on the same day. You will become the owner of Shares
and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired to
you the following business day. You will receive that day's dividend. Under
limited circumstances, arrangements may be made with the Distributor for same-
day payment of redemption proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time).
By Mail
You may redeem Shares by mailing a written request to the Fund. Your redemption
request will be processed on the day the Fund receives your written request in
proper form. Dividends are paid up to and including the day that a redemption
request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until a check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
Confirmations and Account Statements
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Massachusetts state personal income tax to the extent they
are derived from interest on obligations exempt from Massachusetts personal
income taxes. Capital gains and non-exempt dividends are taxable whether paid in
cash or reinvested in the Fund. Redemptions are taxable sales. Please consult
your tax adviser regarding your federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
Advisory Fees
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks effect of the Year 2000
problem, the Adviser is reviewing information regarding the Year 2000 readiness
of issuers of securities the Fund may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights--Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 24.
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<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 0.03 0.02
- ---------------------------------------
Less Distributions:
- ---------------------------------------
Distributions from net investment income (0.03) (0.03)
(0.03) (0.03) (0.02)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total Return/1/ 3.04% 3.09%
3.07% 3.34% 2.14%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses 0.55% 0.55%
0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.98% 3.05%
3.02% 3.30% 2.12%
- --------------------------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement2 0.36% 0.40%
0.42% 0.45% 0.35%
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $256,386 $141,869 $119,739
$99,628 $90,013
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
Principal
Amount
Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C>
<S> <C>
/1/SHORT-TERM MUNICIPALS--99.2%
Massachusetts--95.6%
$ 8,703,000 Ashland, MA, 4.00% BANs,
12/10/1998 $ 8,706,600
- --------------------------------------------------------------------------------------------
6,128,000 Attleboro, MA, 3.80% BANs,
7/2/1999 6,131,895
- --------------------------------------------------------------------------------------------
1,245,000 Attleboro, MA, 4.00% BANs,
12/22/1998 1,245,487
- --------------------------------------------------------------------------------------------
3,800,000 Boston, MA, UT GO, 4.50% Bonds (FGIC INS),
1/1/1999 3,805,545
- --------------------------------------------------------------------------------------------
1,000,000 Brockton, MA, 4.50% Bonds (MBIA INS),
4/1/1999 1,003,187
- --------------------------------------------------------------------------------------------
5,000,000 Central Berkshire, MA Regional School District, 4.10% BANs,
12/15/1998 5,002,646
- --------------------------------------------------------------------------------------------
26,721,542 Clipper, MA Tax Exempt Trust, (Series A) Weekly VRDNs (Massachusetts State Lottery
Commission)/(AMBAC INS)/(State Street Bank and Trust Co.
LIQ) 26,721,542
- --------------------------------------------------------------------------------------------
23,130,000 Clipper, MA Tax Exempt Trust 1994-2 Weekly VRDNs (State Street Bank and Trust Co.
LIQ) 23,130,000
- --------------------------------------------------------------------------------------------
11,662,200 Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co.
LIQ) 11,662,200
- --------------------------------------------------------------------------------------------
3,465,000 Clipper, MA Tax Exempt Trust, (Series 1994-1) Weekly VRDNs (Massachusetts State
HFA)/(MBIA INS)/(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
- --------------------------------------------------------------------------------------------
6,000,000 Commonwealth of Massachusetts, (1997 Series B) Weekly VRDNs (Landesbank
Hessen-Thueringen, Frankfurt
LIQ) 6,000,000
- --------------------------------------------------------------------------------------------
11,175,000 Commonwealth of Massachusetts, (Series 1998 FR/RI-A20) Weekly VRDNs (MBIA
INS)/(National
Westminster Bank, PLC, London
LIQ) 11,175,000
- --------------------------------------------------------------------------------------------
8,855,000 Commonwealth of Massachusetts, Floater Certificates (Series 1998-41) Weekly VRDNs
(Morgan
Stanley, Dean Witter Municipal Funding, Inc.
LIQ) 8,855,000
- --------------------------------------------------------------------------------------------
5,000,000 Everett, MA, 4.00% BANs (Fleet National Bank, Springfield, MA LOC),
3/18/1999 5,007,244
- --------------------------------------------------------------------------------------------
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London
LOC) 3,200,000
- --------------------------------------------------------------------------------------------
2,290,000 Framingham, MA, 4.00% BANs,
2/5/1999 2,292,021
- --------------------------------------------------------------------------------------------
2,430,000 Gloucester, MA, 3.75% BANs,
8/5/1999 2,441,697
- --------------------------------------------------------------------------------------------
2,100,000 Ipswich, MA, 4.00% BANs,
11/19/1998 2,100,402
- --------------------------------------------------------------------------------------------
2,190,000 Mansfield, MA, 3.40% BANs,
10/28/1999 2,196,277
- --------------------------------------------------------------------------------------------
15,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Landesbank
Hessen-Thueringen, Frankfurt
LOC) 15,800,000
- --------------------------------------------------------------------------------------------
3,125,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little
Wanderers)/(BankBoston, N.A.
LOC) 3,125,000
- --------------------------------------------------------------------------------------------
2,000,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/(Fleet Bank N.A.
LOC) 2,000,000
- --------------------------------------------------------------------------------------------
4,725,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Endicott College)/(BankBoston, N.A.
LOC) 4,725,000
- --------------------------------------------------------------------------------------------
9,915,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Hallmark Health System)/(FSA INS)/(Fleet
National Bank, Springfield, MA
LIQ) 9,915,000
- --------------------------------------------------------------------------------------------
8,415,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston)/(Sanwa Bank
Ltd, Osaka
LIQ) 8,415,000
- --------------------------------------------------------------------------------------------
2,300,000 Massachusetts HEFA, (Series I) Weekly VRDNs (Harvard
University) 2,300,000
- --------------------------------------------------------------------------------------------
7,395,000 Massachusetts HEFA, PA-362 Weekly VRDNs (Amherst College)/(Merrill Lynch Capital
Services, Inc.
LIQ) 7,395,000
- --------------------------------------------------------------------------------------------
3,120,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/(State Street Bank and Trust Co.
LOC)
3,120,000
- --------------------------------------------------------------------------------------------
1,800,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian
Imperial Bank of Commerce, Toronto
LOC) 1,800,000
- --------------------------------------------------------------------------------------------
20,000,000 Massachusetts IFA, (Series 1992B), 3.40% CP (New England Power Co.), Mandatory Tender
12/7/1998
20,000,000
- --------------------------------------------------------------------------------------------
17,100,000 Massachusetts IFA, (Series 1992B), 3.40% CP (New England Power Co.), Mandatory Tender
12/9/1998
17,100,000
- --------------------------------------------------------------------------------------------
5,900,000 Massachusetts IFA, (Series 1994) Weekly VRDNs (Nova Realty Trust)/(Fleet National Bank,
Springfield, MA
LOC) 5,900,000
- --------------------------------------------------------------------------------------------
2,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/(Fleet Bank N.A.
LOC) 2,000,000
- --------------------------------------------------------------------------------------------
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical
Research)
5,800,000
- --------------------------------------------------------------------------------------------
7,009,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/ (BankBoston, N.A.
LOC) 7,009,000
- --------------------------------------------------------------------------------------------
2,500,000 Massachusetts IFA, (Series 1997) Weekly VRDNs (Massachusetts Society for the Prevention
of Cruelty to Animals)/(Fleet National Bank, Springfield, MA
LOC) 2,500,000
- --------------------------------------------------------------------------------------------
6,000,000 Massachusetts IFA, (Series 1997) Weekly VRDNs (Mount Ida College)/(Credit Local de
France
LOC)
6,000,000
- --------------------------------------------------------------------------------------------
1,325,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/(Bank of Nova Scotia,
Toronto
LOC)
1,325,000
- --------------------------------------------------------------------------------------------
9,875,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(Fleet
National Bank, Springfield, MA
LOC) 9,875,000
- --------------------------------------------------------------------------------------------
5,755,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College
Issue)/(BankBoston, N.A.
LOC) 5,755,000
- --------------------------------------------------------------------------------------------
8,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Bonds
(1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto
LOC) 8,800,000
- --------------------------------------------------------------------------------------------
9,000,000 Massachusetts Port Authority, PT-1073 (Series 1998-D) Weekly VRDNs (Merrill Lynch
Capital
Services, Inc.
LIQ) 9,000,000
- --------------------------------------------------------------------------------------------
5,000,000 Massachusetts State HFA, Multi-Family Refunding Revenue Bonds (1995 Series A) Weekly
VRDNs (Republic National Bank of New York
LIQ) 5,000,000
- --------------------------------------------------------------------------------------------
2,215,000 Massachusetts Turnpike Authority, (PA-324) Weekly VRDNs (MBIA INS)/(Merrill Lynch
Capital
Services, Inc.
LIQ) 2,215,000
- --------------------------------------------------------------------------------------------
8,295,000 Massachusetts Turnpike Authority, PT-135 Weekly VRDNs (MBIA INS)/(Banco Santander SA
LIQ) 8,295,000
- --------------------------------------------------------------------------------------------
14,400,000 Massachusetts Turnpike Authority, Variable Rate Certificates (Series 1997N) Weekly
VRDNs
(MBIA INS)/(Bank of America NT and SA, San Francisco
LIQ) 14,400,000
- --------------------------------------------------------------------------------------------
6,205,000 Melrose, MA, 3.80% BANs,
8/19/1999 6,212,113
- --------------------------------------------------------------------------------------------
1,815,000 Middleborough, MA, 4.00% BANs,
3/5/1999 1,816,781
- --------------------------------------------------------------------------------------------
1,117,500 Newbury, MA, 4.00% BANs,
8/13/1999 1,119,175
- --------------------------------------------------------------------------------------------
3,625,000 Newburyport, MA, 4.00% BANs,
2/12/1999 3,626,971
- --------------------------------------------------------------------------------------------
7,044,000 Paxton, MA, 4.00% BANs,
6/18/1999 7,052,509
- --------------------------------------------------------------------------------------------
2,220,000 Plymouth, MA, 3.25% BANs,
10/21/1999 2,225,009
- --------------------------------------------------------------------------------------------
4,050,000 Quabbin Regional School District, MA, 4.00% BANs,
1/15/1999 4,051,602
- --------------------------------------------------------------------------------------------
1,257,000 Randolph, MA, 4.00% BANs,
6/18/1999 1,258,456
- --------------------------------------------------------------------------------------------
5,000,000 Randolph, MA, 4.00% BANs,
7/13/1999 5,006,681
- --------------------------------------------------------------------------------------------
1,595,000 Randolph, MA, 4.00% BANs,
8/20/1999 1,598,685
- --------------------------------------------------------------------------------------------
2,980,000 Springfield, MA, 4.00% BANs (Fleet National Bank, Springfield, MA LOC),
6/25/1999 2,985,564
- --------------------------------------------------------------------------------------------
2,000,000 Stow, MA, 3.75% BANs,
3/31/1999 2,000,789
- --------------------------------------------------------------------------------------------
5,768,000 Stow, MA, 3.80% BANs,
8/20/1999 5,770,215
- --------------------------------------------------------------------------------------------
1,424,000 Stow, MA, 4.00% BANs,
3/31/1999 1,425,972
- --------------------------------------------------------------------------------------------
2,000,000 Topsfield, MA, 3.75% BANs,
9/23/1999 2,007,744
- --------------------------------------------------------------------------------------------
2,100,000 Ware, MA, 4.00% BANs,
12/18/1998 2,100,932
- --------------------------------------------------------------------------------------------
2,750,000 Ware, MA, 4.00% BANs,
12/18/1998 2,751,211
- --------------------------------------------------------------------------------------------
1,540,000 Ware, MA, 4.00% BANs,
6/26/1999 1,542,400
- --------------------------------------------------------------------------------------------
3,200,000 Westfield, MA, 3.75% BANs,
10/22/1999 3,221,133
- --------------------------------------------------------------------------------------------
6,120,000 /2/Weymouth, MA Housing Authority, PT 1062, 3.80% TOBs (Queen Ann Apartments)/(Merrill
Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC), Optional
Tender
8/5/1999 6,120,000
- --------------------------------------------------------------------------------------------
2,500,000 Weymouth, MA, 4.25% BANs,
11/5/1998 2,500,061
- --------------------------------------------------------------------------------------------
7,375,000 Worcester, MA, 4.00% BANs,
8/26/1999 7,386,549
- --------------------------------------------------------------------------------------------
Total
400,491,295
- --------------------------------------------------------------------------------------------
Puerto Rico--3.6%
- --------------------------------------------------------------------------------------------
15,000,000 Commonwealth of Puerto Rico, Floating Rate Trust Receipts (Series 1997) Weekly VRDNs
(Commerzbank AG, Frankfurt LIQ)/(Commerzbank AG, Frankfurt
LOC) 15,000,000
- --------------------------------------------------------------------------------------------
/3/TOTAL INVESTMENTS (AT AMORTIZED
COST) $415,491,295
- --------------------------------------------------------------------------------------------
</TABLE>
1 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, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-
1+, F-1 and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
First Tier Second Tier
------------------------------------------
100.00% 0.00%
------------------------------------------
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, restricted securities
amounted to $6,120,000 which represents 1.5% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($418,943,091) at October 31, 1998.
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
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
RANs --Revenue Anticipation Notes
SA --Support Agreement
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------
Total investments in securities, at amortized cost and
value $415,491,295
- ---------------------------------------------------------------------------
Cash
620,120
- ---------------------------------------------------------------------------
Income
receivable
3,419,558
- ---------------------------------------------------------------------------
Receivable for shares
sold 1,132
- ---------------------------------------------------------------------------
Prepaid
expenses
7,159
- -----------------------------------------------------------------------------------------------------------------------
Total
assets
419,539,264
- -----------------------------------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------
Payable for shares redeemed $ 24,993
- ---------------------------------------------------------------------------
Income distribution payable 494,020
- ---------------------------------------------------------------------------
Accrued expenses 77,160
- -----------------------------------------------------------------------------------------------------------------------
Total
liabilities
596,173
- -----------------------------------------------------------------------------------------------------------------------
Net Assets for 418,943,091 shares
outstanding $418,943,091
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------
Institutional Service Shares:
- ---------------------------------------------------------------------------
$256,385,640 / 256,385,640 shares
outstanding $ 1.00
- -----------------------------------------------------------------------------------------------------------------------
Boston 1784 Funds Shares:
- ---------------------------------------------------------------------------
$162,557,451 / 162,557,451 shares
outstanding $ 1.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year ended october 31, 1998
<TABLE>
<CAPTION>
Investment Income:
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest
$12,817,374
- ---------------------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------
Investment advisory fee $ 1,810,446
- ---------------------------------------------------------------------
Administrative personnel and services fee 273,047
- ---------------------------------------------------------------------
Custodian fees 15,646
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 72,296
- ---------------------------------------------------------------------
Directors'/Trustees' fees 2,902
- ---------------------------------------------------------------------
Auditing fees 12,692
- ---------------------------------------------------------------------
Legal fees 11,251
- ---------------------------------------------------------------------
Portfolio accounting fees 90,795
- ---------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 563,458
- ---------------------------------------------------------------------
Shareholder services fee--Boston 1784 Funds Shares 341,765
- ---------------------------------------------------------------------
Share registration costs 79,768
- ---------------------------------------------------------------------
Printing and postage 34,046
- ---------------------------------------------------------------------
Insurance premiums 22,713
- ---------------------------------------------------------------------
Miscellaneous 640
- ---------------------------------------------------------------------------------------------------------------
Total expenses 3,331,465
- ---------------------------------------------------------------------------------------------------------------
Waivers:
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(397,073)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (563,458)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Boston 1784 Funds Shares (341,765)
- ---------------------------------------------------------------------------------------------------------------
Total waivers (1,302,296)
- ---------------------------------------------------------------------------------------------------------------
Net expenses
2,029,169
- ---------------------------------------------------------------------------------------------------------------
Net investment income
$10,788,205
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
<C>
Increase (Decrease) in Net Assets
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $ 10,788,205
$ 6,125,532
- ---------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations
10,788,205 6,125,532
- ---------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ----------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------
Institutional Service Shares
(6,723,838) (4,462,883)
- ----------------------------------------------------------------------
Boston 1784 Funds Shares
(4,064,367) (1,662,649)
- ---------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from distributions to shareholders
(10,788,205) (6,125,532)
- ----------------------------------------------------------------------
Share Transactions:
- ----------------------------------------------------------------------
Proceeds from sale of shares 1,191,190,660
682,162,039
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared
5,640,601 3,135,034
- ----------------------------------------------------------------------
Cost of shares redeemed (993,594,809)
(643,996,755)
- ---------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from share transactions
203,236,452 41,300,318
- ---------------------------------------------------------------------------------------------------------------------
Change in net assets
203,236,452 41,300,318
- ---------------------------------------------------------------------------------------------------------------------
Net Assets:
- ----------------------------------------------------------------------
Beginning of period 215,706,639
174,406,321
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 418,943,091 $
215,706,639
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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.
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 ("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, 1998,
is as follows:
Acquisition Acquisition
Security Date Cost
- ----------------------------------------------------------------------
Weymouth, MA Housing Authority 8/31/1998 $6,120,000
- ----------------------------------------------------------------------
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. At October 31, 1998, capital paid-in aggregated $418,943,091.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
<C>
Institutional Service Shares:
- ---------------------------------------------------------------------------
Shares sold
943,828,322 619,964,162
- ---------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared
1,573,009 1,473,299
- ---------------------------------------------------------------------------
Shares redeemed
(830,885,045) (599,306,953)
- -----------------------------------------------------------------------------------------------------------------------
Net change resulting from Institutional Service Share transactions
114,516,286 22,130,508
- -----------------------------------------------------------------------------------------------------------------------
Year Ended October 31
1998 1997
- ---------------------------------------------------------------------------
Boston 1784 Funds Shares:
- ---------------------------------------------------------------------------
Shares sold
247,362,338 62,197,877
- ---------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared
4,067,592 1,661,735
- ---------------------------------------------------------------------------
Shares redeemed
(162,709,764) (44,689,802)
- -----------------------------------------------------------------------------------------------------------------------
Net change resulting from Boston 1784 Funds Share transactions
88,720,166 19,169,810
- -----------------------------------------------------------------------------------------------------------------------
Net change resulting from share transactions
203,236,452 41,300,318
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</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, Inc. 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 Serves Shares for the period. Under the terms of a
Shareholder Service Agreement with BankBoston, N.A., the fund will pay
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, 1998, 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 $523,571,958 and $377,762,628,
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, 1998, 46.4% 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 6.4% of total investments.
YEAR 2000 (unaudited)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Independent Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF FEDERATED
MUNICIPAL TRUST (MASSACHUSSETTS 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, 1998 and the related statement of
operations for the year then ended and the statement changes in net assets and
the financial highlights 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, 1998 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust), as of October 31, 1998, 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.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
Massachusetts Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at 1-
800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Federated
Massachusetts Municipal Cash Trust
Federated Investors Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229840
0032603A-ISS (12/98)
Federated is a registered mark
of Federated Investors, Inc.
1998 (copyright)Federated Investors, Inc.
LOGO RECYCLED PAPER
Statement of Additional Information December 31, 1998
Massachusetts Municipal Cash Trust
[A Portfolio of Federated Municipal Trust]
Institutional Service Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Massachusetts Municipal
Cash Trust dated December 31,1998. Obtain the prospectus without charge by
calling 1-800-341-7400.
-----------------------------------------------------------------------------
Contents
-----------------------------------------------------------------------------
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides
Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229303
0032603B-ISS (12/98)
HOW IS THE FUND ORGANIZED?
================================================================================
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Service Shares and Boston 1784 Funds Shares
(Shares). This SAI relates to Institutional Service Shares.
SECURITIES IN WHICH THE FUND INVESTS
================================================================================
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A rating service's two highest rating categories are determined without regard
for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2 by Moody's Investors Service,
Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch IBCA, Inc. (Fitch) are all
considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and
Massachusetts state income tax. This policy is fundamental and cannot be changed
without shareholder approval.
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.
Lending Cash or Securities
The Fund will not lend any of its assets except that it may acquire publicly or
non publicly issued Massachusetts tax-exempt 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.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund 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 Board 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 for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the Rule)
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
HOW IS THE FUND SOLD?
================================================================================
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
SUBACCOUNTING SERVICES
================================================================================
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
================================================================================
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV.
The portfolio securities will be selected in a manner that the Fund's Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
- --------------------------------------------------------------------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
================================================================================
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
Cambridge Trust Company, Cambridge, Massachusetts, owned approximately
16,619,664 shares (6.56%); Bob and Company, Boston, Massachusetts, owned
approximately 21,074,831 shares (8.32%); Turtle and Company, Boston,
Massachusetts, owned approximately 35,044,626 shares (13.84%); and State Street
Bank and Trust, North Quincy, Massachusetts, owned approximately 66,411,123
shares (26.22).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Boston 1784 Funds Shares:
BankBoston, Boston, Massachusetts, owned approximately 163,767,132 shares
(100.00%)
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
================================================================================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Institutional Service Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Total
Name
Compensation
Birthdate
Aggregate From Trust
Address Principal Occupations
Compensation and Fund
Position With Trust for Past 5 Years
From Trust Complex
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of the
Federated $ 0 $0 for the
Birthdate: July 28, 1924 Fund Complex. Chairman and Director, Federated Investors,
Inc.; Trust and 56
Federated Investors Tower Chairman and Trustee, Federated Advisers, Federated Management,
and other
1001 Liberty Avenue Federated Research; Chairman and Director, Federated Research
Corp., investment
Pittsburgh, PA and Federated Global Research Corp.; Chairman, Passport
Research, companies in
CHAIRMAN and TRUSTEE
Ltd. the Fund
Complex
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director,
Member $4,076.31 $111,222 for
Birthdate: February 3, 1934 of Executive Committee, Children's Hospital of Pittsburgh;
formerly: the Trust
15 Old Timber Trail Senior Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc.; and 56 other
Pittsburgh, PA Director, Member of Executive Committee, University of
Pittsburgh. investment
TRUSTEE
companies in
the Fund
Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
President, $4,484.62 $122,362 for
Birthdate: June 23, 1937 Investment Properties Corporation; Senior Vice President, John
R. the Trust
Wood/IPC Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in
private and 56 other
John R. Wood and Associates, Inc. real estate ventures in Southwest Florida; formerly:
President, investment
Realtors Naples Property Management, Inc. and Northgate Village
Development companies in
3255 Tamiami Trail North Naples,
Corporation. the Fund
FL
Complex
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; Director
and $4,484.62 $122,362 for
Birthdate: July 4, 1918 Member of the Executive Committee, Michael Baker, Inc.;
formerly: the Trust
One PNC Plaza-23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; and 56 other
Pittsburgh, PA Director, Ryan Homes,
Inc. investment
TRUSTEE
companies in
Retired: Director, United Refinery; Director, Forbes Fund;
Chairman, the Fund
Pittsburgh Foundation; Chairman, Pittsburgh Civic Light
Opera. Complex
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
Attorney-at-law; $4,484.62 $122,362 for
Birthdate: May 18, 1922 Director, The Emerging Germany Fund,
Inc. the Trust
571 Hayward Mill
Road and
56 other
Concord, MA Retired: President, Boston Stock Exchange, Inc.;
Regional investment
TRUSTEE Administrator, United States Securities and Exchange
Commission. companies in
the Fund
Complex
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; Professor
of $4,076.31 $111,222 for
Birthdate: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University
of the Trust
3471 Fifth Avenue Pittsburgh Medical Center Downtown; Hematologist, Oncologist,
and and 56 other
Suite 1111 Internist, Presbyterian and Montefiore Hospitals; Member,
National investment
Pittsburgh, PA Board of Trustees, Leukemia Society of
America. companies in
TRUSTEE
the Fund
Complex
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund Complex; Attorney,
of $4,484.62 $122,362 for
Birthdate: June 18, 1924 Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park the Trust
Miller, Ament, Henny & Kochuba Restaurants, Inc.; formerly: Counsel, Horizon Financial,
F.A., and 56 other
205 Ross Street Western Region; Partner, Meyer and
Flaherty. investment
Pittsburgh,
PA
companies in
TRUSTEE
the Fund
Complex
Peter E. Madden Director or Trustee of the Federated Fund Complex;
formerly: $4,076.31 $111,222 for
Birthdate: March 16, 1942 Representative, Commonwealth of Massachusetts General
Court; the Trust
One Royal Palm Way President, State Street Bank and Trust Company and State
Street and 56 other
100 Royal Palm Way
Corporation. investment
Palm Beach,
FL
companies in
TRUSTEE Retired: Director, VISA USA and VISA International; Chairman
and the Fund
Director, Massachusetts Bankers Association; Director,
Depository Complex
Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President,
Law $4,076.31 $111,222 for
Birthdate: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica &
Murray. the Trust
President, Duquesne
University and 56
other
Pittsburgh, PA Retired: Dean and Professor of Law, University of Pittsburgh
School investment
TRUSTEE of Law; Dean and Professor of Law, Villanova University School
of companies in
Law. the Fund
Complex
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; President,
World $4,076.31 $111,222 for
Birthdate: September 14, 1925 Society of Ekistics, Athens; Professor, International
Politics; the Trust
1202 Cathedral of Learning Management Consultant; Trustee, Carnegie Endowment for
International and 56 other
University of Pittsburgh Peace, RAND Corporation, Online Computer Library Center,
Inc., investment
Pittsburgh, PA National Defense University and U.S. Space Foundation;
President companies in
TRUSTEE Emeritus, University of Pittsburgh; Founding Chairman,
National the Fund
Advisory Council for Environmental Policy and Technology,
Federal Complex
Emergency Management Advisory Board and Czech Management
Center,
Prague.
Retired: Professor, United States Military Academy;
Professor,
United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
Public $4,076.31 $111,222 for
Birthdate: June 21, 1935 Relations/Marketing/Conference
Planning. the Trust
4905 Bayard
Street
and 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of
America; investment
TRUSTEE business
owner. companies in
the Fund
Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
Federated $ 0 $0 for the
Birthdate: May 2, 1929 Securities
Corp. Trust and 8
Federated Investors
Tower other
1001 Liberty
Avenue
investment
Pittsburgh,
PA
companies in
PRESIDENT and
TRUSTEE
the Fund
Complex
J. Christopher Donahue##* President or Executive Vice President of the Federated Fund
Complex; $ 0 $0 for the
Birthdate: April 11, 1949 Director or Trustee of some of the Funds in the Federated
Fund Trust and 18
Federated Investors Tower Complex; President and Director, Federated Investors,
Inc.; other
1001 Liberty Avenue President and Trustee, Federated Advisers, Federated Management,
and investment
Pittsburgh, PA Federated Research; President and Director, Federated Research
Corp. companies in
EXECUTIVE VICE PRESDIENT and Federated Global Research Corp.; President, Passport
Research, the Fund
Ltd.; Trustee, Federated Shareholder Services Company;
Director, Complex
Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the Federated
Fund $ 0 $0 for the
Birthdate: October 22, 1930 Complex; President, Executive Vice President and Treasurer of
some Trust and 1
Federated Investors Tower of the Funds in the Federated Fund Complex; Vice Chairman,
Federated other
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Advisers,
Federated investment
Pittsburgh, PA Management, Federated Research, Federated Research Corp.,
Federated companies in
EXECUTIVE VICE PRESIDENT Global Research Corp. and Passport Research, Ltd.; Executive
Vice the Fund
President and Director, Federated Securities Corp.;
Trustee, Complex
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated
Fund $ 0 $0 for the
Birthdate: October 26, 1938 Complex; Executive Vice President, Secretary, and
Director, Trust and 56
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Advisers,
Federated other
1001 Liberty Avenue Management, and Federated Research; Director, Federated
Research investment
Pittsburgh, PA Corp. and Federated Global Research Corp.; Director,
Federated companies in
EXECUTIVE VICE PRESIDENT and Services Company; Director, Federated Securities
Corp. the Fund
SECRETARY
Complex
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President -
Funds $ 0 $0 for the
Birthdate: June 17, 1954 Financial Services Division, Federated Investors, Inc.;
Formerly: Trust and 56
Federated Investors Tower various management positions within Funds Financial
Services other
1001 Liberty Avenue Division of Federated Investors,
Inc. investment
Pittsburgh,
PA
companies in
TREASURER
the Fund
Complex
Richard B. Fisher* President or Vice President of some of the Funds in the
Federated $ 0 $0 for the
Birthdate: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in
the Trust and 6
Federated Investors Tower Federated Fund Complex; Executive Vice President,
Federated other
1001 Liberty Avenue Investors, Inc.; Chairman and Director, Federated Securities
Corp. investment
Pittsburgh,
PA
companies in
VICE
PRESIDENT
the Fund
Complex
William D. Dawson, III Chief Investment Officer of this Fund and various other Funds in
the $ 0 $0 for the
Birthdate: March 3, 1949 Federated Fund Complex; Executive Vice President,
Federated Trust and 41
Federated Investors Tower Investment Counseling, Federated Global Research Corp.,
Federated other
1001 Liberty Avenue Advisers, Federated Management, Federated Research, and
Passport investment
Pittsburgh, PA Research, Ltd.; Registered Representative, Federated
Securities companies in
CHIEF INVESTMENT OFFICER Corp.; Portfolio Manager, Federated Administrative Services;
Vice the Fund
President, Federated Investors, Inc.; Formerly: Executive
Vice Complex
President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
investment $ 0 $0 for the
Birthdate: September 12, 1953 companies in the Federated Fund Complex; Senior Vice
President, Trust and 7
Federated Investors Tower Federated Investment Counseling, Federated Advisers,
Federated other
1001 Liberty Avenue Global Research Corp., Federated Management, Federated
Research, investment
Pittsburgh, PA Federated Research Corp. and Passport Research, Ltd.; Formerly:
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President, Federated Advisers, Federated Management,
Federated the Fund
PRESIDENT Research, Federated Research Corp. , Passport Research, Ltd.
and Complex
Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
investment $ 0 $0 for the
Birthdate: January 15, 1960 companies in the Federated Fund Complex; Vice President,
Federated Trust and 3
Federated Investors Tower Investment Counseling, Federated Advisers, Federated Global
Research other
1001 Liberty Avenue Corp., Federated Management, Federated Research, Federated
Research investment
Pittsburgh, PA Corp. and Passport Research, Ltd.; Formerly: Assistant
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President and Investment Analyst, Federated Research Corp.
and the Fund
PRESIDENT Passport Research, Ltd. ; Assistant Vice President,
Federated Complex
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and
its affiliates exercise reasonable business judgment in selecting those brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
------------------ -----------------------------
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Advisory Fee Earned $1,810,446 $1,006,548 $856,487
Advisory Fee Reduction 397,073 294,305 297,835
Brokerage Commissions 0 0 0
Administrative Fee 273,047 158,069 155,108
Shareholder Services Fee
Institutional Service Shares 0
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
================================================================================
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon
such variables as: portfolio quality; average portfolio maturity; type and value
of portfolio securities; changes in interest rates; changes or differences in
the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-year, five-years and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on May 18, 1990
<S> <C> <C> <C> <C>
Institutional Service Shares
Total Return -- 3.04% 2.94% 3.16%
Yield 2.76% --
- -- --
Effective Yield 2.80% -- -- --
Tax-Equivalent Yield 4.64% -- -- --
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
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- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- --------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- --------------------------------------------------------------------------------
1.50% 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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
WHO IS FEDERATED INVESTORS, INC.?
================================================================================
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based
on intensive, diligent credit analysis--is backed by over 22 years of
experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing
effort to trust clients is headed by Timothy C. Pillion, Senior Vice President,
Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
- --------------------------------------------------------------------------------
APPENDIX
Standard & Poor's Short-Term Municipal Obligation Ratings
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
Commercial Paper (CP) Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
Long-Term Debt Ratings
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Moody's Investors Service, Inc., Short-Term Municipal Obligation Ratings
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
Commercial Paper (CP) Ratings
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Long-Term Debt Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
Fitch Investors Service, L.P. Short-Term Debt Rating Definitions
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
ADDRESSES
================================================================================
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 Auditors
Arthur Andersen LLP 225 Franklin Street
Boston, MA 02110-2812
- --------------------------------------------------------------------------------
PROSPECTUS
Maryland Municipal Cash Trust
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
State of Maryland.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 21
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the State of Maryland and Maryland municipalities consistent
with stability of principal and liquidity. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Maryland
state and local income tax. Interest from the Fund's investments may be
subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B3.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on
a yearly basis.
The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's Shares year-to-date total return as of the most recent calendar
quarter of September 30, 1998, was 2.26%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.89% (quarter ended June 30, 1995). Its lowest quarterly return was
0.72% (quarter ended March 31, 1997).
The Fund's Seven-Day Net Yield as of 12/31/1997, was 3.46%.
The following table represents the Fund's Average Annual Total Return
through 12/31/1997.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 3.13%
Start of Performance 1 3.14%
</TABLE>
1 The Fund's start of performance date was May 9, 1994.
Investors may call the Fund at 1-800-341-7400 to acquire the
Seven-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
MARYLAND MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay when you buy,
hold, and redeem Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
Fees Paid Directly From Your
Investment
<S>
<C>
Maximum Sales Charge (Load) Imposed on Purchases (as
a
percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of
original purchase price or redemption
proceeds,
as
applicable)
None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends
(and other
Distributions)
(as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed,
if
applicable)
None
Exchange
Fee
None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
<S>
<C>
Management Fee
2 0.50%
Distribution (12b-1)
Fee None
Shareholder Services Fee
3 0.25%
Other
Expenses
0.46%
Total Annual Fund Operating
Expenses 1.21%
1 Although not contractually obligated to do so, the Adviser and shareholder services provider
waived certain amounts. These are shown below along with the net expenses the
Fund actually paid for the fiscal year ended October 31,
1998.
Waiver of Fund
Expenses 0.51%
Total Actual Annual Fund Operating Expenses (after
waivers) 0.70%
2 The Adviser voluntarily waived the management fee. The Adviser can terminate this voluntary waiver
at any time. There was no management fee paid by the Fund (after the
voluntary waiver) for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can be terminated
at any time. The shareholder services fee paid by the Fund (after the
voluntary reduction) was 0.24% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses are BEFORE WAIVERS as shown
above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $123 $384 $665 $1,466
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Maryland state and local income tax.
Temporary investments will be of comparable quality to other securities in
which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause
the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations prior to collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and liquidity
than the issuer. For this reason, the Adviser usually evaluates the credit
risk of a fixed income security based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may effect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Maryland. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE)
is open. When the Fund receives your transaction request in proper form, it
is processed at the next determined net asset value (NAV). The Fund does not
charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$10,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-Maryland taxpayers because
it invests in Maryland tax-exempt securities. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature from a bank or trust company, savings association,
credit union, or broker, dealer, or securities exchange member. A NOTARY
PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Maryland state and local income tax to
the extent they are derived from interest on obligations exempt from
Maryland state and local income tax. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in
this prospectus.
Financial Highlights
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
21.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994 1
<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 0.03 0.01
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.05% 3.10% 3.11% 3.36% 1.30%
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.70% 0.69% 0.65% 0.65% 0.46% 3
Net investment income 3.00% 3.05% 3.09% 3.30% 2.68% 3
Expense waiver/reimbursement 4 0.51% 0.63% 0.65% 0.50% 0.53% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $66,136 $45,575 $54,286 $51,400 $56,275
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-101.3% 1
MARYLAND-99.2%
$ 2,000,000 Anne Arundel County, MD, 3.65% TOBs (Baltimore Gas &
Electric Co.), Optional Tender
6/30/1999 $ 2,000,000
2,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.05% CP
(Baltimore Gas & Electric Co.), Mandatory Tender 3/8/1999 2,000,000
3,775,000 Anne Arundel County, MD, Economic Development Revenue Bonds
(Series 1996) Weekly VRDNs (Atlas Container Corp. Project)/
(Mellon Bank N.A., Pittsburgh LOC) 3,775,000
2,175,000 Baltimore County, MD IDA, (Series 1994A) Weekly VRDNs (Pitts
Realty Limited Partnership)/(PNC National Bank, Delaware
LOC) 2,175,000
2,100,000 Baltimore County, MD Port Facility Monthly VRDNs (Occidental
Petroleum Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,100,000
1,750,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly
VRDNs (Direct Marketing Associates, Inc. Facility)/(First
National Bank of Maryland, Baltimore LOC) 1,750,000
2,700,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, Inc.)/(Barclays
Bank PLC, London LOC) 2,700,000
650,000 Baltimore, MD, 8.90% Bonds (MBIA INS), 10/15/1999 684,489
1,100,000 Carroll County, MD, Variable Rate Economic Development
Refunding Revenue Bonds (Series 1995B) Weekly VRDNs (Evapco,
Inc. Project)/(Nationsbank of Maryland, N.A. LOC) 1,100,000
1,000,000 Frederick County, MD, 7.20% Bonds (United States Treasury
PRF), 4/1/1999 (@102) 1,034,170
2,170,000 Harford County, MD, EDRB (Series 1996) Weekly VRDNs (Citrus
and Allied Essences Ltd.)/(First National Bank of Maryland,
Baltimore LOC) 2,170,000
2,750,000 Maryland EDC, Tax Exempt Adjustable Mode IDRB's (Series
1998) Weekly VRDNs (Morrison Health Care, Inc.)/(Wachovia
Bank of NC, N.A., Winston-Salem LOC) 2,750,000
2,000,000 Maryland Health & Higher Educational Facilities Authority,
(Series 1998A) Weekly VRDNs (Charlestown Community)/(First
Union National Bank, Charlotte, N.C. LOC) 2,000,000
3,000,000 Maryland Health & Higher Educational Facilities Authority,
Revenue Bonds (Series 1994) Weekly VRDNs (University
Physicians, Inc.)/(First National Bank of Maryland,
Baltimore LOC) 3,000,000
3,305,000 Maryland State Community Development Administration, (PA-
170) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 3,305,000
1,935,000 Maryland State Community Development Administration, (Series
1990A) Weekly VRDNs (College Estates)/(First National Bank
of Maryland, Baltimore LOC) 1,935,000
5,000,000 Maryland State Community Development Administration, (Series
1990B) Weekly VRDNs (Cherry Hill Apartment Ltd.)/
(Nationsbank, N.A., Charlotte LOC) 5,000,000
1,800,000 Maryland State Energy Financing Administration, Annual
Tender Solid Waste Disposal Revenue Refunding Bonds, 4.20%
TOBs (Nevamar Corp.)/(International Paper Co. GTD), Optional
Tender 9/1/1999 1,800,000
3,000,000 Maryland State Energy Financing Administration, IDRB (Series
1988) Weekly VRDNs (Morningstar Foods, Inc.)/(First Union
National Bank, Charlotte, N.C. LOC) 3,000,000
2,500,000 Maryland State Energy Financing Administration, Limited
Obligation Variable Rate Demand Revenue Bonds (Series 1996)
Weekly VRDNs (Keywell L.L.C.)/(Bank of America, IL LOC) 2,500,000
1,000,000 Maryland State IDFA, Economic Development Revenue Bonds
(Series 1996) Weekly VRDNs (Townsend Culinary, Inc.)/
(SunTrust Bank, Atlanta LOC) 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MARYLAND-CONTINUED
$ 3,300,000 Maryland State IDFA, Economic Development Revenue Refunding
Bonds (Series 1994) Weekly VRDNs (Johnson Controls, Inc.) $ 3,300,000
1,000,000 Maryland State IDFA, Limited Obligation Economic Development
Revenue Bonds (Series 1994) Weekly VRDNs (Rock-Tenn
Converting Co.)/(SunTrust Bank, Atlanta LOC) 1,000,000
3,000,000 Montgomery County, MD, EDR Weekly VRDNs (Howard Hughes
Medical Center) 3,000,000
1,390,000 Prince George's County, MD, 6.125% Bonds, 1/15/1999 1,396,709
1,345,000 Prince George's County, MD, Equipment Acquisition Program,
3.50% Bonds (MBIA INS),
11/1/1999 1,348,241
1,100,000 Prince George's County, MD, IDRB (Series 1993), 3.90% TOBs
(International Paper Co.), Optional Tender 7/15/1999 1,100,000
1,000,000 Prince George's County, MD, Series A, 6.60% Bonds, 2/1/1999 1,006,937
2,640,000 Queen Annes County, MD Economic Development Revenue, (Series
1994), 3.80% TOBs (Safeway, Inc.)/(Bankers Trust Co., New
York LOC), Mandatory Tender 12/1/1998 2,640,000
3,000,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field
Container Co. L.P.)/(Northern Trust Co., Chicago, IL LOC) 3,000,000
Total 65,570,546
PUERTO RICO-2.1%
1,400,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1983A), 3.60% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank
N.V., Amsterdam LOC), Optional Tender 9/1/1999 1,400,000
Total Investments (at amortized cost) 2 $ 66,970,546
</TABLE>
Securities that are subject to Alternative Minimum Tax represents 52.2%
of the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
95.67% 4.33%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($66,136,320) at October 31, 1998.
The following acronyms are used throughout this portfolio:
<TABLE>
<CAPTION>
<S> <C>
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
INS -Insured
LIQ -Liquidity Agreement
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PLC -Public Limited Company
PRF -Prerefunded
TOBs -Tender Option Bonds
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 66,970,546
Cash 211,087
Income receivable 340,190
Receivable for shares sold 940
Deferred organizational costs 6,616
Other Assets 4,862
Total assets 67,534,241
LIABILITIES:
Payable for investments purchased $ 1,348,764
Income distribution payable 22,288
Accrued expenses 26,869
Total liabilities 1,397,921
Net Assets for 66,136,320 shares outstanding $ 66,136,320
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
$66,136,320 / 66,136,320 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,129,415
EXPENSES:
Investment advisory fee $ 287,116
Administrative personnel and services fee 125,001
Custodian fees 1,213
Transfer and dividend disbursing agent fees and expenses 23,546
Directors'/Trustees' fees 1,022
Auditing fees 12,000
Legal fees 10,315
Portfolio accounting fees 41,306
Shareholder services fee 143,558
Share registration costs 29,283
Printing and postage 12,949
Insurance premiums 5,535
Miscellaneous 4,502
Total expenses 697,346
WAIVERS:
Waiver of investment advisory fee $ (287,116)
Waiver of shareholder services fee (5,742)
Total waivers (292,858)
Net expenses 404,488
Net investment income $ 1,724,927
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 1,724,927 $ 1,396,308
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (1,724,927) (1,396,308)
SHARE TRANSACTIONS:
Proceeds from sale of shares 162,453,813 143,776,753
Net asset value of shares issued to shareholders in payment
of distributions declared 1,432,310 1,155,608
Cost of shares redeemed (143,324,566) (153,643,401)
Change in net assets resulting from share transactions 20,561,557 (8,711,040)
Change in net assets 20,561,557 (8,711,040)
NET ASSETS:
Beginning of period 45,574,763 54,285,803
End of period $ 66,136,320 $ 45,574,763
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 to provide current income
exempt from federal regular income tax and the personal income taxes
imposed by the State of Maryland and Maryland municipalities consistent
with stability of principal and liquidity.
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 Board of Trustees (the "Trustees") to
issue an unlimited number of full and fractional shares of beneficial
interest (without par value). At October 31, 1998, capital paid-in
aggregated $66,136,320. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
Shares sold 162,453,813 143,776,753
Shares issued to shareholders in payment of distributions
declared 1,432,310 1,155,608
Shares redeemed (143,324,566) (153,643,401)
Net change resulting from share transactions 20,561,557 (8,711,040)
</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 Inc. 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 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.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (of
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 $122,245,000 and
$101,540,000, 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, 1998, 68.1% 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 13.2% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST OF
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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian and the 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 Maryland Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Maryland Municipal Cash Trust
A Portfolio of Federated Municipal Trust
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
[Graphic]
Maryland Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229774
G00105-01-A (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Maryland Municipal Cash Trust
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Maryland Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling 1-800-341-
7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229774
G00105-02-B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax and Maryland state and local income tax.
This policy is fundamental and cannot be changed without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: First Union Capital
Markets Corp., Charlotte, North Carolina, owned approximately 23,321,136 Shares
(34.09%); Arthur L. Smith, Baltimore, Maryland, owned approximately 3,621,520
Shares (5.29%); and Farmers & Co., Frederick, Maryland, owned approximately
5,862,613 Shares (8.57%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Maryland laws, distributions made by the Fund will not be subject
to Maryland state or local income taxes to the extent that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
represent (i) interest on tax-exempt obligations of Maryland or its political
subdivisions or authorities; (ii) interest on obligations of the United States
or an authority, commission, instrumentality, possession or territory of the
United States; or (iii) gain realized by the Fund from the sale or exchange of
bonds issued by Maryland, a political subdivision of Maryland, or the United
States government (excluding obligations issued by the District of Columbia, a
territory or possession of the United States, or a department, agency,
instrumentality, or political subdivision of the District, territory or
possession). Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
Maryland income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation From
Address Principal Occupations
Compensation Trust and Fund
Position With Trust for Past 5 Years From
Trust Complex
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of
$0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and
Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management,
and companies in the
Pittsburgh, PA Federated Research; Chairman and Director,
Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee,
Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior
Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group,
Inc.; investment
TRUSTEE Director, Member of Executive Committee,
University companies in the
of
Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation;
Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates,
Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real
estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly:
President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and
Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive
Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman
and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank
Corp.; investment
TRUSTEE Director, Ryan Homes,
Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany
Fund, Trust and
571 Hayward Mill Road
Inc. 56 other
Concord,
MA
investment
TRUSTEE Retired: President, Boston Stock Exchange,
Inc.; companies in the
Regional Administrator, United States Securities
and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of
Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore
Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia
Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny &
Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.;
formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western
Region; investment
Kochuba Partner, Meyer and
Flaherty. companies in the
205 Ross
Street
Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth
of Trust and
One Royal Palm Way Massachusetts General Court; President, State
Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street
Corporation. investment
Palm Beach,
FL
companies in the
TRUSTEE Retired: Director, VISA USA and VISA
International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne
University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica &
Murray. 56 other
President,
Duquesne
investment
University Retired: Dean and Professor of Law, University
of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of
Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics,
Athens; Trust and
1925 Professor, International Politics;
Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment
for investment
University of Pittsburgh International Peace, RAND Corporation,
Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National
Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference
Planning. Trust and
4905 Bayard
Street 56
other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company
of investment
TRUSTEE America; business
owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
$0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities
Corp. and
Federated Investors
Tower 8 other
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA Fund
Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the
$0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of
some and
Federated Investors Tower of the Funds in the Federated Fund Complex;
President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.;
President investment
Pittsburgh, PA and Trustee, Federated Advisers,
Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President
and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the
$0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive
Vice and
Federated Investors Tower President and Treasurer of some of the Funds in
the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman,
Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated
Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the
$0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice
President, and
Federated Investors Tower Secretary, and Director, Federated Investors,
Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated
Management, investment
Pittsburgh, PA and Federated Research; Director, Federated
Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.;
Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
$0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services
Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly:
various 56 other
1001 Liberty Avenue management positions within Funds Financial
Services investment
Pittsburgh, PA Division of Federated Investors,
Inc. companies in the
TREASURER
Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in
$0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee
of and
Federated Investors Tower some of the Funds in the Federated Fund
Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors,
Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities
Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various
$0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex;
Executive and
Federated Investors Tower Vice President, Federated Investment
Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated
Advisers, investment
Pittsburgh, PA Federated Management, Federated Research,
and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered
Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
$0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund
Complex; Trust and
1953 Senior Vice President, Federated
Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated
Global companies
1001 Liberty Avenue Research Corp., Federated Management,
Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
$0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund
Complex; Trust and
Federated Investors Tower Vice President, Federated Investment
Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research
Corp., companies
Pittsburgh, PA Federated Management, Federated Research,
Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -----------------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- ----------------------------------------------------------------
Advisory Fee Earned $287,116 $229,262 $237,399
- ----------------------------------------------------------------
Advisory Fee Reduction 287,116 229,262 237,399
- ----------------------------------------------------------------
Brokerage Commissions 0 0 0
- ----------------------------------------------------------------
Administrative Fee 125,001 125,000 125,000
- ----------------------------------------------------------------
Shareholder Services Fee 137,816 ---- ----
- ----------------------------------------------------------------
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, and since inception periods ended October 31,
1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception
on May 9, 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return -- 3.05% 3.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.54% -- --
Effective Yield 2.58% -- --
Tax-Equivalent Yield 4.90% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MARYLAND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00%
39.60%
COMBINED
FEDERAL
AND STATE: 22.00% 35.00% 38.75% 43.75%
47.35%
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951-
OVER
RETURN 42,350 102,300 155,950 278,450
$278,450
SINGLE $1- $25,351- $61,401- $128,101-
OVER
RETURN 25,350 61,400 128,100 278,450
$278,450
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Yield Taxable Yield Equivalent
- ------------------------------------------------------------------------------------------------------------------------------------
1.50% 1.92% 2.31% 2.45% 2.67% 2.85%
2.00% 2.56% 3.08% 3.27% 3.56% 3.80%
2.50% 3.21% 3.85% 4.08% 4.44% 4.75%
3.00% 3.85% 4.62% 4.90% 5.33% 5.70%
3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 8.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial
and political developments and their impact on the securities market,
including the portfolio manager's views on how such developments could
impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL
OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
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
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Michigan Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
State of Michigan.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.December 31, 1998
DECEMBER 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Public Accountants 25
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the personal income tax
imposed by the State of Michigan consistent with stability of principal and
liquidity. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Michigan
state income and intangibles tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-3
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares Class on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net
asset value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998 was 2.49%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.90% (quarter ended June 30, 1997). Its lowest quarterly return was
0.78% (quarter ended March 31, 1997).
The Fund's Institutional Shares Seven-Day Net Yield as of 12/31/97 was
3.75%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.47%
Start of Performance 1 3.41%
1 The Fund's start of performance date was March 2, 1996.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
WHAT ARE THE FUND'S FEES AND EXPENSES?
MICHIGAN MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<S>
<C>
SHAREHOLDER
FEES
Fees Paid Directly From Your
Investment
Maximum Sales Charge (Load) Imposed on Purchases (as
a
percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of
original purchase price or redemption proceeds, as
applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends
(and other Distributions) (as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange
Fee
None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee
2 0.50%
Distribution (12b-1)
Fee None
Shareholder Services Fee
3 0.25%
Other
Expenses
0.23%
Total Annual Fund Operating
Expenses 0.98%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the
fiscal
year ended October 31, 1998.
Waiver of Fund
Expenses 0.58%
Total Actual Annual Operating Expenses (after
waivers) 0.40%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.17% for the
year ended October 31, 1998.
3 The shareholder services fee for Institutional Shares has been voluntarily waived. This voluntary
waiver
can be terminated at any time. There was no shareholder services fee paid by the Fund (after the
voluntary waiver) for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Fund's Institutional Shares' operating
expenses are BEFORE WAIVERS as shown above and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $100 $312 $542 $1,201
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income tax imposed by the
State of Michigan. Temporary investments will be of comparable quality to
other securities in which the Fund invests. This may cause the Fund to
give up greater investment returns to maintain the safety of principal.
This also may cause the Fund to receive and distribute taxable income to
investors.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects before issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees
to pay amounts due on a fixed income security if the issuer defaults. In
some cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Michigan. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to
a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with your
Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Shares. Each
share class has different expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more
information concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Michigan taxpayers
because it invests in Michigan tax-exempt securities. The Distributor and
its affiliates may pay out of their assets other amounts (including items
of material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICES to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATION AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition,
you will receive periodic statements reporting all account activity,
including dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Michigan state personal income tax to
the extent they are derived from interest on obligations exempt from
Michigan personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited finanical statements, is included in this
prospectus.
FINANCIAL HIGHLIGHTS-INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 25.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1
<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 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.36% 3.43% 2.19%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.40% 0.40% 0.37% 3
Net investment income 3.31% 3.39% 3.40% 3
Expense waiver/reimbursement 4 0.58% 0.66% 0.89% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $19,564 $13,370 $11,614
</TABLE>
1 Reflects operations for the period from March 2, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-100.0% 1
MICHIGAN-98.5%
$ 5,000,000 ABN AMRO MuniTOPS Certificates Trust (Michigan Non-AMT)
Series 1998-11 Weekly VRDNs (DeWitt, MI Public Schools)/(FSA
INS)/(ABN AMRO Bank N.V., Amsterdam LIQ) $ 5,000,000
2,000,000 Ann Arbor, MI Public School District, 4.75% Bonds, 5/1/1999 2,017,224
3,900,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option
Revenue Bonds (Series 1995) Weekly VRDNs (Suburban Tool,
Inc.)/(Huntington National Bank, Columbus, OH LOC) 3,900,000
909,000 Battle Creek, MI Economic Development Corporation, Limited
Obligation Economic Development Revenue Refunding Bonds
(Series 1992) Weekly VRDNs (Michigan Carton & Paperboard
Co.)/(American National Bank, Chicago LOC) 909,000
1,375,000 Bedford Township, MI Economic Development Corp., EDRB
(Series 1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank,
N.A. LOC) 1,375,000
2,285,000 Berrien County, MI Economic Development Corp., Economic
Development Refunding Revenue Bonds (Series 1992) Weekly
VRDNs (Arlington Metals Corp.)/(American National Bank,
Chicago LOC) 2,285,000
4,475,000 Bruce Township, MI Hospital Finance Authority, Adjustable
Rate Tender Securities (Series 1988B), 3.75% TOBs (Sisters
of Charity Health Care System)/(MBIA INS)/(Morgan Guaranty
Trust Co., New York LIQ), Optional Tender 11/2/1998 4,475,000
1,375,000 Clarkston Community Schools, MI, 5.50% Bonds, 5/1/1999 1,387,596
5,000,000 Clarkston Community Schools, MI, PA-175 Weekly VRDNs (MBIA
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,000,000
650,000 Dearborn, MI Economic Development Corp., (Series 1990)
Weekly VRDNs (Exhibit Productions, Inc. Project)/(First of
America Bank, N.A. LOC) 650,000
500,000 Dexter, MI Community Schools, School Building and Site Bonds
(1998), 3.80% Bonds (FGIC INS), 5/1/1999 500,000
1,000,000 Grand Rapids, MI Water Supply System, Series 1993 Weekly
VRDNs (FGIC INS)/(Societe Generale, Paris LIQ) 1,000,000
1,655,000 Ingham County, MI Building Authority, 3.90% Bonds (AMBAC
INS), 11/1/1998 1,655,000
1,455,000 Ingham County, MI Economic Development Corp., Adjustable
Demand Limited Obligation Revenue Bonds (Series 1995) Weekly
VRDNs (Martin Luther Memorial Home, Inc.)/(Bank One,
Indiana, N.A. LOC) 1,455,000
1,500,000 Jackson County, MI Public Schools, State Aid Note (Series
1998B), 4.25% Bonds (Comerica Bank, Detroit, MI LOC), 7/2/1999 1,505,772
5,850,000 Kalamazoo, MI City School District, State Aid Note, (Series
1998C), 3.75% BANs (First of America Bank, N.A. LOC), 9/16/1999 5,867,278
5,000,000 2 Kalamazoo, MI Hospital Finance Authority, PT-189, 3.70% TOBs
(Bronson Methodist Hospital)/(MBIA INS)/(Bayerische
Hypotheken-Und Wechsel-Bank Ag LIQ), Optional Tender 5/13/1999 5,000,000
4,500,000 Kalamazoo, MI, 3.70% TANs, 12/1/1998 4,500,743
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 500,000 Lansing, MI Sewer Disposal System, 3.35% Bonds (FSA INS),
5/1/1999 $ 500,000
1,400,000 Macomb County, MI Community College District, Community
College Bonds, (Series 1998), 3.70% Bonds, 5/1/1999 1,398,958
3,400,000 Michigan Higher Education Student Loan Authority, (Series
XII-D) Weekly VRDNs (AMBAC INS)/(Kredietbank N.V., Brussels
LIQ) 3,400,000
1,400,000 Michigan Higher Education Student Loan Authority, Refunding
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/
(Kredietbank N.V., Brussels LIQ) 1,400,000
3,100,000 Michigan Job Development Authority, Limited Obligation
Revenue Bonds Weekly VRDNs (Andersons Project)/(Credit
Lyonnais, Paris LOC) 3,100,000
5,000,000 Michigan State Building Authority, (Series 1), 3.30% CP
(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory
Tender 2/9/1999 5,000,000
4,950,000 2 Michigan State Hospital Finance Authority, (Series 1993A)
PT-169, 3.80% TOBs (St. John Hospital, MI)/(AMBAC INS)/
(Banco Santander SA LIQ), Mandatory Tender 5/6/1999 4,950,000
775,000 Michigan State Hospital Finance Authority, (Series 1998A),
4.10% Bonds (Hackley Hospital Obligated Group), 5/1/1999 775,000
11,200,000 Michigan State Hospital Finance Authority, (Series A) Weekly
VRDNs (OSF Health Care Systems) 11,200,000
3,185,000 Michigan State Housing Development Authority, (Series 1990A)
Weekly VRDNs (FSA INS)/(CDC Municipal Products, Inc. LIQ) 3,185,000
3,695,000 Michigan State Housing Development Authority, MERLOTs
(Series G) Weekly VRDNs (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ) 3,806,293
2,100,000 Michigan State Housing Development Authority, Revenue Bonds
(Series A), 3.30% CP (Landesbank Hessen-Thueringen,
Frankfurt LOC), Mandatory Tender 1/21/1999 2,100,000
2,000,000 Michigan State Trunk Line, (Series A), 7.00% Bonds (United
States Treasury PRF),
8/15/1999 (@102) 2,095,839
1,800,000 Michigan State, 6.50% Bonds, 12/1/1998 1,804,175
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000
5,895,000 Michigan Strategic Fund Weekly VRDNs (United Fixtures Co.)/
(Bankers Trust Co., New York LOC) 5,895,000
6,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex
Controls Inc.)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 6,000,000
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA
Gas, Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000
800,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood
Industries, Inc. Project)/(NBD Bank, Michigan LOC) 800,000
2,200,000 Michigan Strategic Fund, (Series 1998) Weekly VRDNs
(Wolverine Printing)/(Huntington National Bank, Columbus, OH
LOC) 2,200,000
1,500,000 Michigan Strategic Fund, Adjustable Rate Demand IDRB's
Weekly VRDNs (Bruin Land Holdings LLC)/(Huntington National
Bank, Columbus, OH LOC) 1,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 1,530,000 Michigan Strategic Fund, Adjustable Rate Demand Notes
(Series 1998) Weekly VRDNs (Wolverine Leasing)/(Huntington
National Bank, Columbus, OH LOC) $ 1,530,000
2,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation
Revenue and Revenue Refunding Bonds (Series 1996) Weekly
VRDNs (C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) 2,500,000
7,000,000 Michigan Strategic Fund, Limited Obligation PCR Bonds
(Series 1993) Weekly VRDNs (Allied-Signal, Inc.) 7,000,000
850,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Rowe Thomas Company Project)/
(Comerica Bank, Detroit, MI LOC) 850,000
1,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1994) Weekly VRDNs (Wilkie Metal Products, Inc.)/
(Norwest Bank Minnesota, N.A. LOC) 1,300,000
3,945,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Bear Lake Associates Project)/
(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,945,000
775,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation
Project)/(KeyBank, N.A. LOC) 775,000
3,675,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (J.R. Automation Technologies
Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,675,000
910,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank &
Trust Co., Grand Rapids LOC) 910,000
8,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/
(Bank of America, IL LOC) 8,500,000
4,710,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc.
Project)/(Comerica Bank, Detroit, MI LOC) 4,710,000
800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/
(Comerica Bank, Detroit, MI LOC) 800,000
865,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank,
Detroit, MI LOC) 865,000
950,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Echo Properties, L.L.C.
Project)/(Comerica Bank, Detroit, MI LOC) 950,000
2,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (G & T Real Estate Investments
Co., L.L.C.)/(NBD Bank, Michigan LOC) 2,300,000
920,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/
(Comerica Bank, Detroit, MI LOC) 920,000
3,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (RMT Woodworth, Inc.)/(Comerica
Bank, Detroit, MI LOC) 3,000,000
3,675,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1997) Weekly VRDNs (Enprotech Mechanical Services,
Inc.)/(Michigan National Bank, Farmington Hills LOC) 3,675,000
1,350,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1997A) Weekly VRDNs (EPI Printers, Inc.)/(Comerica
Bank, Detroit, MI LOC) 1,350,000
5,460,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 5,460,000
1,610,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds,
(Series 1995) Weekly VRDNs (Welch Properties Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC) 1,610,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 2,025,000 Michigan Strategic Fund, Variable Rate Demand Limited
Obligation Revenue Bonds (Series 1996) Weekly VRDNs (R.H.
Wyner Associates, Inc.)/(State Street Bank and Trust Co.
LOC) $ 2,025,000
2,450,000 Michigan Strategic Fund, Variable Rate Demand Limited
Obligation Revenue Bonds (Series 1998) Weekly VRDNs (Monroe
Publishing Co.)/(Comerica, Inc. LOC) 2,450,000
3,995,000 Monroe County, MI Pollution Control Authority, (PT-143)
Weekly VRDNs (Detroit Edison Co.)/(FGIC INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 3,995,000
3,440,000 Monroe County, MI Pollution Control Authority, (Series CDC-
1997M) Weekly VRDNs (Detroit Edison Co.)/(AMBAC INS)/(CDC
Municipal Products, Inc. LIQ) 3,440,000
7,370,000 Monroe County, MI Pollution Control Authority, PT-108 Weekly
VRDNs (Detroit Edison Co.)/(FGIC INS)/(Merrill Lynch Capital
Services, Inc. LIQ) 7,370,000
3,000,000 Oakland County, MI EDC, Limited Obligation Revenue Bonds
(Series 1997) Weekly VRDNs (Stone Soap Company, Inc.)/
(Michigan National Bank, Farmington Hills LOC) 3,000,000
5,500,000 Wayne County, MI, PT-1061 Weekly VRDNs (Detroit Metropolitan
Wayne County Airport)/(MBIA INS)/(Merrill Lynch Capital
Services, Inc. LIQ) 5,500,000
Total 201,617,878
PUERTO RICO-1.5%
2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 2,000,319
1,075,000 Puerto Rico Industrial, Medical & Environmental PCA,
Pollution Control Facilities Financing Authority (Series
1983 A), 3.75% TOBs (Schering Plough Corp.)/(Morgan Guaranty
Trust Co., New York LOC), Optional Tender 12/1/1998 1,075,000
Total 3,075,319
Total Investments (at amortized cost) 3 $204,693,197
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 55.8% of
portfolio as calculated upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.0% 00.0%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal securities laws. At October 31, 1998 these securities
amounted to $9,950,000 which represents 4.9% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($204,552,930) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BANs -Bond Anticipation Notes
CP -Commercial Paper
EDC -Economic Development Commission
EDRB -Economic Development Revenue Bonds
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PRF -Prerefunded
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 204,693,197
Cash 110,457
Income receivable 1,505,577
Receivable for shares sold 119,159
Deferred organizational costs 9,219
Other assets 5,803
Total assets 206,443,412
LIABILITIES:
Payable for investments purchased $ 1,700,000
Income distribution payable 168,915
Accrued expenses 21,567
Total liabilities 1,890,482
Net Assets for 204,552,930 shares outstanding $ 204,552,930
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SERVICE SHARES:
$184,989,106 / 184,989,106 shares outstanding $1.00
INSTITUTIONAL SHARES:
$19,563,824 / 19,563,824 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,985,867
EXPENSES:
Investment advisory fee $ 938,574
Administrative personnel and services fee 155,001
Custodian fees 12,212
Transfer and dividend disbursing agent fees and expenses 105,067
Directors'/Trustees' fees 1,757
Auditing fees 12,691
Legal fees 13,458
Portfolio accounting fees 59,722
Shareholder services fee-Institutional Service Shares 428,375
Shareholder services fee-Institutional Shares 40,876
Share registration costs 34,162
Printing and postage 19,606
Insurance premiums 13,411
Miscellaneous 8,412
Total expenses 1,843,324
WAIVERS:
Waiver of investment advisory fee $ (614,954)
Waiver of shareholder services fee-Institutional Service
Shares (154,215)
Waiver of shareholder services fee-Institutional Shares (40,876)
Total waivers (810,045)
Net expenses 1,033,279
Net investment income $ 5,952,588
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION> <C> <C>
YEAR ENDED OCTOBER 31 1998 1997
<S>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 5,952,588 $ 4,245,771
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (5,412,823) (3,793,687)
Institutional Shares (539,765) (452,084)
Change in net assets resulting from distributions to
shareholders (5,952,588) (4,245,771)
SHARE TRANSACTIONS:
Proceeds from sale of shares 846,148,992 843,340,942
Net asset value of shares issued to shareholders in payment
of distributions declared 4,227,137 2,986,927
Cost of shares redeemed (806,298,824) (789,741,373)
Change in net assets resulting from share transactions 44,077,305 56,586,496
Change in net assets 44,077,305 56,586,496
NET ASSETS:
Beginning of period 160,475,625 103,889,129
End of period $ 204,552,930 $ 160,475,625
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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.
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,
1998, is as follows:
<TABLE>
<CAPTION>
SECURITY Acquisition Date Acquisition Cost
<S> <C> <C>
Kalamazoo, MI Hospital Finance Authority 6/18/1998 $ 5,000,000
Michigan State Hospital Finance Authority
(Series 1993A) 10/1/1998 4,950,000
</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, 1998, capital paid-in aggregated
$204,552,930.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 78,879,030 62,432,870
Shares issued to shareholders in payment of distributions
declared 34,996 30,464
Shares redeemed (72,720,480) (60,706,728)
Net change resulting from Institutional Share transactions 6,193,546 1,756,606
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 767,269,962 780,908,072
Shares issued to shareholders in payment of distributions
declared 4,192,141 2,956,463
Shares redeemed (733,578,344) (729,034,645)
Net change resulting from Institutional Service Share
transactions 37,883,759 54,829,890
Net change resulting from share transactions 44,077,305 56,586,496
</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, Inc.
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
FFServ, 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 agreed to reimburse the Adviser for the organizational
expenses during the five-year period following the effective date.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, 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 $403,630,000 and
$388,800,000, 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, 1998, 83.3% 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 11.6% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian and broker. As to securities purchased but not received, we
requested the confirmation from the broker and, when the reply was not
received, we carried out alternative auditing procedures. 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet site
at http://www.sec.gov. You can call 1-800-SEC-0330 for information on the
Public Reference Room's operations and copying charges.
[Graphic]
Michigan Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229667
G01212-04-IS (12/98)
[Graphic]
PROSPECTUS
Michigan Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
State of Michigan.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of
Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 11
Report of Independent Public Accountants 25
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the personal income tax
imposed by the State of Michigan consistent with stability of principal and
liquidity. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Michigan
state income and intangibles tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-4
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares Class on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). Hence, the total returns displayed above are based upon
the net asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998 was 2.36%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 0.86% (quarter ended June 30, 1997).
Its lowest quarterly return was 0.75% (quarters ended March 31, 1996 and
March 31, 1997) .
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.59%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.31%
Start of Performance 1 3.34%
1 The Fund's Institutional Service Shares start of performance date was
June 20, 1995.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
WHAT ARE THE FUND'S FEES AND EXPENSES?
MICHIGAN MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<S>
<C>
SHAREHOLDER
FEES
Fees Paid Directly From Your
Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of
original purchase price or redemption proceeds, as
applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends
(and other Distributions) (as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange
Fee
None
<CAPTION>
<S>
<C>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee
2 0.50%
Distribution (12b-1)
Fee None
Shareholder Services Fee
3 0.25%
Other
Expenses
0.23%
Total Annual Fund Operating
Expenses 0.98%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the
fiscal
year ended October 31, 1998.
Waiver of Fund
Expenses 0.42%
Total Actual Annual Operating Expenses (after
waivers) 0.56%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.17% for
the
year ended October 31, 1998.
3 The shareholder services fee for Institutional Service Shares has been voluntarily waived. This
voluntary
waiver can be terminated at any time. The shareholder services fee paid by the Fund (after the
voluntary
waiver) was 0.16% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional
Service Shares' operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $100 $312 $542 $1,201
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income tax imposed by the
State of Michigan. Temporary investments will be of comparable quality to
other securities in which the Fund invests. This may cause the Fund to
give up greater investment returns to maintain the safety of principal.
This also may cause the Fund to receive and distribute taxable income to
investors.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Michigan. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject
to a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of
securities.This prospectus relates only to Institutional Service Shares. Each
share class has different expenses, which affect their performance. Contact
your investment professional or call 1-800-341-7400 for more information
concerning the other class.The Fund's Distributor markets the Shares
described in this prospectus to institutions acting in an agency or
fiduciary capacity or to individuals directly or through investment
professionals. The Fund may not be a suitable investment for retirement
plans or for non-Michigan taxpayers because it invests in Michigan tax-
exempt securities. The Distributor and its affiliates may pay out of their
assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmations of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Michigan state personal income tax to
the extent they are derived from interest on obligations exempt from
Michigan personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited finanical statements, is included in this
prospectus.
FINANCIAL HIGHLIGHTS-INSTITUTIONAL SERVICE SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 25.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1
<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 2 3.20% 3.27% 3.26 % 1.35%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.56% 0.55% 0.50% 0.32% 3
Net investment income 3.16% 3.22% 3.21% 3.67% 3
Expense waiver/reimbursement 4 0.42% 0.51% 0.76% 1.63% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $184,989 $147,105 $92,275 $30,133
</TABLE>
1 Reflects operations for the period from June 20, 1995 (date of initial
public investment) to October 31, 1995.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-100.0% 1
MICHIGAN-98.5%
$ 5,000,000 ABN AMRO MuniTOPS Certificates Trust (Michigan Non-AMT)
Series 1998-11 Weekly VRDNs (DeWitt, MI Public Schools)/(FSA
INS)/(ABN AMRO Bank N.V., Amsterdam LIQ) $ 5,000,000
2,000,000 Ann Arbor, MI Public School District, 4.75% Bonds, 5/1/1999 2,017,224
3,900,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option
Revenue Bonds (Series 1995) Weekly VRDNs (Suburban Tool,
Inc.)/(Huntington National Bank, Columbus, OH LOC) 3,900,000
909,000 Battle Creek, MI Economic Development Corporation, Limited
Obligation Economic Development Revenue Refunding Bonds
(Series 1992) Weekly VRDNs (Michigan Carton & Paperboard
Co.)/(American National Bank, Chicago LOC) 909,000
1,375,000 Bedford Township, MI Economic Development Corp., EDRB
(Series 1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank,
N.A. LOC) 1,375,000
2,285,000 Berrien County, MI Economic Development Corp., Economic
Development Refunding Revenue Bonds (Series 1992) Weekly
VRDNs (Arlington Metals Corp.)/(American National Bank,
Chicago LOC) 2,285,000
4,475,000 Bruce Township, MI Hospital Finance Authority, Adjustable
Rate Tender Securities (Series 1988B), 3.75% TOBs (Sisters
of Charity Health Care System)/(MBIA INS)/(Morgan Guaranty
Trust Co., New York LIQ), Optional Tender 11/2/1998 4,475,000
1,375,000 Clarkston Community Schools, MI, 5.50% Bonds, 5/1/1999 1,387,596
5,000,000 Clarkston Community Schools, MI, PA-175 Weekly VRDNs (MBIA
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,000,000
650,000 Dearborn, MI Economic Development Corp., (Series 1990)
Weekly VRDNs (Exhibit Productions, Inc. Project)/(First of
America Bank, N.A. LOC) 650,000
500,000 Dexter, MI Community Schools, School Building and Site Bonds
(1998), 3.80% Bonds (FGIC INS), 5/1/1999 500,000
1,000,000 Grand Rapids, MI Water Supply System, Series 1993 Weekly
VRDNs (FGIC INS)/(Societe Generale, Paris LIQ) 1,000,000
1,655,000 Ingham County, MI Building Authority, 3.90% Bonds (AMBAC
INS), 11/1/1998 1,655,000
1,455,000 Ingham County, MI Economic Development Corp., Adjustable
Demand Limited Obligation Revenue Bonds (Series 1995) Weekly
VRDNs (Martin Luther Memorial Home, Inc.)/(Bank One,
Indiana, N.A. LOC) 1,455,000
1,500,000 Jackson County, MI Public Schools, State Aid Note (Series
1998B), 4.25% Bonds (Comerica Bank, Detroit, MI LOC), 7/2/1999 1,505,772
5,850,000 Kalamazoo, MI City School District, State Aid Note, (Series
1998C), 3.75% BANs (First of America Bank, N.A. LOC), 9/16/1999 5,867,278
5,000,000 2 Kalamazoo, MI Hospital Finance Authority, PT-189, 3.70% TOBs
(Bronson Methodist Hospital)/(MBIA INS)/(Bayerische
Hypotheken-Und Wechsel-Bank Ag LIQ), Optional Tender 5/13/1999 5,000,000
4,500,000 Kalamazoo, MI, 3.70% TANs, 12/1/1998 4,500,743
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 500,000 Lansing, MI Sewer Disposal System, 3.35% Bonds (FSA INS),
5/1/1999 $ 500,000
1,400,000 Macomb County, MI Community College District, Community
College Bonds, (Series 1998), 3.70% Bonds, 5/1/1999 1,398,958
3,400,000 Michigan Higher Education Student Loan Authority, (Series
XII-D) Weekly VRDNs (AMBAC INS)/(Kredietbank N.V., Brussels
LIQ) 3,400,000
1,400,000 Michigan Higher Education Student Loan Authority, Refunding
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/
(Kredietbank N.V., Brussels LIQ) 1,400,000
3,100,000 Michigan Job Development Authority, Limited Obligation
Revenue Bonds Weekly VRDNs (Andersons Project)/(Credit
Lyonnais, Paris LOC) 3,100,000
5,000,000 Michigan State Building Authority, (Series 1), 3.30% CP
(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory
Tender 2/9/1999 5,000,000
4,950,000 2 Michigan State Hospital Finance Authority, (Series 1993A)
PT-169, 3.80% TOBs (St. John Hospital, MI)/(AMBAC INS)/
(Banco Santander SA LIQ), Mandatory Tender 5/6/1999 4,950,000
775,000 Michigan State Hospital Finance Authority, (Series 1998A),
4.10% Bonds (Hackley Hospital Obligated Group), 5/1/1999 775,000
11,200,000 Michigan State Hospital Finance Authority, (Series A) Weekly
VRDNs (OSF Health Care Systems) 11,200,000
3,185,000 Michigan State Housing Development Authority, (Series 1990A)
Weekly VRDNs (FSA INS)/(CDC Municipal Products, Inc. LIQ) 3,185,000
3,695,000 Michigan State Housing Development Authority, MERLOTs
(Series G) Weekly VRDNs (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ) 3,806,293
2,100,000 Michigan State Housing Development Authority, Revenue Bonds
(Series A), 3.30% CP (Landesbank Hessen-Thueringen,
Frankfurt LOC), Mandatory Tender 1/21/1999 2,100,000
2,000,000 Michigan State Trunk Line, (Series A), 7.00% Bonds (United
States Treasury PRF),
8/15/1999 (@102) 2,095,839
1,800,000 Michigan State, 6.50% Bonds, 12/1/1998 1,804,175
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000
5,895,000 Michigan Strategic Fund Weekly VRDNs (United Fixtures Co.)/
(Bankers Trust Co., New York LOC) 5,895,000
6,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex
Controls Inc.)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 6,000,000
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA
Gas, Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000
800,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood
Industries, Inc. Project)/(NBD Bank, Michigan LOC) 800,000
2,200,000 Michigan Strategic Fund, (Series 1998) Weekly VRDNs
(Wolverine Printing)/(Huntington National Bank, Columbus, OH
LOC) 2,200,000
1,500,000 Michigan Strategic Fund, Adjustable Rate Demand IDRB's
Weekly VRDNs (Bruin Land Holdings LLC)/(Huntington National
Bank, Columbus, OH LOC) 1,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 1,530,000 Michigan Strategic Fund, Adjustable Rate Demand Notes
(Series 1998) Weekly VRDNs (Wolverine Leasing)/(Huntington
National Bank, Columbus, OH LOC) $ 1,530,000
2,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation
Revenue and Revenue Refunding Bonds (Series 1996) Weekly
VRDNs (C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) 2,500,000
7,000,000 Michigan Strategic Fund, Limited Obligation PCR Bonds
(Series 1993) Weekly VRDNs (Allied-Signal, Inc.) 7,000,000
850,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Rowe Thomas Company Project)/
(Comerica Bank, Detroit, MI LOC) 850,000
1,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1994) Weekly VRDNs (Wilkie Metal Products, Inc.)/
(Norwest Bank Minnesota, N.A. LOC) 1,300,000
3,945,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Bear Lake Associates Project)/
(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,945,000
775,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation
Project)/(KeyBank, N.A. LOC) 775,000
3,675,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (J.R. Automation Technologies
Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,675,000
910,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank &
Trust Co., Grand Rapids LOC) 910,000
8,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/
(Bank of America, IL LOC) 8,500,000
4,710,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc.
Project)/(Comerica Bank, Detroit, MI LOC) 4,710,000
800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/
(Comerica Bank, Detroit, MI LOC) 800,000
865,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank,
Detroit, MI LOC) 865,000
950,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Echo Properties, L.L.C.
Project)/(Comerica Bank, Detroit, MI LOC) 950,000
2,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (G & T Real Estate Investments
Co., L.L.C.)/(NBD Bank, Michigan LOC) 2,300,000
920,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/
(Comerica Bank, Detroit, MI LOC) 920,000
3,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1996) Weekly VRDNs (RMT Woodworth, Inc.)/(Comerica
Bank, Detroit, MI LOC) 3,000,000
3,675,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1997) Weekly VRDNs (Enprotech Mechanical Services,
Inc.)/(Michigan National Bank, Farmington Hills LOC) 3,675,000
1,350,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
(Series 1997A) Weekly VRDNs (EPI Printers, Inc.)/(Comerica
Bank, Detroit, MI LOC) 1,350,000
5,460,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds
Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 5,460,000
1,610,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds,
(Series 1995) Weekly VRDNs (Welch Properties Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC) 1,610,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MICHIGAN-CONTINUED
$ 2,025,000 Michigan Strategic Fund, Variable Rate Demand Limited
Obligation Revenue Bonds (Series 1996) Weekly VRDNs (R.H.
Wyner Associates, Inc.)/(State Street Bank and Trust Co.
LOC) $ 2,025,000
2,450,000 Michigan Strategic Fund, Variable Rate Demand Limited
Obligation Revenue Bonds (Series 1998) Weekly VRDNs (Monroe
Publishing Co.)/(Comerica, Inc. LOC) 2,450,000
3,995,000 Monroe County, MI Pollution Control Authority, (PT-143)
Weekly VRDNs (Detroit Edison Co.)/(FGIC INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 3,995,000
3,440,000 Monroe County, MI Pollution Control Authority, (Series CDC-
1997M) Weekly VRDNs (Detroit Edison Co.)/(AMBAC INS)/(CDC
Municipal Products, Inc. LIQ) 3,440,000
7,370,000 Monroe County, MI Pollution Control Authority, PT-108 Weekly
VRDNs (Detroit Edison Co.)/(FGIC INS)/(Merrill Lynch Capital
Services, Inc. LIQ) 7,370,000
3,000,000 Oakland County, MI EDC, Limited Obligation Revenue Bonds
(Series 1997) Weekly VRDNs (Stone Soap Company, Inc.)/
(Michigan National Bank, Farmington Hills LOC) 3,000,000
5,500,000 Wayne County, MI, PT-1061 Weekly VRDNs (Detroit Metropolitan
Wayne County Airport)/(MBIA INS)/(Merrill Lynch Capital
Services, Inc. LIQ) 5,500,000
Total 201,617,878
PUERTO RICO-1.5%
2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 2,000,319
1,075,000 Puerto Rico Industrial, Medical & Environmental PCA,
Pollution Control Facilities Financing Authority (Series
1983 A), 3.75% TOBs (Schering Plough Corp.)/(Morgan Guaranty
Trust Co., New York LOC), Optional Tender 12/1/1998 1,075,000
Total 3,075,319
Total Investments (at amortized cost) 3 $204,693,197
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 55.8% of
portfolio as calculated upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.0% 00.0%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal securities laws. At October 31, 1998 these securities
amounted to $9,950,000 which represents 4.9% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($204,552,930) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BANs -Bond Anticipation Notes
CP -Commercial Paper
EDC -Economic Development Commission
EDRB -Economic Development Revenue Bonds
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PRF -Prerefunded
SA -Support Agreement
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 204,693,197
Cash 110,457
Income receivable 1,505,577
Receivable for shares sold 119,159
Deferred organizational costs 9,219
Other assets 5,803
Total assets 206,443,412
LIABILITIES:
Payable for investments purchased $ 1,700,000
Income distribution payable 168,915
Accrued expenses 21,567
Total liabilities 1,890,482
Net Assets for 204,552,930 shares outstanding $ 204,552,930
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SERVICE SHARES:
$184,989,106 / 184,989,106 shares outstanding $1.00
INSTITUTIONAL SHARES:
$19,563,824 / 19,563,824 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,985,867
EXPENSES:
Investment advisory fee $ 938,574
Administrative personnel and services fee 155,001
Custodian fees 12,212
Transfer and dividend disbursing agent fees and expenses 105,067
Directors'/Trustees' fees 1,757
Auditing fees 12,691
Legal fees 13,458
Portfolio accounting fees 59,722
Shareholder services fee-Institutional Service Shares 428,375
Shareholder services fee-Institutional Shares 40,876
Share registration costs 34,162
Printing and postage 19,606
Insurance premiums 13,411
Miscellaneous 8,412
Total expenses 1,843,324
WAIVERS-
Waiver of investment advisory fee $ (614,954)
Waiver of shareholder services fee-Institutional Service
Shares (154,215)
Waiver of shareholder services fee-Institutional Shares (40,876)
Total waivers (810,045)
Net expenses 1,033,279
Net investment income $ 5,952,588
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 5,952,588 $ 4,245,771
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (5,412,823) (3,793,687)
Institutional Shares (539,765) (452,084)
Change in net assets resulting from distributions to
shareholders (5,952,588) (4,245,771)
SHARE TRANSACTIONS:
Proceeds from sale of shares 846,148,992 843,340,942
Net asset value of shares issued to shareholders in payment
of distributions declared 4,227,137 2,986,927
Cost of shares redeemed (806,298,824) (789,741,373)
Change in net assets resulting from share transactions 44,077,305 56,586,496
Change in net assets 44,077,305 56,586,496
NET ASSETS:
Beginning of period 160,475,625 103,889,129
End of period $ 204,552,930 $ 160,475,625
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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.
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,
1998, is as follows:
Acquisition Acquisition
SECURITY Date Cost
Kalamazoo, MI Hospital Finance Authority 6/18/1998 $5,000,000
Michigan State Hospital Finance Authority
(Series 1993A) 10/1/1998 4,950,000
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. At October 31, 1998, capital paid-in aggregated
$204,552,930.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 767,269,962 780,908,072
Shares issued to shareholders in payment of distributions
declared 4,192,141 2,956,463
Shares redeemed (733,578,344) (729,034,645)
Net change resulting from Institutional Service Share
transactions 37,883,759 54,829,890
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 78,879,030 62,432,870
Shares issued to shareholders in payment of distributions
declared 34,996 30,464
Shares redeemed (72,720,480) (60,706,728)
Net change resulting from Institutional Share transactions 6,193,546 1,756,606
Net change resulting from share transactions 44,077,305 56,586,496
</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, Inc.
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
FFServ, 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 agreed to reimburse the Adviser for the organizational
expenses during the five-year period following the effective date.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, 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 $403,630,000 and
$388,800,000, 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, 1998, 83.3% 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 11.6% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian and broker. As to securities purchased but not received, we
requested the confirmation from the broker and, when the reply was not
received, we carried out alternative auditing procedures. 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet site
at http://www.sec.gov. You can call 1-800-SEC-0330 for information on the
Public Reference Room's operations and copying charges.
[Graphic]
Michigan Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229725
G01212-01 (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Michigan Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Michigan Municipal Cash Trust dated
December 31, 1998. Obtain the prospectuses without charge by calling 1-800-341-
7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229667
Cusip 314229725
G01212-02 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating
services or be of comparable quality to securities having such ratings. A rating
service's two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by
Standard & Poor's (S&P), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
(Moody's), or F-1+, F-1, or F-2 by Fitch IBCA, Inc. (Fitch) are all considered
rated in one of the two highest short-term rating categories. The Fund will
follow applicable regulations in determining whether a security rated by more
than one rating service can be treated as being in one of the two highest short-
term rating categories; currently, such securities must be rated by two rating
services in one of their two highest rating categories. See "Regulatory
Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and Michigan
state income and intangibles tax. This policy is fundamental and cannot be
changed without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following investment limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days after notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at nformational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998 the following shareholders owned of record, beneficially,
or both, 5% or more of the outstanding Institutional Shares: National City Bank,
Cleveland, Ohio, owned approximately 1,449,609 Shares (8.37%); Sunatco
Partnership, as nominee for SNB as trustee, custodian or agent, Hancock,
Michigan, owned approximately 4,377,032 Shares (25.28%); and First Mar & Co.,
MFC First National Bank, Marquette, Michigan, owned approximately 8,724,286
Shares (50.39%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: VAR & Co., US Bank, N.A., St. Paul, Minnesota, owned approximately
34,343,119 Shares (17.96%) and McDonald & Co. Securities, Inc. (for the
exclusive benefit of customers), Cincinnati, Ohio, owned approximately
53,342,662 Shares (27.90%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Michigan laws, distributions made by the Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Michigan or any of its political subdivisions, or
(ii) income from obligations of the United States government which are exempted
from state income taxation by a law of the United States.
The portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of the
United States, and dividends paid by the Fund representing interest payments on
securities, will be exempt from Michigan intangibles tax. 1995 Public Act 5
repeals the intangibles tax effective January 1, 1998.
Distributions of the Fund are not subject to the Michigan Single Business Tax to
the extent that such distributions are derived from interest on obligations of
Michigan or its political subdivisions, or obligations of the United States
government that are exempt from state taxation by a law of the United States.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Fund are exempt
from federal regular income taxes, such dividends also will be exempt from
Michigan municipal income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation From
Address Principal Occupations
Compensation Trust and Fund
Position With Trust for Past 5 Years From
Trust Complex
- ------------------------------- ----------------------------------------------------------
- ----------------- -------------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of
$0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and
Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management,
and companies in the
Pittsburgh, PA Federated Research; Chairman and Director,
Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee,
Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior
Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group,
Inc.; investment
TRUSTEE Director, Member of Executive Committee,
University companies in the
of
Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation;
Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates,
Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real
estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly:
President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and
Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive
Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman
and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank
Corp.; investment
TRUSTEE Director, Ryan Homes,
Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany
Fund, Trust and
571 Hayward Mill Road
Inc. 56 other
Concord,
MA
investment
TRUSTEE Retired: President, Boston Stock Exchange,
Inc.; companies in the
Regional Administrator, United States Securities
and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of
Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore
Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia
Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex;
$4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny &
Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.;
formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western
Region; investment
Kochuba Partner, Meyer and
Flaherty. companies in the
205 Ross
Street
Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth
of Trust and
One Royal Palm Way Massachusetts General Court; President, State
Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street
Corporation. investment
Palm Beach,
FL
companies in the
TRUSTEE Retired: Director, VISA USA and VISA
International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne
University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica &
Murray. 56 other
President,
Duquesne
investment
University Retired: Dean and Professor of Law, University
of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of
Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics,
Athens; Trust and
1925 Professor, International Politics;
Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment
for investment
University of Pittsburgh International Peace, RAND Corporation,
Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National
Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
$4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference
Planning. Trust and
4905 Bayard
Street 56
other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company
of investment
TRUSTEE America; business
owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
$0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities
Corp. and
Federated Investors
Tower 8 other
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA Fund
Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the
$0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of
some and
Federated Investors Tower of the Funds in the Federated Fund Complex;
President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.;
President investment
Pittsburgh, PA and Trustee, Federated Advisers,
Federated companies in the
EXECUTIVE VICE PRESDIENT Management, and Federated Research; President
and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the
$0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive
Vice and
Federated Investors Tower President and Treasurer of some of the Funds in
the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman,
Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated
Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the
$0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice
President, and
Federated Investors Tower Secretary, and Director, Federated Investors,
Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated
Management, investment
Pittsburgh, PA and Federated Research; Director, Federated
Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.;
Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
$0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services
Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly:
various 56 other
1001 Liberty Avenue management positions within Funds Financial
Services investment
Pittsburgh, PA Division of Federated Investors,
Inc. companies in the
TREASURER
Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in
$0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee
of and
Federated Investors Tower some of the Funds in the Federated Fund
Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors,
Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities
Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various
$0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex;
Executive and
Federated Investors Tower Vice President, Federated Investment
Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated
Advisers, investment
Pittsburgh, PA Federated Management, Federated Research,
and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered
Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
$0 $0 for the Trust
Birthdate: September 12, investment companies in the Federated Fund
Complex; and
1953 Senior Vice President, Federated
Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated
Global companies
1001 Liberty Avenue Research Corp., Federated Management,
Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
$0 $0 for the Trust
Birthdate: January 15, 1960 investment companies in the Federated Fund
Complex; and
Federated Investors Tower Vice President, Federated Investment
Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research
Corp., companies
Pittsburgh, PA Federated Management, Federated Research,
Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- ------------------ ------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- --------------------------------------------------------------
Advisory Fee Earned $938,574 $655,534 $337,325
- --------------------------------------------------------------
Advisory Fee Reduction 614,954 542,531 337,325
- --------------------------------------------------------------
Brokerage Commissions 0 0 0
- --------------------------------------------------------------
Administrative Fee 155,001 155,000 145,082
- --------------------------------------------------------------
Shareholder Services Fee
- --------------------------------------------------------------
Institutional Shares 0 --- ---
- --------------------------------------------------------------
Institutional
Service Shares 274,160 --- ---
- --------------------------------------------------------------
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year and since inception periods ended October
31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception on March 2, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.36% 3.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.93% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 2.97% -- --
Tax-Equivalent Yield 5.30% -- --
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception on June 20, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.20% 3.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.77% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 2.81% -- --
Tax-Equivalent Yield 5.02% -- --
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MICHIGAN
- ------------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40%
44.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1- $42,351- $102,301- $155,951-
OVER
RETURN 42,350 102,300 155,950 278,450
$278,450
SINGLE $1- $25,351- $61,401- $128,101-
OVER
RETURN 25,350 61,400 128,100 278,450
$278,450
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTOR SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
MICHIGAN MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Minnesota Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the regular personal income taxes imposed by
the State of Minnesota.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of
Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 29
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income which is exempt from federal regular income tax and the regular
personal income taxes imposed by the State of Minnesota consistent with
stability of principal.While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the regular
personal income taxes imposed by the State of Minnesota. Interest from the
Fund's investments may be subject to the federal alternative minimum tax
for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-1
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Cash Series
Shares on a yearly basis.
The Fund's Cash Series Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net
asset value.
The Fund's Cash Series Shares year to date total return as of the most
recent calendar quarter of September 30, 1998 was 2.16%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 1.04% (quarter ended June 30, 1991). Its lowest quarterly return was
0.46% (quarter ended March 31, 1994).
The Fund's Cash Series Shares Seven-Day Net Yield as of 12/31/97 was 3.30%.
The following table represents the Fund's Cash Series Shares Average Annual
Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.01%
5 Years 2.74%
Start of Performance 1 2.92%
1 The Start of Performance date for Cash Series Shares was December 31,
1990.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance Infomation so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards
What are the Fund's Fees and Expenses?
MINNESOTA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Cash Series Shares.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
<S>
<C>
Fees Paid Directly From Your
Investment
Maximum Sales Charge (Load) Imposed on Purchases (as
a
percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of
original purchase price or redemption
proceeds,
as
applicable)
None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends
(and other Distributions) (as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed,
if
applicable)
None
Exchange
Fee
None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee
2 0.40%
Distribution (12b-1) Fee
3 0.50%
Shareholder Services
Fee 0.25%
Other
Expenses
0.15%
Total Annual Fund Operating
Expenses 1.30%
1 Although not contractually obligated to do so, the adviser and distributor waived certain amounts.
These are shown below along with the net expenses the Fund actually paid for the fiscal year ended
October 31, 1998.
Waiver of Fund
Expenses 0.50%
Total Actual Annual Operating Expenses (after waivers) 0.80%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.15% for the
year ended October 31, 1998.
3 The distribution (12b-1) fee for Cash Series Shares has been voluntarily reduced. This voluntary
reduction
can be terminated at any time. The distribution (12b-1) fee paid by the Fund (after the voluntary
reduction) was 0.25% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Cash Series Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Cash Series Shares
for the time periods indicated and then redeem all of your shares at the end
of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Cash Series Shares' operating expenses
are BEFORE WAIVERS as shown above and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $132 $412 $713 $1,568
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the regular personal income taxes imposed by
the State of Minnesota. Temporary investments will be of comparable quality
to other securities in which the Fund invests. This may cause the Fund to
give up greater investment returns to maintain the safety of principal.
This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.variable rate demand instruments
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Minnesota. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject
to a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with your
Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Cash Series
Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Cash Series Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals.
The Fund may not be a suitable investment for retirement plans or for non-
Minnesota taxpayers because it invests in Minnesota tax-exempt securities.
When the Distributor receives marketing fees, it may pay some or all of
them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value)
to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Cash Series Shares.
Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different
sales charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).
You will receive that day's dividend if the investment professional
forwards the order to the Fund and the Fund receives payment by 3:00 p.m.
(Eastern time). You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Minnesota state personal income tax to
the extent they are derived from interest on obligations exempt from
Minnesota personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited finanical statements, is included in this
prospectus.
FINANCIAL HIGHLIGHTS-CASH SERIES SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on
page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995
1994
<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 0.03
0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03)
(0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00
TOTAL RETURN 1 2.93% 2.97% 2.97% 3.41%
2.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.80% 0.80% 0.80% 0.70%
0.71%
Net investment income 2.89% 2.92% 2.93% 3.37%
2.15%
Expense waiver/reimbursement 2 0.50% 0.51% 0.51% 0.62%
0.61%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $207,599 $221,227 $235,614 $131,471
$94,335
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-99.5% 1
MINNESOTA-97.3%
$ 34,029,000 ABN AMRO MuniTOPS Certificates Trust (Minnesota Non-AMT)
Series 1998-6 Weekly VRDNs (Minneapolis/St. Paul, MN Airport
Commission)/(AMBAC INS)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 34,029,000
1,550,000 Albert Lea, MN Independent School District No. 241, 3.35%
RANs (Minnesota State GTD), 9/20/1999 1,552,257
5,600,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP
(United Power Associates)/(National Rural Utilities
Cooperative Finance Corp. GTD), Mandatory Tender 1/14/1999 5,600,000
1,950,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs
(Walker Plaza Project)/(U.S. Bank, NA, Minneapolis LOC) 1,950,000
3,575,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV
Development Co. Project)/(Firstar Bank, Minnesota LOC) 3,575,000
4,725,000 Avon, MN, (Series 1998) Weekly VRDNs (Vesper Corp.)/
(KeyBank, N.A. LOC) 4,725,000
1,915,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell,
Inc.)/(Nationsbank, N.A., Charlotte LOC) 1,915,000
9,000,000 Becker, MN, PCR (Series 1993A & B), 2.90% CP (Northern States
Power Co.), Mandatory Tender 2/10/1999 9,000,000
6,700,000 Becker, MN, PCR (Series 1993A & B), 3.00% CP (Northern States
Power Co.), Mandatory Tender 2/11/1999 6,700,000
9,500,000 Becker, MN, PCR (Series 1993A & B), 3.25% CP (Northern States
Power Co.), Mandatory Tender 1/12/1999 9,500,000
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series
1996) Weekly VRDNs (S & S of Minnesota, LLC Project)/
(Norwest Bank Minnesota, N.A. LOC) 2,855,000
1,300,000 Bloomington, MN, Port Authority, Special Tax Revenue
Refunding Bonds (Series 1996B) Weekly VRDNs (Mall of
America)/(FSA INS)/(Credit Local de France LIQ) 1,300,000
7,500,000 Bloomington, MN, 4.75% Bonds, 12/1/1998 7,505,992
2,700,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now
Technologies, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) 2,700,000
5,000,000 Bloomington, MN, Multifamily Housing Weekly VRDNs (Crow/
Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000
10,300,000 Burnsville, MN, Variable Rate Demand Revenue Bonds (Series
1996) Weekly VRDNs (YMCA Projects)/(Norwest Bank Minnesota,
N.A. LOC) 10,300,000
3,520,000 Burnsville, MN, Adjustable Rate IDRB (Series 1996) Weekly
VRDNs (Caire, Inc. Project)/(Bank One, Wisconsin, N.A. LOC) 3,520,000
3,840,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing)/(Norwest Bank
Minnesota, N.A. LOC) 3,840,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 1,205,000 Chanhassen, MN, IDA, (Series 1995) Weekly VRDNs (Building
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
N.A. LOC) $ 1,205,000
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series
1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse First
Boston LOC) 5,000,000
2,700,000 Coon Rapids, MN, Hospital Authority, (Series 1985) Weekly
VRDNs (Health Central System)/(Norwest Bank Minnesota, N.A.
LOC) 2,700,000
3,160,000 Coon Rapids, MN, (Series 1996) Weekly VRDNs (Medical
Enterprise Associates Project)/(Norwest Bank Minnesota, N.A.
LOC) 3,160,000
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly
VRDNs (Supervalu Inc.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,350,000
10,745,000 2 Dakota County & Washington County, MN, Housing &
Redevelopment Authority, MERLOTs (Series J), 3.80% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1998 10,745,000
1,765,000 Dakota County, MN, Housing & Redevelopment Authority,
Multifamily Rental Housing Revenue Bonds (Series 1994-B)
Weekly VRDNs (Westwood Ridge Senior Residence Project)/
(U.S. Bank, N.A., Minneapolis LOC) 1,765,000
3,000,000 2 Dakota County, Washington County & Anoka City, MN, Housing &
Redevelopment Authority, MERLOTs (Series H), 3.80% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1998 3,000,000
3,100,000 Duluth, MN, (Series 1985) Weekly VRDNs (Wachovia Bank of
Georgia N.A., Atlanta LOC) 3,100,000
9,000,000 Duluth, MN, Certificates of Indebtedness (Series 1998),
3.98% TANs, 12/31/1998 9,003,573
810,000 Eden Prairie, MN, IDA, #194 Weekly VRDNs (Richard W. Cohen
Project)/(Norwest Bank Minnesota, N.A. LOC) 810,000
1,170,000 Eden Prairie, MN, IDA, (Series 1996) Weekly VRDNs (Challenge
Printing, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) 1,170,000
1,360,000 Eden Prairie, MN, IDA, (Series 1995) Weekly VRDNs (Robert
Lothenbach Project)/(Norwest Bank Minnesota, N.A. LOC) 1,360,000
675,000 Elk River, MN, Weekly VRDNs (Tescom Corp.)/(Norwest Bank
Minnesota, N.A. LOC) 675,000
2,500,000 Faribault, MN, ISD No. 656, 3.75% TANs (Minnesota State
GTD), 3/30/1999 2,501,473
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington
Standard Corporation Project)/(Norwest Bank Minnesota, N.A.
LOC) 2,945,000
2,200,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs 2,200,000
7,250,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 7,250,000
7,100,000 Hubbard Co. MN, Solid Waste Disposal (Series 1990) Weekly
VRDNs (Potlatch Corp.)/(Credit Suisse First Boston LOC) 7,100,000
5,665,000 Lakeville, MN, ISD 194, PT-1098 Weekly VRDNs (Minnesota
State GTD)/(Merrill Lynch Capital Services, Inc. LIQ) 5,665,000
5,600,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997)
Weekly VRDNs (Taylor Corp.)/(Norwest Bank Minnesota, N.A.
LOC) 5,600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 1,000,000 MN Insured Municipal Securities Trust, Series 1996A,
Floating Rate Certificates Weekly VRDNs (Eden Prairie MN,
ISD 272)/(MBIA INS)/(Norwest Bank Minnesota, N.A. LIQ) $ 1,000,000
1,125,000 MN Insured Municipal Securities Trust, Series 1996B,
Floating Rate Certificates Weekly VRDNs (Eden Prairie MN,
ISD 272)/(MBIA INS)/(Norwest Bank Minnesota, N.A. LIQ) 1,125,000
2,500,000 MN Insured Municipal Securities Trust, Series 1996H,
Floating Rate Certificates Weekly VRDNs (St. Louis Park, MN
Health Care Facilities)/(AMBAC INS)/(Norwest Bank Minnesota,
N.A. LIQ) 2,500,000
2,250,000 MN Municipal Securities Trust, Series 1996D, Floating Rate
Certificates Weekly VRDNs
(North St. Paul-Maplewood, MN ISD 622)/(Norwest Bank
Minnesota, N.A. LIQ) 2,250,000
5,000,000 MN Municipal Securities Trust, Series 1996F, Floating Rate
Certificates Weekly VRDNs
Benedictine Health System)/(Connie Lee INS)/(Norwest Bank
Minnesota, N.A. LIQ) 5,000,000
4,000,000 MN Municipal Securities Trust, Series 1996H, Floating Rate
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/
(Norwest Bank Minnesota, N.A. LIQ) 4,000,000
3,600,000 Maple Grove, MN, Variable Rate Demand IDRB's (Series 1998)
Weekly VRDNs (Spancrete Midwest Co.)/(Norwest Bank
Minnesota, N.A. LOC) 3,600,000
950,000 Maplewood, MN, (Series 1997) Weekly VRDNs (Camada Ltd.
Partnership)/(Norwest Bank
Minnesota, N.A. LOC) 950,000
4,525,000 Maplewood, MN, Multifamily Housing (Series 1993) Weekly
VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of
Chicago LOC) 4,525,000
660,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Co.)/(U.S. Bank,
N.A., Minneapolis LOC) 660,000
6,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 6,000,000
3,330,000 Minneapolis, MN, (Series 1998), 4.50% Bonds, 3/1/1999 3,339,184
7,000,000 Minneapolis, MN, Housing Development Revenue Refunding Bonds
(Series 1988) Weekly VRDNs (Symphony Place)/(Citibank N.A.,
New York LOC) 7,000,000
900,000 Minneapolis, MN, Variable Rate Demand Commercial Development
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(U.S. Bank, N.A., Minneapolis LOC) 900,000
10,165,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly
VRDNs (One Ten Grant Project)/(U.S. Bank, N.A., Minneapolis
LOC) 10,165,000
370,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 370,000
4,900,000 Minneapolis, MN, Various Purpose Bonds (Series 1997B) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 4,900,000
3,160,000 2 Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue
Bonds, MERLOTs
(Series D), 3.85% TOBs (GNMA COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 1/1/1999 3,160,000
8,000,000 Minnesota Agricultural and Economic Development Board,
(Series 1996) Weekly VRDNs (Evangelical Lutheran Good
Samaritan Society)/(Rabobank Nederland, Utrecht LOC) 8,000,000
8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-
Pacific Corp.)/(Wachovia Bank of NC, N.A., Winston-Salem
LOC) 8,000,000
4,995,000 Minnesota State HFA, (Series 1998C) PT-204, % TOBs
(Bayerische Vereinsbank AG, Munich LIQ), Optional Tender
5/19/1999 4,995,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 5,000,000 Minnesota State HFA, Convertible Single Family Mortgage
(Series M), 3.80% TOBs,
Mandatory Tender 12/10/1998 $ 5,000,000
615,000 Minnesota State HFA, Convertible Single Family Mortgage
Bonds (Series N), 3.90% TOBs,
Mandatory Tender 12/10/1998 615,000
3,800,000 Minnesota State Higher Education Coordinating Board, (Series
1992A) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 3,800,000
7,000,000 Minnesota State Higher Education Coordinating Board, 1992
(Series B) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 7,000,000
6,500,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 6,500,000
12,700,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 12,700,000
5,750,000 Minnesota State Higher Education Facility Authority, (Series
Four-S) Weekly VRDNs (Bethel College and Seminary)/(Allied
Irish Banks PLC LOC) 5,750,000
4,310,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/1999 4,362,982
1,500,000 Minnesota State, 5.00% Bonds, 11/1/1998 1,500,000
5,000,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998 B), 3.625% TANs
(Minnesota State GTD), 8/27/1999 5,000,000
7,145,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998A), 3.65% TANs
(Minnesota State GTD), 2/9/1999 7,145,000
3,250,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998A), 3.67% TANs
(Minnesota State GTD), 8/20/1999 3,250,000
10,000,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998B), 3.90% TANs
(Minnesota State GTD), 3/4/1999 10,011,390
1,085,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos.,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 1,085,000
5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC) 5,900,000
6,500,000 Minnetonka, MN, Rental Housing Revenue Bonds (Series 1998),
4.42% TOBs (Bayerische Landesbank Girozentrale), Mandatory
Tender 5/1/1999 6,500,000
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/
(Paribas, Paris LOC) 1,300,000
1,000,000 New Hope, MN, IDRB, (Series 1994) Weekly VRDNs (Gaines and
Hanson Printing Co.)/
(Norwest Bank Minnesota, N.A. LOC) 1,000,000
3,020,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/(U.S. Bank, N.A.,
Minneapolis LOC) 3,020,000
4,650,000 Olmsted County, MN, Building Authority, Certificates of
Participation Weekly VRDNs (Human Services Infrastructure)/
(Toronto-Dominion Bank LOC) 4,650,000
1,190,000 Plymouth, MN, Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 1,190,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
MINNESOTA-CONTINUED
$ 3,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic
Steel, Inc.)/(National City Bank, Ohio LOC) $ 3,500,000
1,200,000 Port Authority of Saint Paul, MN, (Series 1998A) Weekly
VRDNs (Bix Fruit Co.)/(Firstar Bank, Milwaukee LOC) 1,200,000
2,500,000 Port Authority of Saint Paul, MN, Variable Rate Demand
IDRB's (Series 1998A) Weekly VRDNs (National Checking Co.)/
(U.S. Bank, N.A., Minneapolis LOC) 2,500,000
925,000 Port of Austin, MN, Weekly VRDNs (Mower House Color)/
(Norwest Bank Minnesota, N.A. LOC) 925,000
14,000,000 Rochester, MN, Health Care Facility Authority Weekly VRDNs
(Mayo Foundation)/(Rabobank Nederland, Utrecht LIQ) 14,000,000
1,650,000 Rocori, MN, Independent School District No. 750, (Series
1998), 4.25% Bonds
(Minnesota State GTD), 9/3/1999 1,656,898
500,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing
Corp)/(KeyBank, N.A. LOC) 500,000
2,555,000 Rogers, MN, IDA, IDRB Weekly VRDNs (DAC Development, LLC
Project)/(Norwest Bank
Minnesota, N.A. LOC) 2,555,000
23,500,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining
Co.) 23,500,000
1,095,000 Savage, MN, (Series A), 5.00% Bonds (FGIC INS), 2/1/1999 1,099,376
4,000,000 Shakopee, MN, Hospital Finance Authority Weekly VRDNs (St.
Francis Regional Medical Center)/(Citibank N.A., New York
LOC) 4,000,000
940,000 Southern Minnesota Municipal Power Agency, (Series 1991A),
5.10% Bonds (FGIC INS),
1/1/1999 942,212
6,500,000 Southern Minnesota Municipal Power Agency, 3.50% CP,
Mandatory
Tender 11/10/1998 6,500,000
10,500,000 Southern Minnesota Municipal Power Agency, 3.50% CP,
Mandatory
Tender 11/13/1998 10,500,000
1,135,000 St. Cloud, MN, Housing & Redevelopment Authority, Revenue
Refunding Bonds
(Series 1994A) Weekly VRDNs (Coborn's Incorporated Project)/
(Norwest Bank
Minnesota, N.A. LOC) 1,135,000
2,262,500 St. Cloud, MN, Housing & Redevelopment Authority, Revenue
Refunding Bonds
(Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/
(Norwest Bank Minnesota, N.A. LOC) 2,262,500
7,100,000 St. Cloud, MN, (Series 1997-A) Weekly VRDNs (The Saint Cloud
Hospital)/(Rabobank Nederland, Utrecht LOC) 7,100,000
9,400,000 St. Louis Park, MN, Health Care Facilities, Floating Rate
Monthly Demand IDRB's
(Series 1984) Weekly VRDNs (Unicare Homes, Inc.)/(Banque
Paribas, Paris LOC) 9,400,000
4,600,000 St. Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(District Cooling
St. Paul, Inc.)/(Credit Local de France LOC) 4,600,000
400,000 St. Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(United Way)/(U.S. Bank, N.A., Minneapolis LOC) 400,000
2,000,000 St. Paul, MN, Housing & Redevelopment Authority, District
Cooling Revenue Bonds
(1995 Series I) Weekly VRDNs (Credit Local de France LOC) 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
MINNESOTA-CONTINUED
$ 2,625,000 St. Paul, MN, Housing & Redevelopment Authority, Hampden
Square Apartments
(Series A), 4.318% TOBs (Bayerische Landesbank
Girozentrale), Mandatory Tender 7/1/1999 $ 2,625,000
5,000,000 St. Paul, MN, Port Authority, (Series 1991) Weekly VRDNs
(West Gate Office)/(U.S. Bank, N.A., Minneapolis LOC) 5,000,000
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount,
Inc.)/(Nationsbank, N.A., Charlotte LOC) 1,000,000
5,495,000 Trust Receipts (Series 1998 FR/RI-C8) Weekly VRDNs (Bank of
America NT and SA, San Francisco SWP) 5,495,000
10,000,000 VRDC/IVRC Trust, Tax-Exempt Variable Rate Demand
Certificates (Series 1997A) Weekly VRDNs (Regents of
University of Minnesota)/(Citibank N.A., New York LIQ) 10,000,000
3,300,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc.
Project)/(Norwest Bank Minnesota, N.A. LOC) 3,300,000
1,235,000 Victoria, MN, Industrial Development Revenue Bonds, (Series
1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank
Minnesota, N.A. LOC) 1,235,000
5,495,000 Washington County, MN, Housing & Redevelopment Authority,
Trust Receipts
(Series 1998 FR/RI-C9) Weekly VRDNs (Granada Pond
Apartments)/(Bank of America NT and SA, San Francisco SWP) 5,495,000
2,100,000 Wells, MN, 3.95% TOBs (Stokely, Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC),
Optional Tender 12/1/1998 2,100,000
1,000,000 Western Minnesota Municipal Power Agency, MN, 10.25% Bonds
(United States Treasury PRF), 1/1/1999 (@100) 1,010,563
2,500,000 Western Minnesota Municipal Power Agency, MN, Transmission
Project (Series 1997 A),
4.25% BANs, 1/1/1999 2,500,000
975,000 White Bear, MN, Weekly VRDNs (Thermoform Plastic, Inc.)/
Norwest Bank Minnesota, N.A. LOC) 975,000
2,025,000 White Bear, MN, Variable Rate Demand Industrial Revenue
Bonds Weekly VRDNs
(N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,025,000
1,935,000 Winona, MN, ISD 381, 3.75% RANs (Minnesota State GTD), 9/22/
1999 1,939,480
2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/
(Fleet National Bank, Springfield, MA LOC) 2,000,000
Total 521,566,880
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
PUERTO RICO-2.2%
$ 2,934,332 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) $ 2,934,332
5,000,000 2 Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank AG, Frankfurt LIQ),
Mandatory Tender 1/14/1999 5,000,000
3,790,000 Commonwealth of Puerto Rico, Municipal Securities Trust
Receipts,
(Series 1998-CMC4) Weekly VRDNs (MBIA INS)/(Chase Manhattan
Corp. LIQ) 3,790,000
Total 11,724,332
Total Investments (at amortized cost) 3 $ 533,291,212
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 29.6% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $21,905,000 which represents 4.1% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($536,106,212) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BANs -Bond Anticipation Notes
COL -Collateralized
CP -Commercial Paper
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
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
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
PCR -Pollution Control Revenue
PLC -Public Limited Company
PRF -Prerefunded
RANs -Revenue Anticipation Notes
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 533,291,212
Cash 550,726
Income receivable 3,291,735
Receivable for shares sold 43,783
Prepaid expenses 13,090
TOTAL ASSETS 537,190,546
LIABILITIES:
Income distribution payable $ 891,233
Accrued expenses 193,101
TOTAL LIABILITIES 1,084,334
Net Assets for 536,106,212 shares outstanding $ 536,106,212
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS
PER SHARE:
INSTITUTIONAL SHARES:
$328,507,225 / 328,507,225 shares outstanding $1.00
CASH SERIES SHARES:
$207,598,987 / 207,598,987 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 20,018,457
EXPENSES:
Investment advisory fee $ 2,168,395
Administrative personnel and services fee 408,779
Custodian fees 26,550
Transfer and dividend disbursing agent fees and expenses 131,671
Directors'/Trustees' fees 4,632
Auditing fees 12,135
Legal fees 18,238
Portfolio accounting fees 107,038
Distribution services fee-Cash Series Shares 1,211,281
Shareholder services fee-Institutional Shares 749,642
Shareholder services fee-Cash Series Shares 605,640
Share registration costs 69,228
Printing and postage 32,247
Insurance premiums 39,556
Miscellaneous 3,306
TOTAL EXPENSES 5,588,338
WAIVERS:
Waiver of investment advisory fee $ (1,379,144)
Waiver of distribution services fee-Cash Series Shares (605,640)
Waiver of shareholder services fee-Institutional Shares (749,642)
TOTAL WAIVERS (2,734,426)
Net expenses 2,853,912
Net investment income $ 17,164,545
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 17,164,545 $ 14,244,131
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (10,155,213) (7,772,322)
Cash Series Shares (7,009,332) (6,471,809)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (17,164,545) (14,244,131)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,392,083,828 1,220,304,237
Net asset value of shares issued to shareholders in payment
of distributions declared 7,214,822 6,706,186
Cost of shares redeemed (1,292,784,856) (1,250,475,198)
Change in net assets resulting from share transactions 106,513,794 (23,464,775)
Change in net assets 106,513,794 (23,464,775)
NET ASSETS:
Beginning of period 429,592,418 453,057,193
End of period $ 536,106,212 $ 429,592,418
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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, 1998, is as follows:
Acquisition Acquisition
SECURITY Date Cost
Commonwealth of Puerto Rico
(Series 1992A) P-Floats PT-140 2/12/1998 $ 5,000,000
Minneapolis/St. Paul MN Housing
Finance Board, SFM Revenue
Bonds, MERLOTs (Series D) 10/1/1998 3,160,000
Dakota County, Washington County
& Anoka City, MN Housing &
Redevelopment Authority, MERLOTs
(Series H) 9/1/1998 3,000,000
Dakota County & Washington
County MN Housing & Redevelopment
Authority, MERLOTs (Series J) 9/1/1998 10,745,000
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. At October 31, 1998, capital paid-in aggregated
$536,106,212.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH SERIES SHARES:
Shares sold 648,659,025 623,382,912
Shares issued to shareholders in payment of distributions
declared 6,851,690 6,382,638
Shares redeemed (669,138,653) (644,152,774)
NET CHANGE RESULTING FROM CASH SERIES SHARE TRANSACTIONS (13,627,938) (14,387,224)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 743,424,803 596,921,325
Shares issued to shareholders in payment of distributions
declared 363,132 323,548
Shares redeemed (623,646,203) (606,322,424)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 120,141,732 (9,077,551)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 106,513,794 (23,464,775)
</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, Inc.
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 0.50% of the average daily net assets of the
Cash Series, 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 Federated Shareholder
Services 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.
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, 1998, 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 $767,167,340 and
$706,792,340, 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, 1998, 51.3% 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
exceed11.2% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Minnesota Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
DECEMBER 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information
on the Public Reference Room's operations and copying charges.
[Graphic]
Federated
Minnesota Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229873
0082715A-CSS (12/98)
[Graphic]
PROSPECTUS
Minnesota Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the regular personal income taxes imposed by
the State of Minnesota.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 6
How is the Fund Sold? 7
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 29
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income which is exempt from federal regular income tax and the regular
personal income taxes imposed by the State of Minnesota consistent with
stability of principal. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the regular
personal income taxes imposed by the State of Minnesota. Interest from the
Fund's investments may be subject to the federal alternative minimum tax
for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-2
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net
asset value.
The Fund's Institutional Shares year to date total return as of the most
recent calendar quarter of September 30, 1998 was 2.54%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 1.13% (quarter ended September 30, 1991). Its lowest quarterly return
was 0.56% (quarter ended March 31, 1994).
The Fund's Institutional Shares Seven-Day Net Yield as of 12/31/97 was
3.80%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.53%
5 Years 3.19%
Start of Performance 1 3.47%
1 The Fund's start of performance date was September 10, 1990.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
What Are The Fund's Fees And Expenses?
MINNESOTA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
<S>
<C>
SHAREHOLDER
FEES
Fees Paid Directly From Your
Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as
applicable)
None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable)
None
Exchange
Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee
2 0.40%
Distribution (12b-1)
Fee None
Shareholder Services Fee
3 0.25%
Other
Expenses
0.15%
Total Annual Fund Operating
Expenses 0.80%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the
fiscal
year ended October 31, 1998.
Waiver of Fund
Expenses 0.50%
Total Actual Annual Operating Expenses (after
waivers) 0.30%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.15% for the
year ended October 31, 1998.
3 The shareholder services fee for Institutional Shares has been voluntarily waived. This voluntary
waiver
can be terminated at any time. There was no shareholder services fee paid by the Fund (after the
voluntary waiver) for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Institutional Shares' operating
expenses are BEFORE WAIVERS as shown above and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses
assuming no
redemption $82 $255 $444 $990
What Are The Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the regular personal income taxes imposed by
the State of Minnesota. Temporary investments will be of comparable quality
to other securities in which the Fund invests. This may cause the Fund to
give up greater investment returns to maintain the safety of principal.
This also may cause the Fund to receive and distribute taxable income
to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What Are The Specific Risks Of Investing In The Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Minnesota. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject
to a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How Is The Fund Sold?
The Fund offers two share classes: Institutional Shares and Cash Series
Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Minnesota taxpayers
because it invests in Minnesota tax-exempt securities. The Distributor and
its affiliates may pay out of their assets other amounts (including items
of material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How To Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment
by 3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How To Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined
below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send request by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including dividends and capital
gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Minnesota state personal income tax to
the extent they are derived from interest on obligations exempt from
Minnesota personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages The Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private
accounts, which totaled over $120 billion in assets as of December 31,
1997. Federated was established in 1955 and is one of the largest mutual
fund investment managers in the United States with more than 2,000
employees. Over 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
FINANCIAL HIGHLIGHTS-INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995
1994
<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 0.04 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.44% 3.48% 3.49% 3.82% 2.58%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.30% 0.30% 0.30% 0.30% 0.31%
Net investment income 3.39% 3.42% 3.43% 3.77% 2.55%
Expense waiver/reimbursement 2 0.50% 0.51% 0.51% 0.52% 0.34%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $328,507 $208,365 $217,443 $212,392 $159,704
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-99.5% 1
MINNESOTA-97.3%
$ 34,029,000 ABN AMRO MuniTOPS Certificates Trust (Minnesota Non-AMT)
Series 1998-6 Weekly VRDNs (Minneapolis/St. Paul, MN Airport
Commission)/(AMBAC INS)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 34,029,000
1,550,000 Albert Lea, MN Independent School District No. 241, 3.35%
RANs (Minnesota State GTD), 9/20/1999 1,552,257
5,600,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP
(United Power Associates)/(National Rural Utilities
Cooperative Finance Corp. GTD), Mandatory Tender 1/14/1999 5,600,000
1,950,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs
(Walker Plaza Project)/(U.S. Bank, NA, Minneapolis LOC) 1,950,000
3,575,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV
Development Co. Project)/(Firstar Bank, Minnesota LOC) 3,575,000
4,725,000 Avon, MN, (Series 1998) Weekly VRDNs (Vesper Corp.)/
(KeyBank, N.A. LOC) 4,725,000
1,915,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell,
Inc.)/(Nationsbank, N.A., Charlotte LOC) 1,915,000
9,000,000 Becker, MN, PCR (Series 1993A & B), 2.90% CP (Northern States
Power Co.), Mandatory Tender 2/10/1999 9,000,000
6,700,000 Becker, MN, PCR (Series 1993A & B), 3.00% CP (Northern States
Power Co.), Mandatory Tender 2/11/1999 6,700,000
9,500,000 Becker, MN, PCR (Series 1993A & B), 3.25% CP (Northern States
Power Co.), Mandatory Tender 1/12/1999 9,500,000
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series
1996) Weekly VRDNs (S & S of Minnesota, LLC Project)/
(Norwest Bank Minnesota, N.A. LOC) 2,855,000
1,300,000 Bloomington, MN, Port Authority, Special Tax Revenue
Refunding Bonds (Series 1996B) Weekly VRDNs (Mall of
America)/(FSA INS)/(Credit Local de France LIQ) 1,300,000
7,500,000 Bloomington, MN, 4.75% Bonds, 12/1/1998 7,505,992
2,700,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now
Technologies, Inc. Project)/(Norwest Bank Minnesota, N.A.
LOC) 2,700,000
5,000,000 Bloomington, MN, Multifamily Housing Weekly VRDNs (Crow/
Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000
10,300,000 Burnsville, MN, Variable Rate Demand Revenue Bonds (Series
1996) Weekly VRDNs (YMCA Projects)/(Norwest Bank Minnesota,
N.A. LOC) 10,300,000
3,520,000 Burnsville, MN, Adjustable Rate IDRB (Series 1996) Weekly
VRDNs (Caire, Inc. Project)/(Bank One, Wisconsin, N.A. LOC) 3,520,000
3,840,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing)/(Norwest Bank
Minnesota, N.A. LOC) 3,840,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 1,205,000 Chanhassen, MN, IDA, (Series 1995) Weekly VRDNs (Building
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
N.A. LOC) $ 1,205,000
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series
1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse First
Boston LOC) 5,000,000
2,700,000 Coon Rapids, MN, Hospital Authority, (Series 1985) Weekly
VRDNs (Health Central System)/(Norwest Bank Minnesota, N.A.
LOC) 2,700,000
3,160,000 Coon Rapids, MN, (Series 1996) Weekly VRDNs (Medical
Enterprise Associates Project)/(Norwest Bank Minnesota, N.A.
LOC) 3,160,000
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly
VRDNs (Supervalu Inc.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,350,000
10,745,000 2 Dakota County & Washington County, MN, Housing &
Redevelopment Authority, MERLOTs (Series J), 3.80% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1998 10,745,000
1,765,000 Dakota County, MN, Housing & Redevelopment Authority,
Multifamily Rental Housing Revenue Bonds (Series 1994-B)
Weekly VRDNs (Westwood Ridge Senior Residence Project)/
(U.S. Bank, N.A., Minneapolis LOC) 1,765,000
3,000,000 2 Dakota County, Washington County & Anoka City, MN, Housing &
Redevelopment Authority, MERLOTs (Series H), 3.80% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1998 3,000,000
3,100,000 Duluth, MN, (Series 1985) Weekly VRDNs (Wachovia Bank of
Georgia N.A., Atlanta LOC) 3,100,000
9,000,000 Duluth, MN, Certificates of Indebtedness (Series 1998),
3.98% TANs, 12/31/1998 9,003,573
810,000 Eden Prairie, MN, IDA, #194 Weekly VRDNs (Richard W. Cohen
Project)/(Norwest Bank Minnesota, N.A. LOC) 810,000
1,170,000 Eden Prairie, MN, IDA, (Series 1996) Weekly VRDNs (Challenge
Printing, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) 1,170,000
1,360,000 Eden Prairie, MN, IDA, (Series 1995) Weekly VRDNs (Robert
Lothenbach Project)/(Norwest Bank Minnesota, N.A. LOC) 1,360,000
675,000 Elk River, MN, Weekly VRDNs (Tescom Corp.)/(Norwest Bank
Minnesota, N.A. LOC) 675,000
2,500,000 Faribault, MN, ISD No. 656, 3.75% TANs (Minnesota State
GTD), 3/30/1999 2,501,473
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington
Standard Corporation Project)/(Norwest Bank Minnesota, N.A.
LOC) 2,945,000
2,200,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs 2,200,000
7,250,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 7,250,000
7,100,000 Hubbard Co. MN, Solid Waste Disposal (Series 1990) Weekly
VRDNs (Potlatch Corp.)/(Credit Suisse First Boston LOC) 7,100,000
5,665,000 Lakeville, MN, ISD 194, PT-1098 Weekly VRDNs (Minnesota
State GTD)/(Merrill Lynch Capital Services, Inc. LIQ) 5,665,000
5,600,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997)
Weekly VRDNs (Taylor Corp.)/(Norwest Bank Minnesota, N.A.
LOC) 5,600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 1,000,000 MN Insured Municipal Securities Trust, Series 1996A,
Floating Rate Certificates Weekly VRDNs (Eden Prairie MN,
ISD 272)/(MBIA INS)/(Norwest Bank Minnesota, N.A. LIQ) $ 1,000,000
1,125,000 MN Insured Municipal Securities Trust, Series 1996B,
Floating Rate Certificates Weekly VRDNs (Eden Prairie MN,
ISD 272)/(MBIA INS)/(Norwest Bank Minnesota, N.A. LIQ) 1,125,000
2,500,000 MN Insured Municipal Securities Trust, Series 1996H,
Floating Rate Certificates Weekly VRDNs (St. Louis Park, MN
Health Care Facilities)/(AMBAC INS)/(Norwest Bank Minnesota,
N.A. LIQ) 2,500,000
2,250,000 MN Municipal Securities Trust, Series 1996D, Floating Rate
Certificates Weekly VRDNs
(North St. Paul-Maplewood, MN ISD 622)/(Norwest Bank
Minnesota, N.A. LIQ) 2,250,000
5,000,000 MN Municipal Securities Trust, Series 1996F, Floating Rate
Certificates Weekly VRDNs
Benedictine Health System)/(Connie Lee INS)/(Norwest Bank
Minnesota, N.A. LIQ) $ 5,000,000
4,000,000 MN Municipal Securities Trust, Series 1996H, Floating Rate
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/
(Norwest Bank Minnesota, N.A. LIQ) 4,000,000
3,600,000 Maple Grove, MN, Variable Rate Demand IDRB's (Series 1998)
Weekly VRDNs (Spancrete Midwest Co.)/(Norwest Bank
Minnesota, N.A. LOC) 3,600,000
950,000 Maplewood, MN, (Series 1997) Weekly VRDNs (Camada Ltd.
Partnership)/(Norwest Bank
Minnesota, N.A. LOC) 950,000
4,525,000 Maplewood, MN, Multifamily Housing (Series 1993) Weekly
VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of
Chicago LOC) 4,525,000
660,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Co.)/(U.S. Bank,
N.A., Minneapolis LOC) 660,000
6,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 6,000,000
3,330,000 Minneapolis, MN, (Series 1998), 4.50% Bonds, 3/1/1999 3,339,184
7,000,000 Minneapolis, MN, Housing Development Revenue Refunding Bonds
(Series 1988) Weekly VRDNs (Symphony Place)/(Citibank N.A.,
New York LOC) 7,000,000
900,000 Minneapolis, MN, Variable Rate Demand Commercial Development
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(U.S. Bank, N.A., Minneapolis LOC) 900,000
10,165,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly
VRDNs (One Ten Grant Project)/(U.S. Bank, N.A., Minneapolis
LOC) 10,165,000
370,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 370,000
4,900,000 Minneapolis, MN, Various Purpose Bonds (Series 1997B) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 4,900,000
3,160,000 2 Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue
Bonds, MERLOTs
(Series D), 3.85% TOBs (GNMA COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 1/1/1999 3,160,000
8,000,000 Minnesota Agricultural and Economic Development Board,
(Series 1996) Weekly VRDNs (Evangelical Lutheran Good
Samaritan Society)/(Rabobank Nederland, Utrecht LOC) 8,000,000
8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-
Pacific Corp.)/(Wachovia Bank of NC, N.A., Winston-Salem
LOC) 8,000,000
4,995,000 Minnesota State HFA, (Series 1998C) PT-204, % TOBs
(Bayerische Vereinsbank AG, Munich LIQ), Optional Tender
5/19/1999 4,995,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 5,000,000 Minnesota State HFA, Convertible Single Family Mortgage
(Series M), 3.80% TOBs,
Mandatory Tender 12/10/1998 5,000,000
615,000 Minnesota State HFA, Convertible Single Family Mortgage
Bonds (Series N), 3.90% TOBs,
Mandatory Tender 12/10/1998 615,000
3,800,000 Minnesota State Higher Education Coordinating Board, (Series
1992A) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 3,800,000
7,000,000 Minnesota State Higher Education Coordinating Board, 1992
(Series B) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 7,000,000
6,500,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 6,500,000
12,700,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ) 12,700,000
5,750,000 Minnesota State Higher Education Facility Authority, (Series
Four-S) Weekly VRDNs (Bethel College and Seminary)/(Allied
Irish Banks PLC LOC) 5,750,000
4,310,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/
1999 4,362,982
1,500,000 Minnesota State, 5.00% Bonds, 11/1/1998 1,500,000
5,000,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998 B), 3.625% TANs
(Minnesota State GTD), 8/27/1999 5,000,000
7,145,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998A), 3.65% TANs
(Minnesota State GTD), 2/9/1999 7,145,000
3,250,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998A), 3.67% TANs
(Minnesota State GTD), 8/20/1999 3,250,000
10,000,000 Minnesota Tax and Aid Anticipation Borrowing Program,
(Series 1998B), 3.90% TANs
(Minnesota State GTD), 3/4/1999 10,011,390
1,085,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos.,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 1,085,000
5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC) 5,900,000
6,500,000 Minnetonka, MN, Rental Housing Revenue Bonds (Series 1998),
4.42% TOBs (Bayerische Landesbank Girozentrale), Mandatory
Tender 5/1/1999 6,500,000
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/
(Paribas, Paris LOC) 1,300,000
1,000,000 New Hope, MN, IDRB, (Series 1994) Weekly VRDNs (Gaines and
Hanson Printing Co.)/
(Norwest Bank Minnesota, N.A. LOC) 1,000,000
3,020,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/(U.S. Bank, N.A.,
Minneapolis LOC) 3,020,000
4,650,000 Olmsted County, MN, Building Authority, Certificates of
Participation Weekly VRDNs (Human Services Infrastructure)/
Toronto-Dominion Bank LOC) 4,650,000
1,190,000 Plymouth, MN, Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 1,190,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 3,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic
Steel, Inc.)/(National City Bank, Ohio LOC) $ 3,500,000
1,200,000 Port Authority of Saint Paul, MN, (Series 1998A) Weekly
VRDNs (Bix Fruit Co.)/(Firstar Bank, Milwaukee LOC) 1,200,000
2,500,000 Port Authority of Saint Paul, MN, Variable Rate Demand
IDRB's (Series 1998A) Weekly VRDNs (National Checking Co.)/
(U.S. Bank, N.A., Minneapolis LOC) 2,500,000
925,000 Port of Austin, MN, Weekly VRDNs (Mower House Color)/
(Norwest Bank Minnesota, N.A. LOC) 925,000
14,000,000 Rochester, MN, Health Care Facility Authority Weekly VRDNs
(Mayo Foundation)/(Rabobank Nederland, Utrecht LIQ) 14,000,000
1,650,000 Rocori, MN, Independent School District No. 750, (Series
1998), 4.25% Bonds
(Minnesota State GTD), 9/3/1999 1,656,898
500,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing
Corp)/(KeyBank, N.A. LOC) 500,000
2,555,000 Rogers, MN, IDA, IDRB Weekly VRDNs (DAC Development, LLC
Project)/(Norwest Bank
Minnesota, N.A. LOC) 2,555,000
23,500,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining
Co.) 23,500,000
1,095,000 Savage, MN, (Series A), 5.00% Bonds (FGIC INS), 2/1/1999 1,099,376
4,000,000 Shakopee, MN, Hospital Finance Authority Weekly VRDNs (St.
Francis Regional Medical Center)/(Citibank N.A., New York
LOC) 4,000,000
940,000 Southern Minnesota Municipal Power Agency, (Series 1991A),
5.10% Bonds (FGIC INS),
1/1/1999 942,212
6,500,000 Southern Minnesota Municipal Power Agency, 3.50% CP,
Mandatory
Tender 11/10/1998 6,500,000
10,500,000 Southern Minnesota Municipal Power Agency, 3.50% CP,
Mandatory
Tender 11/13/1998 10,500,000
1,135,000 St. Cloud, MN, Housing & Redevelopment Authority, Revenue
Refunding Bonds
(Series 1994A) Weekly VRDNs (Coborn's Incorporated
Project)/
(Norwest Bank
Minnesota, N.A. LOC) 1,135,000
2,262,500 St. Cloud, MN, Housing & Redevelopment Authority, Revenue
Refunding Bonds
(Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/
(Norwest Bank Minnesota, N.A. LOC) 2,262,500
7,100,000 St. Cloud, MN, (Series 1997-A) Weekly VRDNs (The Saint Cloud
Hospital)/(Rabobank Nederland, Utrecht LOC) 7,100,000
9,400,000 St. Louis Park, MN, Health Care Facilities, Floating Rate
Monthly Demand IDRB's
(Series 1984) Weekly VRDNs (Unicare Homes, Inc.)/(Banque
Paribas, Paris LOC) 9,400,000
4,600,000 St. Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
(District Cooling
St. Paul, Inc.)/(Credit Local de France LOC) 4,600,000
400,000 St. Paul, MN, Housing & Redevelopment Authority Weekly VRDNs
United Way)/(U.S. Bank, N.A., Minneapolis LOC) 400,000
2,000,000 St. Paul, MN, Housing & Redevelopment Authority, District
Cooling Revenue Bonds
(1995 Series I) Weekly VRDNs (Credit Local de France LOC) 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
MINNESOTA-CONTINUED
$ 2,625,000 St. Paul, MN, Housing & Redevelopment Authority, Hampden
Square Apartments
(Series A), 4.318% TOBs (Bayerische Landesbank
Girozentrale), Mandatory Tender 7/1/1999 $ 2,625,000
5,000,000 St. Paul, MN, Port Authority, (Series 1991) Weekly VRDNs
(West Gate Office)/(U.S. Bank, N.A., Minneapolis LOC) 5,000,000
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount,
Inc.)/(Nationsbank, N.A., Charlotte LOC) 1,000,000
5,495,000 Trust Receipts (Series 1998 FR/RI-C8) Weekly VRDNs (Bank of
America NT and SA, San Francisco SWP) 5,495,000
10,000,000 VRDC/IVRC Trust, Tax-Exempt Variable Rate Demand
Certificates (Series 1997A) Weekly VRDNs (Regents of
University of Minnesota)/(Citibank N.A., New York LIQ) 10,000,000
3,300,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc.
Project)/(Norwest Bank Minnesota, N.A. LOC) 3,300,000
1,235,000 Victoria, MN, Industrial Development Revenue Bonds, (Series
1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank
Minnesota, N.A. LOC) 1,235,000
5,495,000 Washington County, MN, Housing & Redevelopment Authority,
Trust Receipts
(Series 1998 FR/RI-C9) Weekly VRDNs (Granada Pond
Apartments)/(Bank of America NT and SA, San Francisco SWP) 5,495,000
2,100,000 Wells, MN, 3.95% TOBs (Stokely, Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC),
Optional Tender 12/1/1998 2,100,000
1,000,000 Western Minnesota Municipal Power Agency, MN, 10.25% Bonds
(United States Treasury PRF), 1/1/1999 (@100) 1,010,563
2,500,000 Western Minnesota Municipal Power Agency, MN, Transmission
Project (Series 1997 A),
4.25% BANs, 1/1/1999 2,500,000
975,000 White Bear, MN, Weekly VRDNs (Thermoform Plastic, Inc.)/
(Norwest Bank Minnesota, N.A. LOC) 975,000
2,025,000 White Bear, MN, Variable Rate Demand Industrial Revenue
Bonds Weekly VRDNs
(N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,025,000
1,935,000 Winona, MN, ISD 381, 3.75% RANs (Minnesota State GTD), 9/22/
1999 1,939,480
2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/
(Fleet National Bank, Springfield, MA LOC) 2,000,000
Total 521,566,880
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-Continued 1
PUERTO RICO-2.2%
2,934,332 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) $ 2,934,332
5,000,000 2 Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank AG, Frankfurt LIQ),
Mandatory Tender 1/14/1999 5,000,000
3,790,000 Commonwealth of Puerto Rico, Municipal Securities Trust
Receipts,
(Series 1998-CMC4) Weekly VRDNs (MBIA INS)/(Chase Manhattan
Corp. LIQ) 3,790,000
Total 11,724,332
Total Investments (at amortized cost) 3 $ 533,291,212
Securities that are subject to Alternative Minimum Tax represent 29.6% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $21,905,000 which represents 4.1% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($536,106,212) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BANs -Bond Anticipation Notes
COL -Collateralized
CP -Commercial Paper
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
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
MERLOTs -Municipal Exempt Receipts - Liquidity Optional Tender
Series
PCR -Pollution Control Revenue
PLC -Public Limited Company
PRF -Prerefunded
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 533,291,212
Cash 550,726
Income receivable 3,291,735
Receivable for shares sold 43,783
Prepaid expenses 13,090
TOTAL ASSETS 537,190,546
LIABILITIES:
Income distribution payable $ 891,233
Accrued expenses 193,101
Total Liabilities 1,084,334
Net Assets for 536,106,212 shares outstanding $ 536,106,212
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$328,507,225 / 328,507,225 shares outstanding $1.00
CASH SERIES SHARES:
$207,598,987 / 207,598,987 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 20,018,457
EXPENSES:
Investment advisory fee $ 2,168,395
Administrative personnel and services fee 408,779
Custodian fees 26,550
Transfer and dividend disbursing agent fees and expenses 131,671
Directors'/Trustees' fees 4,632
Auditing fees 12,135
Legal fees 18,238
Portfolio accounting fees 107,038
Distribution services fee-Cash Series Shares 1,211,281
Shareholder services fee-Institutional Shares 749,642
Shareholder services fee-Cash Series Shares 605,640
Share registration costs 69,228
Printing and postage 32,247
Insurance premiums 39,556
Miscellaneous 3,306
Total Expenses 5,588,338
WAIVERS:
Waiver of investment advisory fee $ (1,379,144)
Waiver of distribution services fee-Cash Series Shares (605,640)
Waiver of shareholder services fee-Institutional Shares (749,642)
Total Waivers (2,734,426)
Net expenses 2,853,912
Net investment income $ 17,164,545
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998
1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 17,164,545 $ 14,244,131
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (10,155,213) (7,772,322)
Cash Series Shares (7,009,332) (6,471,809)
Change In Net Assets Resulting From Distributions
To Shareholders (17,164,545) (14,244,131)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,392,083,828 1,220,304,237
Net asset value of shares issued to shareholders in payment
of distributions declared 7,214,822 6,706,186
Cost of shares redeemed (1,292,784,856) (1,250,475,198)
Change in net assets resulting from share transactions 106,513,794 (23,464,775)
Change in net assets 106,513,794 (23,464,775)
NET ASSETS:
Beginning of period 429,592,418 453,057,193
End of period $ 536,106,212 $ 429,592,418
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes To Financial Statements
October 31, 1998
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 17 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,
1998, is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Commonwealth of Puerto Rico
(Series 1992A) P-Floats PT-140 2/12/1998 $ 5,000,000
Minneapolis/St. Paul MN
Housing Finance Board, SFM Revenue
Bonds, MERLOTS (Series D) 10/1/1998 3,160,000
Dakota County, Washington County
& Anoka City, MN Housing &
Redevelopment Authority, MERLOTS
(Series H) 9/1/1998 3,000,000
Dakota County & Washington County
MN Housing & Redevelopment
Authority, MERLOTS (Series J) 9/1/1998 10,745,000
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. At October 31, 1998, capital paid-in aggregated
$536,106,212.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 743,424,803 596,921,325
Shares issued to shareholders in payment of distributions
declared 363,132 323,548
Shares redeemed (623,646,203) (606,322,424)
Net Change Resulting From Institutional Share Transactions 120,141,732 (9,077,551)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH SERIES SHARES:
Shares sold 648,659,025 623,382,912
Shares issued to shareholders in payment of distributions
declared 6,851,690 6,382,638
Shares redeemed (669,138,653) (644,152,774)
Net Change Resulting From Cash Series Share Transactions (13,627,938) (14,387,224)
Net Change Resulting From Share Transactions 106,513,794 (23,464,775)
</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, Inc.
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 0.50% of the average daily net assets of the
Cash Series, 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 Federated Shareholder
Services 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.
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, 1998, 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 $767,167,340 and
$706,792,340, 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, 1998, 51.3% 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 11.2% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To The Board Of Trustees Of Federated Municipal Trust
And Shareholders Of 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Minnesota Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information
on the Public Reference Room's operations and copying charges.
[Graphic]
Federated
Minnesota Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229402
0082715A-IS (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Minnesota Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
CASH SERIES SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Minnesota Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling 1-
800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229402
Cusip 314229873
0082715B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Cash Series Shares (Shares). This SAI
relates to both of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A rating service's two highest rating categories are determined without regard
for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2 by Moody's Investors Service,
Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch IBCA, Inc. (Fitch) are all
considered rated in one of the two highest short-term rating categories. The
Fund will follow applicable regulations in determining whether a security rated
by more than one rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The fund's
principal risks fund are described in its prospectus. An additional risk factor
is outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt") tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and Minnesota
regular personal income tax (exempt interest dividends). The Fund invests its
assets so that at least 95% of the exempt interest dividends that the Fund pays
to its shareholders will derive from interest income from Minnesota municipal
obligations. This policy is fundamental and cannot be changed without
shareholder approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, the Fund will restrict
the purchase of portfolio securities to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued Minnesota tax-exempt securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations, or its Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate or real estate limited
partnership interests, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
Investing in Restricted Securities
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under federal securities law,
except for certain restricted securities which meet the criteria for liquidity
established by the Board.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items (including instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of Investment), securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above limitations cannot be changed unless authorized by the "vote of a
majojrity of its outstanding voting securtiies," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days after notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the Rule)
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (CASH SERIES SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Compnay (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Firmad & Co., Milwaukee, Wisconsin, owned approximately 17,453,769 shares
(5.27%); Resource Bank & Trust Co., Minneapolis, Minnesota, owned approximately
58,053,087 shares (17.54%) and VAR & Co., St. Paul, Minnesota, owned
approximately 208,436,158 shares (62.98%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash Series Shares:
Primevest Financial Services, Inc., St. Cloud, Minnesota, owned approximately
14,491,755 shares (5.85%); MJK Clearing Omnibus Account, Minneapolis, Minnesota,
owned approximately 24,106,108 shares (9.73%); Dain Rauscher Incorporated,
Minneapolis, Minnesota, owned approximately 25,613,858 shares (10.33%); Piper
Jaffray, Inc. (special custody account for the exclusive benefit of its
customers), Minneapolis, Minnesota, owned approximately 33,988,618 shares
(13.71%); FBS Investment Services, Inc. (for the exclusive benefit of its
customers), Minneapolis, Minnesota, owned approximately 59,795,590 shares
(24.12%); and Norwest Investment Services, Inc., Minneapolis, Minnesota, owned
approximately31,132,140 shares (24.66%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Minnesota laws, distributions made by the Fund will be exempt
from Minnesota regular personal income taxes provided that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
provided further that 95% of such distributions are derived from interest on
obligations issued by the State of Minnesota or any of its political or
governmental subdivisions, municipalities, or governmental agencies or
instrumentalities. Distributions made by the Fund will also be exempt to the
extent that they are derived from interest on federal obligations and are
reported federally as dividend income by shareholders. Conversely, to the extent
that distributions made by the Fund are derived from other types of obligations,
such distributions will be subject to Minnesota regular personal income taxes.
Dividends of the Fund are not exempt from Minnesota corporate income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Total
Name
Compensation
Birthdate
Aggregate From Trust
Address Principal Occupations
Compensation and Fund
Position With Trust for Past 5 Years
From Trust Complex
- --------------------------------- ----------------------------------------------------------------------
- ------------ -------------
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of the
Federated $ 0 $0 for the
Birthdate: July 28, 1924 Fund Complex. Chairman and Director, Federated Investors,
Inc.; Trust and 56
Federated Investors Tower Chairman and Trustee, Federated Advisers, Federated Management,
and other
1001 Liberty Avenue Federated Research; Chairman and Director, Federated Research
Corp., investment
Pittsburgh, PA and Federated Global Research Corp.; Chairman, Passport
Research, companies in
CHAIRMAN and TRUSTEE
Ltd. the Fund
Complex
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director,
Member $4,076.31 $111,222 for
Birthdate: February 3, 1934 of Executive Committee, Children's Hospital of Pittsburgh;
formerly: the Trust
15 Old Timber Trail Senior Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc.; and 56 other
Pittsburgh, PA Director, Member of Executive Committee, University of
Pittsburgh. investment
TRUSTEE
companies in
the Fund
Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
President, $4,484.62 $122,362 for
Birthdate: June 23, 1937 Investment Properties Corporation; Senior Vice President, John
R. the Trust
Wood/IPC Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in
private and 56 other
John R. Wood and Associates, Inc. real estate ventures in Southwest Florida; formerly:
President, investment
Realtors Naples Property Management, Inc. and Northgate Village
Development companies in
3255 Tamiami Trail North Naples,
Corporation. the Fund
FL
Complex
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; Director
and $4,484.62 $122,362 for
Birthdate: July 4, 1918 Member of the Executive Committee, Michael Baker, Inc.;
formerly: the Trust
One PNC Plaza-23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; and 56 other
Pittsburgh, PA Director, Ryan Homes,
Inc. investment
TRUSTEE
companies in
Retired: Director, United Refinery; Director, Forbes Fund;
Chairman, the Fund
Pittsburgh Foundation; Chairman, Pittsburgh Civic Light
Opera. Complex
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
Attorney-at-law; $4,484.62 $122,362 for
Birthdate: May 18, 1922 Director, The Emerging Germany Fund,
Inc. the Trust
571 Hayward Mill
Road and
56 other
Concord, MA Retired: President, Boston Stock Exchange, Inc.;
Regional investment
TRUSTEE Administrator, United States Securities and Exchange
Commission. companies in
the Fund
Complex
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; Professor
of $4,076.31 $111,222 for
Birthdate: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University
of the Trust
3471 Fifth Avenue Pittsburgh Medical Center Downtown; Hematologist, Oncologist,
and and 56 other
Suite 1111 Internist, Presbyterian and Montefiore Hospitals; Member,
National investment
Pittsburgh, PA Board of Trustees, Leukemia Society of
America. companies in
TRUSTEE
the Fund
Complex
Edward L. Flaherty, Jr., Esq.# Director or Trustee of the Federated Fund Complex; Attorney,
of $4,484.62 $122,362 for
Birthdate: June 18, 1924 Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park the Trust
Miller, Ament, Henny & Kochuba Restaurants, Inc.; formerly: Counsel, Horizon Financial,
F.A., and 56 other
205 Ross Street Western Region; Partner, Meyer and
Flaherty. investment
Pittsburgh,
PA
companies in
TRUSTEE
the Fund
Complex
Peter E. Madden Director or Trustee of the Federated Fund Complex;
formerly: $4,076.31 $111,222 for
Birthdate: March 16, 1942 Representative, Commonwealth of Massachusetts General
Court; the Trust
One Royal Palm Way President, State Street Bank and Trust Company and State
Street and 56 other
100 Royal Palm Way
Corporation. investment
Palm Beach,
FL
companies in
TRUSTEE Retired: Director, VISA USA and VISA International; Chairman
and the Fund
Director, Massachusetts Bankers Association; Director,
Depository Complex
Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President,
Law $4,076.31 $111,222 for
Birthdate: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica &
Murray. the Trust
President, Duquesne
University and 56
other
Pittsburgh, PA Retired: Dean and Professor of Law, University of Pittsburgh
School investment
TRUSTEE of Law; Dean and Professor of Law, Villanova University School
of companies in
Law. the Fund
Complex
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; President,
World $4,076.31 $111,222 for
Birthdate: September 14, 1925 Society of Ekistics, Athens; Professor, International
Politics; the Trust
1202 Cathedral of Learning Management Consultant; Trustee, Carnegie Endowment for
International and 56 other
University of Pittsburgh Peace, RAND Corporation, Online Computer Library Center,
Inc., investment
Pittsburgh, PA National Defense University and U.S. Space Foundation;
President companies in
TRUSTEE Emeritus, University of Pittsburgh; Founding Chairman,
National the Fund
Advisory Council for Environmental Policy and Technology,
Federal Complex
Emergency Management Advisory Board and Czech Management
Center,
Prague.
Retired: Professor, United States Military Academy;
Professor,
United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
Public $4,076.31 $111,222 for
Birthdate: June 21, 1935 Relations/Marketing/Conference
Planning. the Trust
4905 Bayard
Street
and 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of
America; investment
TRUSTEE business
owner. companies in
the Fund
Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
Federated $ 0 $0 for the
Birthdate: May 2, 1929 Securities
Corp. Trust and 8
Federated Investors
Tower other
1001 Liberty
Avenue
investment
Pittsburgh,
PA
companies in
PRESIDENT and
TRUSTEE
the Fund
Complex
J. Christopher Donahue##* President or Executive Vice President of the Federated Fund
Complex; $ 0 $0 for the
Birthdate: April 11, 1949 Director or Trustee of some of the Funds in the Federated
Fund Trust and 18
Federated Investors Tower Complex; President and Director, Federated Investors,
Inc.; other
1001 Liberty Avenue President and Trustee, Federated Advisers, Federated Management,
and investment
Pittsburgh, PA Federated Research; President and Director, Federated Research
Corp. companies in
EXECUTIVE VICE PRESDIENT and Federated Global Research Corp.; President, Passport
Research, the Fund
Ltd.; Trustee, Federated Shareholder Services Company;
Director, Complex
Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the Federated
Fund $ 0 $0 for the
Birthdate: October 22, 1930 Complex; President, Executive Vice President and Treasurer of
some Trust and 1
Federated Investors Tower of the Funds in the Federated Fund Complex; Vice Chairman,
Federated other
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Advisers,
Federated investment
Pittsburgh, PA Management, Federated Research, Federated Research Corp.,
Federated companies in
EXECUTIVE VICE PRESIDENT Global Research Corp. and Passport Research, Ltd.; Executive
Vice the Fund
President and Director, Federated Securities Corp.;
Trustee, Complex
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated
Fund $ 0 $0 for the
Birthdate: October 26, 1938 Complex; Executive Vice President, Secretary, and
Director, Trust and 56
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Advisers,
Federated other
1001 Liberty Avenue Management, and Federated Research; Director, Federated
Research investment
Pittsburgh, PA Corp. and Federated Global Research Corp.; Director,
Federated companies in
EXECUTIVE VICE PRESIDENT and Services Company; Director, Federated Securities
Corp. the Fund
SECRETARY
Complex
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President -
Funds $ 0 $0 for the
Birthdate: June 17, 1954 Financial Services Division, Federated Investors, Inc.;
Formerly: Trust and 56
Federated Investors Tower various management positions within Funds Financial
Services other
1001 Liberty Avenue Division of Federated Investors,
Inc. investment
Pittsburgh,
PA
companies in
TREASURER
the Fund
Complex
Richard B. Fisher* President or Vice President of some of the Funds in the
Federated $ 0 $0 for the
Birthdate: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in
the Trust and 6
Federated Investors Tower Federated Fund Complex; Executive Vice President,
Federated other
1001 Liberty Avenue Investors, Inc.; Chairman and Director, Federated Securities
Corp. investment
Pittsburgh,
PA
companies in
VICE
PRESIDENT
the Fund
Complex
William D. Dawson, III Chief Investment Officer of this Fund and various other Funds in
the $ 0 $0 for the
Birthdate: March 3, 1949 Federated Fund Complex; Executive Vice President,
Federated Trust and 41
Federated Investors Tower Investment Counseling, Federated Global Research Corp.,
Federated other
1001 Liberty Avenue Advisers, Federated Management, Federated Research, and
Passport investment
Pittsburgh, PA Research, Ltd.; Registered Representative, Federated
Securities companies in
CHIEF INVESTMENT OFFICER Corp.; Portfolio Manager, Federated Administrative Services;
Vice the Fund
President, Federated Investors, Inc.; Formerly: Executive
Vice Complex
President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
investment $ 0 $0 for the
Birthdate: September 12, 1953 companies in the Federated Fund Complex; Senior Vice
President, Trust and 7
Federated Investors Tower Federated Investment Counseling, Federated Advisers,
Federated other
1001 Liberty Avenue Global Research Corp., Federated Management, Federated
Research, investment
Pittsburgh, PA Federated Research Corp. and Passport Research, Ltd.; Formerly:
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President, Federated Advisers, Federated Management,
Federated the Fund
PRESIDENT Research, Federated Research Corp. , Passport Research, Ltd.
and Complex
Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
investment $ 0 $0 for the
Birthdate: January 15, 1960 companies in the Federated Fund Complex; Vice President,
Federated Trust and 3
Federated Investors Tower Investment Counseling, Federated Advisers, Federated Global
Research other
1001 Liberty Avenue Corp., Federated Management, Federated Research, Federated
Research investment
Pittsburgh, PA Corp. and Passport Research, Ltd.; Formerly: Assistant
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President and Investment Analyst, Federated Research Corp.
and the Fund
PRESIDENT Passport Research, Ltd. ; Assistant Vice President,
Federated Complex
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -------------------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Advisory Fee Earned $2,168,395 $1,795,783 $1,616,197
Advisory Fee Reduction 1,379,144 1,181,776 1,058,480
Brokerage Commissions 0 0 0
Administrative Fee 408,779 338,975 305,489
12b-1 Fee
Cash Series Shares 605,641 --- ---
Shareholder Services Fee
Institutional Shares 0 --- ---
Cash Series Shares 605,640 --- ---
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-years and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on
Institutional Shares September 10, 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.44% 3.36% 3.47%
Yield 3.09% -- -- --
Effective Yield 3.14% -- -- --
Tax-Equivalent Yield 6.05% -- -- --
- --------------------------------------------------------------------------------------------------
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on
Cash Series Shares January 7, 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 2.93% 2.89% 2.92%
Yield 2.59% -- -- --
Effective Yield 2.63% -- -- --
Tax-Equivalent Yield 5.07% -- -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MINNESOTA
- --------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 36.50% 39.50% 44.50% 48.10%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $ 61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- --------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
MINNESOTA MUNICIPAL CASH TRUST
Institutional Shares
Cash Series Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street Boston, MA 02110-2812
PROSPECTUS
North Carolina Municipal Cash Trust
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of
North Carolina.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Public Accountants 24
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income exempt from federal regular income tax and the income tax imposed by
the State of North Carolina consistent with stability of principal. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and North
Carolina state income tax. Interest from the Fund's investments may be
subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B4.]
Historically the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on
a yearly basis.
The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's Shares year-to-date total return as of the most recent calendar
quarter of September 30, 1998 was 2.34%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.93% (quarter ended June 30, 1995). Its lowest quarterly return was
0.55% (quarter ended March 31, 1994).
The Fund's Seven-Day Net Yield as of 12/31/97 was 3.52%.
The following table represents the Fund's Average Annual Total Return
through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.27%
Start of Performance 1 3.15%
1 The Fund's start of performance date was December 31, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
NORTH CAROLINA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your
Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as
a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of
original purchase price or redemption
proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends
(and other
Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a
percentage
of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses 0.19%
Total Annual Fund Operating Expenses 0.94%
1 Although not contractually obligated to do so, the
Adviser
and shareholder services provider waived certain
amounts.
These are shown below along with the net expenses the
Fund
actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.35%
Total Actual Annual Operating Expenses (after waivers) 0.59%
2 The Adviser voluntarily waived a portion of the management fee.
The Adviser can terminate this voluntary waiver at any time. The
management fee paid by the Fund (after the voluntary waiver) was
0.15% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses are BEFORE WAIVERS as shown
above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $96 $300 $520 $1,155
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the State of North Carolina income tax.
Temporary investments will be of comparable quality to other securities in
which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may
cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in North
Carolina. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$10,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-North Carolina taxpayers
because it invests in North Carolina tax-exempt securities. The
Distributor and its affiliates may pay out of their assets amounts
(including items of material value) to investment professionals for
marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail
it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend. This amount
will be wired to you the same day.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives
your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your protection,
send your certificates by registered or certified mail, but do not endorse
them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition,
you will receive periodic statements reporting all account activity,
including systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from North Carolina state personal income
tax to the extent they are derived from interest on obligations exempt from
North Carolina personal income taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding
your federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
1
<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 0.04 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) ( 0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.17% 3.24% 3.23% 3.51% 2.06%
<CAPTION>
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.59% 0.59% 0.59% 0.59% 0.49 % 3
Net investment income 3.09% 3.19% 3.17% 3.46% 2.54 % 3
Expense waiver/reimbursement 4 0.35% 0.40% 0.42% 0.40% 0.44 % 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $212,111 $172,636 $137,749 $97,602 $85,249
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM MUNICIPALS-99.3% 1
NORTH CAROLINA-96.5%
$ 1,755,000 Alamance County, NC Industrial Facilities & Pollution
Control Financing Authority, (Series B) Weekly VRDNs (Culp,
Inc.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) $ 1,755,000
6,000,000 Alexander County, NC Industrial Facilities & Pollution
Control Financing Authority, (Series 1997) Weekly VRDNs
(Mitchell Gold Company, Inc.)/(SouthTrust Bank of Alabama,
Birmingham LOC) 6,000,000
1,600,000 Buncombe County, NC Industrial Facilities & Pollution
Control Financing Authority, (Series 1991) Weekly VRDNs
(Rich Mount, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,600,000
975,000 Burke County, NC Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Norwalk Furniture Corp &
Hickory Furniture)/(Branch Banking & Trust Co, Wilson LOC) 975,000
640,000 Catawba County, NC Industrial Facilities & Pollution Control
Financing Authority, (Series 1992) Weekly VRDNs (WSMP,
Inc.)/(Nationsbank, N.A., Charlotte LOC) 640,000
4,600,000 Catawba County, NC Industrial Facilities & Pollution Control
Financing Authority, (Series 1994) Weekly VRDNs (Ethan Allen
Inc Project)/(Bankers Trust Co., New York LOC) 4,600,000
4,000,000 Catawba County, NC Industrial Facilities & Pollution Control
Financing Authority, (Series 1998) Weekly VRDNs (Centro
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 4,000,000
525,000 Charlotte, NC, Water & Sewer, 5.25% Bonds, 4/1/1999 528,367
3,115,000 Cleveland County, NC Industrial Facilities and Pollution
Control Financing Authority, IDRB (Series 1990) Weekly VRDNs
(MetalsAmerica, Inc. Project)/(BankBoston, N.A. LOC) 3,115,000
1,370,000 Cleveland County, NC Industrial Facilities and Pollution
Control Financing Authority, Pollution Control Revenue Bonds
(Series 1995) Weekly VRDNs (Grover Industries, Inc.
Project)/(Bank of America, IL LOC) 1,370,000
2,200,000 Clipper, NC Tax-Exempt Trust Weekly VRDNs (North Carolina
State)/(State Street Bank and Trust Co. LIQ) 2,200,000
6,000,000 Gaston County, NC Industrial Facilities and Pollution
Control Financing Authority, (Series 1997) Weekly VRDNs
(Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, N.A.
LOC) 6,000,000
950,000 Gaston County, NC, UT GO, 4.70% Bonds (FGIC INS), 3/1/1999 953,335
2,430,000 Guilford County, NC Industrial Facilities & PCFA, (Series
1996) Weekly VRDNs (South/Win Ltd.)/(Branch Banking & Trust
Co, Wilson LOC) 2,430,000
8,075,000 Halifax County, NC Industrial Facilities & PCFA Weekly VRDNs
(Flambeau Airmold Project)/(Norwest Bank Minnesota, N.A.
LOC) 8,075,000
600,000 Iredell County, NC Industrial Facilities & Pollution Control
Financing Authority, Industrial Revenue Bonds Weekly VRDNs
(Jet Corr, Inc. Project)/(National Bank of Canada,
Montreal LOC) 600,000
1,000,000 Johnson County, NC Industrial Facilities & Pollution Control
Financing Authority, (Series 1996) Weekly VRDNs (Inolex
Chemical Company Project)/(PNC Bank, N.A. LOC) 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM MUNICIPALS-continued 1
NORTH CAROLINA-CONTINUED
$ 1,800,000 Lincoln County, NC Industrial Facilities & Pollution Control
Financing Authority, Industrial Revenue Bonds Weekly VRDNs
(Leucadia, Inc Project)/(National Bank of Canada,
Montreal LOC) $ 1,800,000
15,700,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs
(Weyerhaeuser Co.) 15,700,000
5,000,000 McDowell County, NC Industrial Facilities and Pollution
Control Financing Authority, (Series 1997) Weekly VRDNs
(Parker Hosiery, Inc.)/(First Union National Bank,
Charlotte, NC LOC) 5,000,000
2,500,000 Mecklenberg County, NC Industrial Facilities and Pollution
Control Financing Authority, (Series 1996) Weekly VRDNs
(SteriGenics International Project)/(Comerica Bank, Detroit,
MI LOC) 2,500,000
3,680,000 Mecklenberg County, NC Industrial Facility & PCFA, (Series
1988) Weekly VRDNs (Florida Steel Corp.)/(Bankers Trust Co.,
New York LOC) 3,680,000
900,000 Mecklenburg County, NC, (Series 1996) Weekly VRDNs (YMCA of
Greater Charlotte Project)/(Wachovia Bank of NC, N.A.,
Winston-Salem LOC) 900,000
1,000,000 Mecklenburg County, NC, UT GO, 6.60% Bonds, 4/1/1999 1,014,259
2,765,000 New Hanover County, NC PCFA Weekly VRDNs (Efson, Inc.)/
(Branch Banking & Trust Co, Wilson LOC) 2,765,000
9,000,000 New Hanover County, NC PCFA, (Series 1984) Weekly VRDNs
(American Hoist & Derrick Co. Project)/(BankBoston, N.A.
LOC) 9,000,000
1,225,000 New Hanover County, NC PCFA, (Series 1990) Weekly VRDNs
(Wilmington Machinery, Inc. Project)/(Branch Banking & Trust
Co, Wilson LOC) 1,225,000
2,250,000 New Hanover County, NC, GO School Bonds, (Series 1995)
Weekly VRDNs (Wachovia Bank of NC, N.A., Winston-Salem LIQ) 2,250,000
2,250,000 New Hanover County, NC, GO School Bonds, (Series 1995)
Weekly VRDNs (Wachovia Bank of NC, N.A., Winston-Salem LIQ) 2,250,000
2,600,000 North Carolina Agricultural Finance Authority, (Series 1996)
Weekly VRDNs (Coastal Carolina Gin L.L.C. Project)/(Branch
Banking & Trust Co, Wilson LOC) 2,600,000
6,500,000 North Carolina Eastern Municipal Power Agency, 3.50% CP
(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory
Tender 1/14/1999 6,500,000
6,060,000 North Carolina Eastern Municipal Power Agency, PA -171
(Series 1996A) Weekly VRDNs (MBIA Insurance Corporation
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 6,060,000
17,165,000 North Carolina Eastern Municipal Power Agency, PT-132 Weekly
VRDNs (MBIA INS)/(Credit Suisse First Boston LIQ) 17,165,000
1,800,000 North Carolina Educational Facilities Finance Agency,
(Series 1990) Weekly VRDNs (Bowman Gray School of Medicine)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 1,800,000
12,000,000 North Carolina HFA, Variable Rate Certificates (Series
1998L), 3.80% TOBs (Bank of America NT and SA, San Francisco
LIQ), Optional Tender 7/15/1999 12,000,000
4,000,000 North Carolina Medical Care Commission, (Series 1996) Weekly
VRDNs (Adult Communities Total Services, Inc)/(Lasalle
National Bank, Chicago LOC) 4,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM MUNICIPALS-continued 1
NORTH CAROLINA-CONTINUED
$ 2,300,000 North Carolina Medical Care Commission, (Series 1996) Weekly
VRDNs (North Carolina Baptist) $ 2,300,000
7,500,000 North Carolina Medical Care Commission, (Series 1998) Weekly
VRDNs (Cornelia Nixon Davis Nursing Home, Inc.)/(Wachovia
Bank of NC, N.A., Winston-Salem LOC) 7,500,000
12,000,000 North Carolina Municipal Power Agency No. 1, (Series A),
3.55% CP (Morgan Guaranty Trust Co., New York and UBS AG
LOCs), Mandatory Tender 12/11/1998 12,000,000
2,500,000 North Carolina State, (Series 1998A) PA-342 Weekly VRDNs
(Merrill Lynch Capital Services Inc. LIQ) 2,500,000
4,000,000 Onslow County, NC Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd., Osaka LOC) 4,000,000
3,280,000 Orange County, NC Industrial Facilities & Pollution Control
Financing Authority Weekly VRDNs (Mebane Packaging Corp)/
(First Union National Bank, Charlotte, NC LOC) 3,280,000
1,300,000 Piedmont, NC Airport Authority Weekly VRDNs (Triad
International Maintenance Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 1,300,000
1,500,000 Randolph County, NC IDA, (Series 1990) Weekly VRDNs (Wayne
Steel, Inc.)/(BancOne, Ohio, N.A. LOC) 1,500,000
1,200,000 Rutherford County, NC, Industrial Facilities Pollution
Control Financing Authority Weekly VRDNs (Spring-Ford
Knitting Co.)/(Branch Banking & Trust Co, Wilson LOC) 1,200,000
1,500,000 Sampson County, NC Industrial Facilities and Pollution
Control Financing Authority, (Series 1997) Weekly VRDNs
(DuBose Strapping, Inc.)/(First Union National Bank,
Charlotte, NC LOC) 1,500,000
4,000,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990A), 3.00% CP (Carolina Power & Light Co.)/(First
National Bank of Chicago LOC), Mandatory Tender 2/12/1999 4,000,000
5,000,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990B), 3.10% CP (Carolina Power & Light Co.)/(Bank of New
York, LOC), Mandatory Tender 3/11/1999 5,000,000
4,000,000 Wake County, NC, 4.40% Bonds, 3/1/1999 4,010,288
2,832,866 Wayne County, NC PCFA Weekly VRDNs (Cooper Industries,
Inc.)/(Sanwa Bank Ltd., Osaka LOC) 2,832,866
7,600,000 Wilson County, NC PCA, (Series 1994) Weekly VRDNs (Granutec,
Inc.)/(Branch Banking & Trust Co, Wilson LOC) 7,600,000
Total 204,574,115
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM MUNICIPALS-continued 1
PUERTO RICO-2.8%
$ 2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 $ 2,000,319
3,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1983A), 3.60% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank
N.V., Amsterdam LOC), Optional Tender 9/1/1999 3,000,000
1,000,000 Puerto Rico Industrial, Medical & Environmental PCA,
Pollution Control Facilities Financing Authority (Series
1983 A), 3.75% TOBs (Schering Plough Corp.)/(Morgan Guaranty
Trust Co., New York LOC), Optional Tender 12/1/1998 1,000,000
Total 6,000,319
Total Investments (at amortized cost) 2 $ 210,574,434
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 38.9% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER Second Tier
100.00% 0.00%
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($212,110,703) at October 31, 1998.
The following acronyms are used throughout this portfolio:
CP -Commercial Paper
FGIC -Financial Guaranty Insurance Company
GO -General Obligation
HFA -Housing Finance Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
IFA -Industrial Finance Authority
INS -Insured
LIQ -Liquidity Agreement
LOCs -Letter(s) of Credit
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCA -Pollution Control Authority
PCFA -Pollution Control Finance Authority
SA -Support Agreement
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 210,574,434
Cash 311,367
Income receivable 1,258,438
Receivable for shares sold 97,956
Prepaid expenses 3,908
Deferred organizational costs 1,442
Other assets 981
Total assets 212,248,526
LIABILITIES:
Payable for shares redeemed $ 4,269
Income distribution payable 63,020
Accrued expenses 70,534
Total liabilities 137,823
Net Assets for 212,110,703 shares outstanding $ 212,110,703
NET ASSETS CONSIST OF:
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$212,110,703 / 212,110,703 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,673,495
EXPENSES:
Investment advisory fee $ 899,911
Administrative personnel and services fee 135,722
Custodian fees 4,601
Transfer and dividend disbursing agent fees and expenses 64,510
Directors'/Trustees' fees 1,533
Auditing fees 12,000
Legal fees 9,585
Portfolio accounting fees 46,947
Shareholder services fee 449,956
Share registration costs 24,822
Printing and postage 16,279
Insurance premiums 13,315
Miscellaneous 19,966
Total expenses 1,699,147
WAIVER:
Waiver of investment advisory fee (629,332)
Net expenses 1,069,815
Net investment income $ 5,603,680
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998
1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 5,603,680 $ 4,504,130
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (5,603,680) (4,504,130)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,078,743,485 898,803,747
Net asset value of shares issued to shareholders in payment
of distributions declared 4,634,347 3,808,923
Cost of shares redeemed (1,043,902,913) (867,725,411)
Change in net assets resulting from share transactions 39,474,919 34,887,259
Change in net assets 39,474,919 34,887,259
NET ASSETS:
Beginning of period 172,635,784 137,748,525
End of period $ 212,110,703 $ 172,635,784
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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 to provide current income
exempt from federal regular income tax and the income tax imposed by the
State of North Carolina consistent with stability of principal.
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, 1998, capital paid-in aggregated $212,110,703. Transactions
in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
Shares sold 1,078,743,485 898,803,747
Shares issued to shareholders in payment of distributions
declared 4,634,347 3,808,923
Shares redeemed (1,043,902,913) (867,725,411)
Net change resulting from share transactions 39,474,919 34,887,259
</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.
INTERFUND TRANSACTIONS
During the period ended October 31, 1998, 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 $501,035,000 and
$436,105,000, 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, 1998, 77.8% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 9.0% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for
the periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
North Carolina Municipal Cash Trust
A Portfolio of Federated Municipal Trust
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's
Internet site at http://www.sec.gov. You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying charges.
[Graphic]
North Carolina Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229782
3090803A (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
North Carolina Municipal Cash Trust
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for North Carolina Municipal Cash Trust
dated December 31, 1998. Obtain the prospectus without charge by calling 1-800-
341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 3142229782
3090803B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests so that at least 80% of the Fund's annual interest income is
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.
This policy is fundamental and cannot be changed without shareholder approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
its total assets at the time of the pledge.
Lending Cash or Securities
The Fund will not lend any of its assets except that it may acquire publicly or
nonpublicly issued North Carolina municipal securities or temporary investments
or enter into repurchase agreements in accordance with its investment objective,
policies, limitations, and its Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not purchase securities, if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following investment limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days after notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: First Union Capital
Markets Corp., Charlotte, North Carolina, owned approximately 23,477,693 Shares
(10.80%); BHC Securities Inc., Philadelphia, Pennsylvania, owned approximately
13,407,070 Shares (6.17%); B. Fernandez & Hermanos, Inc., San Juan, Puerto Rico,
owned approximately 11,523,576 Shares (5.30%); The Shelton Companies, Charlotte,
North Carolina, owned approximately 12,133,686 Shares (5.58%); and Scott &
Stringfellow, Inc., Richmond, Virginia, owned approximately 13,101,926 Shares
(6.03%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing North Carolina laws, distributions made by the Fund will not be
subject to North Carolina income taxes to the extent that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
represent (i) interest on obligations of the state of North Carolina or any of
its political subdivisions; or (ii) interest on obligations of the United States
or its possessions. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to North Carolina income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Total
Name
Compensation
Birthdate
Aggregate From Trust
Address Principal Occupations
Compensation and Fund
Position With Trust for Past 5 Years
From Trust Complex
<S> <C>
<C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of the
Federated $ 0 $0 for the
Birthdate: July 28, 1924 Fund Complex. Chairman and Director, Federated Investors,
Inc.; Trust and 56
Federated Investors Tower Chairman and Trustee, Federated Advisers, Federated Management,
and other
1001 Liberty Avenue Federated Research; Chairman and Director, Federated Research
Corp., investment
Pittsburgh, PA and Federated Global Research Corp.; Chairman, Passport
Research, companies in
CHAIRMAN and TRUSTEE
Ltd. the Fund
Complex
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director,
Member $4,076.31 $111,222 for
Birthdate: February 3, 1934 of Executive Committee, Children's Hospital of Pittsburgh;
formerly: the Trust
15 Old Timber Trail Senior Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc.; and 56 other
Pittsburgh, PA Director, Member of Executive Committee, University of
Pittsburgh. investment
TRUSTEE
companies in
the Fund
Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex;
President, $4,484.62 $122,362 for
Birthdate: June 23, 1937 Investment Properties Corporation; Senior Vice President, John
R. the Trust
Wood/IPC Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in
private and 56 other
John R. Wood and Associates, Inc. real estate ventures in Southwest Florida; formerly:
President, investment
Realtors Naples Property Management, Inc. and Northgate Village
Development companies in
3255 Tamiami Trail North Naples,
Corporation. the Fund
FL
Complex
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; Director
and $4,484.62 $122,362 for
Birthdate: July 4, 1918 Member of the Executive Committee, Michael Baker, Inc.;
formerly: the Trust
One PNC Plaza-23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; and 56 other
Pittsburgh, PA Director, Ryan Homes,
Inc. investment
TRUSTEE
companies in
Retired: Director, United Refinery; Director, Forbes Fund;
Chairman, the Fund
Pittsburgh Foundation; Chairman, Pittsburgh Civic Light
Opera. Complex
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex;
Attorney-at-law; $4,484.62 $122,362 for
Birthdate: May 18, 1922 Director, The Emerging Germany Fund,
Inc. the Trust
571 Hayward Mill
Road and
56 other
Concord, MA Retired: President, Boston Stock Exchange, Inc.;
Regional investment
TRUSTEE Administrator, United States Securities and Exchange
Commission. companies in
the Fund
Complex
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; Professor
of $4,076.31 $111,222 for
Birthdate: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University
of the Trust
3471 Fifth Avenue Pittsburgh Medical Center Downtown; Hematologist, Oncologist,
and and 56 other
Suite 1111 Internist, Presbyterian and Montefiore Hospitals; Member,
National investment
Pittsburgh, PA Board of Trustees, Leukemia Society of
America. companies in
TRUSTEE
the Fund
Complex
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund Complex; Attorney,
of $4,484.62 $122,362 for
Birthdate: June 18, 1924 Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park the Trust
Miller, Ament, Henny & Kochuba Restaurants, Inc.; formerly: Counsel, Horizon Financial,
F.A., and 56 other
205 Ross Street Western Region; Partner, Meyer and
Flaherty. investment
Pittsburgh,
PA
companies in
TRUSTEE
the Fund
Complex
Peter E. Madden Director or Trustee of the Federated Fund Complex;
formerly: $4,076.31 $111,222 for
Birthdate: March 16, 1942 Representative, Commonwealth of Massachusetts General
Court; the Trust
One Royal Palm Way President, State Street Bank and Trust Company and State
Street and 56 other
100 Royal Palm Way
Corporation. investment
Palm Beach,
FL
companies in
TRUSTEE Retired: Director, VISA USA and VISA International; Chairman
and the Fund
Director, Massachusetts Bankers Association; Director,
Depository Complex
Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President,
Law $4,076.31 $111,222 for
Birthdate: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica &
Murray. the Trust
President, Duquesne
University and 56
other
Pittsburgh, PA Retired: Dean and Professor of Law, University of Pittsburgh
School investment
TRUSTEE of Law; Dean and Professor of Law, Villanova University School
of companies in
Law. the Fund
Complex
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; President,
World $4,076.31 $111,222 for
Birthdate: September 14, 1925 Society of Ekistics, Athens; Professor, International
Politics; the Trust
1202 Cathedral of Learning Management Consultant; Trustee, Carnegie Endowment for
International and 56 other
University of Pittsburgh Peace, RAND Corporation, Online Computer Library Center,
Inc., investment
Pittsburgh, PA National Defense University and U.S. Space Foundation;
President companies in
TRUSTEE Emeritus, University of Pittsburgh; Founding Chairman,
National the Fund
Advisory Council for Environmental Policy and Technology,
Federal Complex
Emergency Management Advisory Board and Czech Management
Center,
Prague.
Retired: Professor, United States Military Academy;
Professor,
United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex;
Public $4,076.31 $111,222 for
Birthdate: June 21, 1935 Relations/Marketing/Conference
Planning. the Trust
4905 Bayard
Street
and 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of
America; investment
TRUSTEE business
owner. companies in
the Fund
Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member,
Federated $ 0 $0 for the
Birthdate: May 2, 1929 Securities
Corp. Trust and 8
Federated Investors
Tower other
1001 Liberty
Avenue
investment
Pittsburgh,
PA
companies in
PRESIDENT and
TRUSTEE
the Fund
Complex
J. Christopher Donahue##* President or Executive Vice President of the Federated Fund
Complex; $ 0 $0 for the
Birthdate: April 11, 1949 Director or Trustee of some of the Funds in the Federated
Fund Trust and 18
Federated Investors Tower Complex; President and Director, Federated Investors,
Inc.; other
1001 Liberty Avenue President and Trustee, Federated Advisers, Federated Management,
and investment
Pittsburgh, PA Federated Research; President and Director, Federated Research
Corp. companies in
EXECUTIVE VICE PRESDIENT and Federated Global Research Corp.; President, Passport
Research, the Fund
Ltd.; Trustee, Federated Shareholder Services Company;
Director, Complex
Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the Federated
Fund $ 0 $0 for the
Birthdate: October 22, 1930 Complex; President, Executive Vice President and Treasurer of
some Trust and 1
Federated Investors Tower of the Funds in the Federated Fund Complex; Vice Chairman,
Federated other
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Advisers,
Federated investment
Pittsburgh, PA Management, Federated Research, Federated Research Corp.,
Federated companies in
EXECUTIVE VICE PRESIDENT Global Research Corp. and Passport Research, Ltd.; Executive
Vice the Fund
President and Director, Federated Securities Corp.;
Trustee, Complex
Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary of the Federated
Fund $ 0 $0 for the
Birthdate: October 26, 1938 Complex; Executive Vice President, Secretary, and
Director, Trust and 56
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Advisers,
Federated other
1001 Liberty Avenue Management, and Federated Research; Director, Federated
Research investment
Pittsburgh, PA Corp. and Federated Global Research Corp.; Director,
Federated companies in
EXECUTIVE VICE PRESIDENT and Services Company; Director, Federated Securities
Corp. the Fund
SECRETARY
Complex
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President -
Funds $ 0 $0 for the
Birthdate: June 17, 1954 Financial Services Division, Federated Investors, Inc.;
Formerly: Trust and 56
Federated Investors Tower various management positions within Funds Financial
Services other
1001 Liberty Avenue Division of Federated Investors,
Inc. investment
Pittsburgh,
PA
companies in
TREASURER
the Fund
Complex
Richard B. Fisher* President or Vice President of some of the Funds in the
Federated $ 0 $0 for the
Birthdate: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in
the Trust and 6
Federated Investors Tower Federated Fund Complex; Executive Vice President,
Federated other
1001 Liberty Avenue Investors, Inc.; Chairman and Director, Federated Securities
Corp. investment
Pittsburgh,
PA
companies in
VICE
PRESIDENT
the Fund
Complex
William D. Dawson, III Chief Investment Officer of this Fund and various other Funds in
the $ 0 $0 for the
Birthdate: March 3, 1949 Federated Fund Complex; Executive Vice President,
Federated Trust and 41
Federated Investors Tower Investment Counseling, Federated Global Research Corp.,
Federated other
1001 Liberty Avenue Advisers, Federated Management, Federated Research, and
Passport investment
Pittsburgh, PA Research, Ltd.; Registered Representative, Federated
Securities companies in
CHIEF INVESTMENT OFFICER Corp.; Portfolio Manager, Federated Administrative Services;
Vice the Fund
President, Federated Investors, Inc.; Formerly: Executive
Vice Complex
President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight
investment $ 0 $0 for the
Birthdate: September 12, 1953 companies in the Federated Fund Complex; Senior Vice
President, Trust and 7
Federated Investors Tower Federated Investment Counseling, Federated Advisers,
Federated other
1001 Liberty Avenue Global Research Corp., Federated Management, Federated
Research, investment
Pittsburgh, PA Federated Research Corp. and Passport Research, Ltd.; Formerly:
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President, Federated Advisers, Federated Management,
Federated the Fund
PRESIDENT Research, Federated Research Corp. , Passport Research, Ltd.
and Complex
Federated Global Research
Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four
investment $ 0 $0 for the
Birthdate: January 15, 1960 companies in the Federated Fund Complex; Vice President,
Federated Trust and 3
Federated Investors Tower Investment Counseling, Federated Advisers, Federated Global
Research other
1001 Liberty Avenue Corp., Federated Management, Federated Research, Federated
Research investment
Pittsburgh, PA Corp. and Passport Research, Ltd.; Formerly: Assistant
Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President and Investment Analyst, Federated Research Corp.
and the Fund
PRESIDENT Passport Research, Ltd. ; Assistant Vice President,
Federated Complex
Advisers, Federated Management and Federated
Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- ---------------------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------------
Advisory Fee Earned $899,911 $707,395 $582,818
- -------------------------------------------------------------------------
Advisory Fee Reduction 629,332 559,422 487,687
- -------------------------------------------------------------------------
Brokerage Commissions 0 0 0
- -------------------------------------------------------------------------
Administrative Fee 135,722 126,345 125,000
- -------------------------------------------------------------------------
Shareholder Services Fee 449,956 ---- ----
- -------------------------------------------------------------------------
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, and since inception periods ended October 31,
1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
Share Class 7-Day Period 1 Year Since Inception
on December 31, 1993
- ------------------------------------------------------------------------------
Total Return -- 3.17% 3.15%
Yield 2.81% -- --
Effective Yield 2.85% -- --
Tax-Equivalent Yield 5.41% -- --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF NORTH CAROLINA
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 22.00% 35.00% 38.75% 43.75% 47.35%
- --------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- --------------------------------------------------------------------------------
Tax-Exempt
Yield Taxable Yield Equivalent
- --------------------------------------------------------------------------------
1.50% 1.92% 2.31% 2.45% 2.67% 2.85%
2.00% 2.56% 3.08% 3.27% 3.56% 3.80%
2.50% 3.21% 3.85% 4.08% 4.44% 4.75%
3.00% 3.85% 4.62% 4.90% 5.33% 5.70%
3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 8.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
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
225 Franklin Street
Boston MA 02110-2812
PROSPECTUS
New Jersey Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and New Jersey state income tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 11
Report of Independent Public Accountants 24
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income which is exempt from federal regular income tax and New Jersey state
income tax imposed upon non-corporate taxpayers consistent with stability
of principal. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and New Jersey
state income tax. Interest from the Fund's investment may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B5.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998, was 2.30%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 1.02% (quarter ended June 30, 1991). Its lowest quarterly return was
0.47% (quarter ended March 31, 1994).
The Fund's Institutional Shares Seven-Day Net Yield as of 12/31/1997, was
3.47%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/1997.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 3.23%
5 Years 2.89%
Start of Performance 1 3.07%
</TABLE>
1 The Fund's start of performance date was December 12, 1990.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
NEW JERSEY MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold, and redeem Shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
Fees Paid Directly From Your
Investment
<S>
<C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as
applicable)
None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering
price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable)
None
Exchange
Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
1
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
<S>
<C>
Management Fee
2 0.40%
Distribution (12b-1)
Fee None
Shareholder Services Fee
3 0.25%
Other
Expenses
0.18%
Total Annual Fund Operating
Expenses 0.83%
1 Although not contractually obligated to do so, the Adviser and shareholder service provider waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the
fiscal
year ended October 31,
1998.
Waiver of Fund
Expenses 0.28%
Total Actual Annual Fund Operating Expenses (after
waivers) 0.55%
2 The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this
voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was
0.32% for the year ended October 31,
1998.
3 The shareholder services fee for Institutional Shares has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by the Fund (after the
voluntary reduction) was 0.05% for the year ended October 31,
1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Fund's Institutional Shares operating
expenses are BEFORE WAIVERS as shown above and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $85 $265 $460 $1,025
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and New Jersey state income tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New
Jersey. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE)
is open. When the Fund receives your transaction request in proper form, it
is processed at the next determined net asset value (NAV). The Fund does not
charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$25,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Shares. Each share class has
different sales charges and other expenses, which affect their
performance. Contact your investment professional or call 1-800-341-7400
for more information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-New Jersey taxpayers
because it invests in New Jersey tax-exempt securities.
The Distributor and its affiliates may pay out of their assets amounts
(including items of material value) to investment professionals for
marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests
and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition,
you will receive periodic statements reporting all account activity,
including systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from New Jersey state personal income tax
to the extent they are derived from interest on obligations exempt from New
Jersey personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors
or disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in
this prospectus.
Financial Highlights-Institutional Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995
1994
<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 0.03
0.02
LESS
DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03)
(0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00
<CAPTION>
<S> <C> <C> <C> <C>
<C>
TOTAL RETURN 1 3.12 % 3.18% 3.17 % 3.46 % 2.26
%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.55 % 0.55% 0.55 % 0.55 % 0.54
%
Net investment income 3.07 % 3.13% 3.13 % 3.41 % 2.22
%
Expense waiver/reimbursement 2 0.28 % 0.31% 0.37 % 0.41 % 0.39
%
SUPPLEMENTAL
DATA:
Net assets, end of period (000 omitted) $106,032 $112,407 $115,722 $86,944
$62,984
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.3% 1
NEW JERSEY-98.0%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs
(Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000
1,700,000 Atlantic Highlands, NJ, 4.00% BANs, 8/20/1999 1,703,928
3,756,000 Bloomingdale Borough, NJ, 3.85% BANs, 3/12/1999 3,757,941
1,645,000 Camden County, NJ Improvement Authority, (Series 1995)
Weekly VRDNs (Jewish Federation of Southern Jersey, Inc.)/
(National Westminster Bank, PLC, London LOC) 1,645,000
900,000 Camden County, NJ Improvement Authority, (Series 1996)
Weekly VRDNs (Parkview Redevelopment Housing Project)/
(General Electric Capital Corp. LOC) 900,000
4,600,000 Clipper, New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly
VRDNs (New Jersey Housing & Mortgage Financing Authority)/
(MBIA INS)/(State Street Bank and Trust Co. LIQ) 4,600,000
2,154,750 Flemington Borough, NJ, 4.00% BANs, 8/26/1999 2,159,830
5,116,503 High Bridge Borough, NJ, 3.60% BANs, 9/3/1999 5,118,471
2,917,838 Hopewell Township, NJ, 3.875% BANs, 1/8/1999 2,919,025
1,200,000 Jackson Township, NJ, 4.25% BANs, 12/15/1998 1,200,515
3,172,788 Lakewood Township, NJ, 3.875% BANs, 4/15/1999 3,175,198
3,000,000 Lakewood Township, NJ, 4.00% BANs, 1/22/1999 3,001,946
3,003,750 Lavallette Borough, NJ, 4.00% BANs, 2/26/1999 3,006,531
3,040,000 Lumberton Township, NJ, 3.84% BANs, 9/23/1999 3,046,289
6,000,000 Maple Shade Township, NJ, 3.75% BANs, 12/15/1998 6,001,409
1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/
(Wachovia Bank of NC, N.A. Winston-Salem LOC) 1,500,000
5,968,323 Monroe Township, NJ, 3.50% BANs, 3/15/1999 5,972,666
2,885,616 Monroe Township, NJ, 3.80% BANs, 2/23/1999 2,886,917
1,900,000 Montclair Township, NJ, 4.00% BANs, 1/22/1999 1,901,648
5,373,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/(First
National Bank of Maryland, Baltimore LOC) 5,373,000
2,400,000 New Jersey EDA Weekly VRDNs (U.S. Golf Association)/(PNC
Bank, N.A. LOC) 2,400,000
1,720,000 New Jersey EDA, (1994 Series A), 4.20% TOBs (A.F.L. Quality,
Inc.)/(Fleet Bank N.A. LOC), Optional Tender 7/1/1999 1,720,000
385,000 New Jersey EDA, (1994 Series B), 4.20% TOBs (Two Univac,
L.L.C.)/(Fleet Bank N.A. LOC), Optional Tender 7/1/1999 385,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/
(First Union National Bank, Charlotte, N.C. LOC) $ 4,100,000
3,900,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield
Associates)/(Bank of New York, New York LOC) 3,900,000
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban
Renewal)/(National Westminster Bank, PLC, London LOC) 300,000
2,300,000 New Jersey EDA, (Series 1990) Weekly VRDNs (Genlyte Camden
County)/(Bank of America NT and SA, San Francisco LOC) 2,300,000
955,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin
Corp.)/(Banque Nationale de Paris LOC) 955,000
1,301,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra
Corporation Project)/(Chase Manhattan Bank N.A., New York
LOC) 1,301,000
2,145,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International
Vitamin Corporation Project)/(National Westminster Bank,
PLC, London LOC) 2,145,000
4,395,000 New Jersey EDA, (Series 1996) Weekly VRDNs (R. Realty
Company)/(First Union National Bank, Charlotte, N.C. LOC) 4,395,000
2,325,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Lauffer Building
Associates, Ltd.)/(Credit Suisse First Boston LOC) 2,325,000
1,775,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Oakland Building
Associates, Ltd.)/(Credit Suisse First Boston LOC) 1,775,000
1,800,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Oakland
Industrial Associates, Ltd.)/(Credit Suisse First Boston
LOC) 1,800,000
2,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Okner Parkway
Associates Ltd. Partnership)/(Credit Suisse First Boston
LOC) 2,500,000
3,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Phoenix Realty
Partners)/(Corestates Bank N.A., Philadelphia, PA LOC) 3,500,000
1,600,000 New Jersey EDA, (Series 1997) Weekly VRDNs (UJA Federation
of Bergen County and North Hudson, Inc.)/(Bank of New York,
New York LOC) 1,600,000
2,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Wood Hollow
Associates, L.L.C.)/(Corestates Bank N.A., Philadelphia, PA
LOC) 2,500,000
1,300,000 New Jersey EDA, (Series 1998) Weekly VRDNs (St. James
Preparatory School & St. James Social Service Corp.)/(First
Union National Bank, Charlotte, N.C. LOC) 1,300,000
1,500,000 New Jersey EDA, (Series 1998B) Weekly VRDNs (New Jersey
Natural Gas Co.)/
(AMBAC INS)/(Bank of New York, New York LIQ) 1,500,000
1,120,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue,
LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 1,120,000
420,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue,
LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 420,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 920,000 New Jersey EDA, (Series B) Weekly VRDNs (Greater Trenton
CMHC, Inc.)/(Corestates N.J. National Bank, Ewing Township
LOC) $ 920,000
900,000 New Jersey EDA, (Series D-1) Weekly VRDNs (The Hibbert
Company)/(Corestates N.J. National Bank, Ewing Township LOC) 900,000
560,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries,
Inc.)/(Banque Nationale de Paris LOC) 560,000
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs
(Atlantic States Cast Iron Pipe Co.)/(Amsouth Bank N.A.,
Birmingham LOC) 2,815,000
3,000,000 New Jersey EDA, Newark Recycling & Composting Co. (Series
1997), 3.95% TOBs (Societe Generale, Paris), Mandatory
Tender 12/15/1998 3,000,000
1,300,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983)
Weekly VRDNs (Trailer Marine Transport Corp.)/(Chase
Manhattan Bank N.A., New York LOC) 1,300,000
2,500,000 New Jersey EDA, Trust Receipts (Series 1998 FR/RI-34) Weekly
VRDNs (New Jersey-American Water Co., Inc.)/(FGIC INS)/(Bank
of New York, New York LIQ) 2,500,000
3,100,000 New Jersey Health Care Facilities Financing Authority,
(Series 1997) Weekly VRDNs (Christian Health Care Center)/
(Valley National Bank, Passaic, NJ LOC) 3,100,000
245,000 New Jersey Housing & Mortgage Financing Authority, CDC
Municipal Products Class A Certificates (Series 1996B)
Weekly VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 245,000
3,000,000 New Jersey State Educational Facilities Authority, (Series
1998) FR/RI-A33 Trust Receipts Weekly VRDNs (AMBAC INS)/
(National Westminster Bank, PLC, London LIQ) 3,000,000
3,960,000 New Jersey State, (CDC Series 1997L) Weekly VRDNs (CDC
Municipal Products, Inc. LIQ) 3,960,000
2,800,000 New Jersey State, PA-265 Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ) 2,800,000
1,000,000 New Jersey State, Trust Receipts (Series 1998 FR/RI-A8)
Weekly VRDNs (Bayerische Hypotheken-Und Wechsel-Bank AG LIQ) 1,000,000
3,000,000 New Jersey State, UT GO Bonds, 7.20% Bonds, 4/15/1999 3,050,126
1,250,000 North Brunswick Township, NJ, 4.00% BANs, 12/30/1998 1,250,592
2,453,950 Pine Hill Borough, NJ, 3.84% BANs, 8/6/1999 2,455,542
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4)
Weekly VRDNs 10,000,000
1,685,000 Seaside Heights Borough, NJ, (Series B), 4.25% BANs, 11/5/
1998 1,685,081
2,727,500 Union Beach, NJ, 4.00% BANs, 1/21/1999 2,729,872
3,200,000 Union County, NJ Utilities Authority, Trust Receipts FR/RI-
38 Weekly VRDNs (Ogden Martin Systems Of Union Inc.)/(AMBAC
INS)/(Bank of New York, New York LIQ) 3,200,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 4,100,000 Wall Township, NJ, 4.00% BANs, 3/19/1999 $ 4,104,334
4,421,802 Washington Borough, NJ, 4.25% BANs, 12/11/1998 4,423,430
2,900,000 Washington Township, NJ, 4.25% BANs, 1/15/1999 2,904,374
1,000,000 Washington Township, NJ, 4.00% BANs, 8/6/1999 1,001,828
Total 167,716,493
PUERTO RICO-1.3%
2,294,762 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) 2,294,762
Total Investments (at amortized cost) 2 $ 170,011,255
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 26.5% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
96.90% 3.10%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($171,272,885) at October 31, 1998.
The following acronyms are used throughout this portfolio:
<TABLE>
<CAPTION>
<S> <C>
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
EDA -Economic Development Authority
FGIC -Financial Guaranty Insurance Company
GO -General Obligation
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCFA -Pollution Control Finance Authority
PLC -Public Limited Company
SA -Support Agreement
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 170,011,255
Income receivable 1,358,113
Receivable for shares sold 800,000
Receivable for investments sold 5,373,000
Total assets 177,542,368
LIABILITIES:
Payable for investments purchased $ 5,387,007
Income distribution payable 306,191
Payable to Bank 536,200
Accrued expenses 40,085
Total liabilities 6,269,483
Net Assets for 171,272,885 shares outstanding $ 171,272,885
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE
INSTITUTIONAL SHARES:
$106,032,438 / 106,032,438 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$65,240,447 / 65,240,447 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
<C>
INVESTMENT
INCOME:
Interest $
7,523,204
EXPENSES:
Investment advisory fee $
831,577
Administrative personnel and services fee
155,000
Custodian fees
9,425
Transfer and dividend disbursing agent fees and expenses
51,841
Directors'/Trustees' fees
1,878
Auditing fees
12,692
Legal fees
13,798
Portfolio accounting fees
64,338
Distribution services fee-Institutional Service Shares
66,126
Shareholder services fee-Institutional Shares
354,422
Shareholder services fee-Institutional Service Shares
165,314
Share registration costs
32,181
Printing and postage
20,723
Insurance premiums
15,931
Miscellaneous
1,785
Total expenses
1,797,031
WAIVERS:
Waiver of investment advisory fee $
(162,550)
Waiver of distribution services fee-Institutional Service
Shares
(66,126)
Waiver of shareholder services fee-Institutional Shares
(283,538)
Waiver of shareholder services fee-Institutional Service
Shares
(66,126)
Total waivers
(578,340)
Net expenses
1,218,691
Net investment income $
6,304,513
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 6,304,513 $ 5,218,833
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (4,351,312) (4,020,737)
Institutional Service Shares (1,953,201) (1,198,096)
Change in net assets resulting from distributions to
shareholders (6,304,513) (5,218,833)
SHARE TRANSACTIONS:
Proceeds from sale of shares 670,567,607 561,976,671
Net asset value of shares issued to shareholders in payment
of distributions declared 1,275,927 1,135,725
Cost of shares redeemed (667,515,788) (540,696,148)
Change in net assets resulting from share transactions 4,327,746 22,416,248
Change in net assets 4,327,746 22,416,248
NET ASSETS:
Beginning of period 166,945,139 144,528,891
End of period $ 171,272,885 $ 166,945,139
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 to provide current income which is exempt from
federal regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal.
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, 1998, capital paid-in aggregated
$171,272,885.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 453,405,235 385,242,860
Shares issued to shareholders in payment of distributions
declared 43,111 321,415
Shares redeemed (459,822,649) (388,879,537)
Net change resulting from Institutional Share transactions (6,374,303) (3,315,262)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 217,162,372 176,733,811
Shares issued to shareholders in payment of distributions
declared 1,232,816 814,310
Shares redeemed (207,693,139) (151,816,611)
Net change resulting from Institutional Service Share
transactions 10,702,049 25,731,510
Net change resulting from share transactions 4,327,746 22,416,248
</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, Inc.
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 daily average net assets
of the Institutional Service Shares, annually, to compensate FSC. 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, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (of
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $267,281,098 and
$313,625,000, 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, 1998, 46.9% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 5.8% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian and the broker. As to the security purchased but not received we
requested confirmations from the broker and, when the reply was not
received, we carried out alternative auditing procedures. 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
New Jersey Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated May 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
New Jersey Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229600
0100802A-IS (12/98)
[Graphic]
PROSPECTUS
New Jersey Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and New Jersey state income tax.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 25
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current
income which is exempt from federal regular income tax and New Jersey state
income tax imposed upon non-corporate taxpayers consistent with stability
of principal. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and New Jersey
state income tax. Interest from the Fund's investment may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic representation omitted. Please see Appendix B6.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon net asset
value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998 was 2.22%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 1.01% (quarter ended June 30, 1991). Its lowest quarterly return was
0.44% (quarter ended March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/
1997, was 3.37%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/1997.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 3.12%
5 Years 2.79%
Start of Performance 1 2.98%
</TABLE>
1 The Fund's start of performance date was December 12, 1990.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
NEW JERSEY MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold, and redeem Shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.10%
Shareholder Services Fee 4 0.25%
Other Expenses 0.18%
Total Annual Fund Operating Expenses 0.93%
1 Although not contractually obligated to do so, the Adviser, distributor and shareholder services provider
waived certain amounts. These are shown below along with the net expenses the Fund actually paid for
the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.28%
Total Actual Annual Fund Operating Expenses (after waivers) 0.65%
2 The Adviser has voluntarily waived a portion of the management fee. The Adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.32% for the year
ended October 31, 1998.
3 The distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any
time. There was no distribution (12b-1) fee paid by the Fund (after the voluntarily waiver) for the year ended
October 31, 1998.
4 The shareholder services fee for Institutional Service Shares has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by the Fund (after the voluntary
reduction) was 0.15% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional
Service Shares operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $95 $296 $515 $1,143
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and New Jersey state income tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New
Jersey. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the
$25,000 minimum is reached within 90 days. An institutional investor's
minimum is calculated by combining all accounts it maintains with the Fund.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different sales charges and other expenses, which affect their
performance. Contact your investment professional or call 1-800-341-7400
for more information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or non-New Jersey taxpayers
because it invests in New Jersey tax-exempt securities. When the
Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution, and customer servicing of the Fund's Institutional Service
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different
sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividends.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
prior to redeeming Shares:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition,
you will receive periodic statements reporting all account activity,
including systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution
in Shares, whether or not you reinvest the distribution in Shares.
Therefore, you should consider the tax implications of purchasing Shares
shortly before the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from New Jersey state personal income tax
to the extent they are derived from interest on obligations exempt from New
Jersey personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors
or disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in
this prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
25.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.01% 3.08% 3.07% 3.36% 2.16%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.65% 0.65% 0.65% 0.65% 0.65%
Net investment income 2.95% 3.08% 3.03% 3.28% 2.19%
Expense waiver/reimbursement 2 0.28% 0.31% 0.37% 0.41% 0.41%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $65,240 $54,538 $28,807 $29,817 $36,704
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.3% 1
NEW JERSEY-98.0%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs
(Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000
1,700,000 Atlantic Highlands, NJ, 4.00% BANs, 8/20/1999 1,703,928
3,756,000 Bloomingdale Borough, NJ, 3.85% BANs, 3/12/1999 3,757,941
1,645,000 Camden County, NJ Improvement Authority, (Series 1995)
Weekly VRDNs (Jewish Federation of Southern Jersey, Inc.)/
(National Westminster Bank, PLC, London LOC) 1,645,000
900,000 Camden County, NJ Improvement Authority, (Series 1996)
Weekly VRDNs (Parkview Redevelopment Housing Project)/
(General Electric Capital Corp. LOC) 900,000
4,600,000 Clipper, New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly
VRDNs (New Jersey Housing & Mortgage Financing Authority)/
(MBIA INS)/(State Street Bank and Trust Co. LIQ) 4,600,000
2,154,750 Flemington Borough, NJ, 4.00% BANs, 8/26/1999 2,159,830
5,116,503 High Bridge Borough, NJ, 3.60% BANs, 9/3/1999 5,118,471
2,917,838 Hopewell Township, NJ, 3.875% BANs, 1/8/1999 2,919,025
1,200,000 Jackson Township, NJ, 4.25% BANs, 12/15/1998 1,200,515
3,172,788 Lakewood Township, NJ, 3.875% BANs, 4/15/1999 3,175,198
3,000,000 Lakewood Township, NJ, 4.00% BANs, 1/22/1999 3,001,946
3,003,750 Lavallette Borough, NJ, 4.00% BANs, 2/26/1999 3,006,531
3,040,000 Lumberton Township, NJ, 3.84% BANs, 9/23/1999 3,046,289
6,000,000 Maple Shade Township, NJ, 3.75% BANs, 12/15/1998 6,001,409
1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/
(Wachovia Bank of NC, N.A. Winston-Salem LOC) 1,500,000
5,968,323 Monroe Township, NJ, 3.50% BANs, 3/15/1999 5,972,666
2,885,616 Monroe Township, NJ, 3.80% BANs, 2/23/1999 2,886,917
1,900,000 Montclair Township, NJ, 4.00% BANs, 1/22/1999 1,901,648
5,373,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/(First
National Bank of Maryland, Baltimore LOC) 5,373,000
2,400,000 New Jersey EDA Weekly VRDNs (U.S. Golf Association)/(PNC
Bank, N.A. LOC) 2,400,000
1,720,000 New Jersey EDA, (1994 Series A), 4.20% TOBs (A.F.L. Quality,
Inc.)/(Fleet Bank N.A. LOC), Optional Tender 7/1/1999 1,720,000
385,000 New Jersey EDA, (1994 Series B), 4.20% TOBs (Two Univac,
L.L.C.)/(Fleet Bank N.A. LOC), Optional Tender 7/1/1999 385,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/
(First Union National Bank, Charlotte, N.C. LOC) $ 4,100,000
3,900,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield
Associates)/(Bank of New York, New York LOC) 3,900,000
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban
Renewal)/(National Westminster Bank, PLC, London LOC) 300,000
2,300,000 New Jersey EDA, (Series 1990) Weekly VRDNs (Genlyte Camden
County)/(Bank of America NT and SA, San Francisco LOC) 2,300,000
955,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin
Corp.)/(Banque Nationale de Paris LOC) 955,000
1,301,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra
Corporation Project)/(Chase Manhattan Bank N.A., New York
LOC) 1,301,000
2,145,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International
Vitamin Corporation Project)/(National Westminster Bank,
PLC, London LOC) 2,145,000
4,395,000 New Jersey EDA, (Series 1996) Weekly VRDNs (R. Realty
Company)/(First Union National Bank, Charlotte, N.C. LOC) 4,395,000
2,325,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Lauffer Building
Associates, Ltd.)/(Credit Suisse First Boston LOC) 2,325,000
1,775,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Oakland Building
Associates, Ltd.)/(Credit Suisse First Boston LOC) 1,775,000
1,800,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Oakland
Industrial Associates, Ltd.)/(Credit Suisse First Boston
LOC) 1,800,000
2,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Okner Parkway
Associates Ltd. Partnership)/(Credit Suisse First Boston
LOC) 2,500,000
3,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Phoenix Realty
Partners)/(Corestates Bank N.A., Philadelphia, PA LOC) 3,500,000
1,600,000 New Jersey EDA, (Series 1997) Weekly VRDNs (UJA Federation
of Bergen County and North Hudson, Inc.)/(Bank of New York,
New York LOC) 1,600,000
2,500,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Wood Hollow
Associates, L.L.C.)/(Corestates Bank N.A., Philadelphia, PA
LOC) 2,500,000
1,300,000 New Jersey EDA, (Series 1998) Weekly VRDNs (St. James
Preparatory School & St. James Social Service Corp.)/(First
Union National Bank, Charlotte, N.C. LOC) 1,300,000
1,500,000 New Jersey EDA, (Series 1998B) Weekly VRDNs (New Jersey
Natural Gas Co.)/
(AMBAC INS)/(Bank of New York, New York LIQ) 1,500,000
1,120,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue,
LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 1,120,000
420,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue,
LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 420,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 920,000 New Jersey EDA, (Series B) Weekly VRDNs (Greater Trenton
CMHC, Inc.)/(Corestates N.J. National Bank, Ewing Township
LOC) $ 920,000
900,000 New Jersey EDA, (Series D-1) Weekly VRDNs (The Hibbert
Company)/(Corestates N.J. National Bank, Ewing Township LOC) 900,000
560,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries,
Inc.)/(Banque Nationale de Paris LOC) 560,000
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs
(Atlantic States Cast Iron Pipe Co.)/(Amsouth Bank N.A.,
Birmingham LOC) 2,815,000
3,000,000 New Jersey EDA, Newark Recycling & Composting Co. (Series
1997), 3.95% TOBs (Societe Generale, Paris), Mandatory
Tender 12/15/1998 3,000,000
1,300,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983)
Weekly VRDNs (Trailer Marine Transport Corp.)/(Chase
Manhattan Bank N.A., New York LOC) 1,300,000
2,500,000 New Jersey EDA, Trust Receipts (Series 1998 FR/RI-34) Weekly
VRDNs (New Jersey-American Water Co., Inc.)/(FGIC INS)/(Bank
of New York, New York LIQ) 2,500,000
3,100,000 New Jersey Health Care Facilities Financing Authority,
(Series 1997) Weekly VRDNs (Christian Health Care Center)/
(Valley National Bank, Passaic, NJ LOC) 3,100,000
245,000 New Jersey Housing & Mortgage Financing Authority, CDC
Municipal Products Class A Certificates (Series 1996B)
Weekly VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 245,000
3,000,000 New Jersey State Educational Facilities Authority, (Series
1998) FR/RI-A33 Trust Receipts Weekly VRDNs (AMBAC INS)/
(National Westminster Bank, PLC, London LIQ) 3,000,000
3,960,000 New Jersey State, (CDC Series 1997L) Weekly VRDNs (CDC
Municipal Products, Inc. LIQ) 3,960,000
2,800,000 New Jersey State, PA-265 Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ) 2,800,000
1,000,000 New Jersey State, Trust Receipts (Series 1998 FR/RI-A8)
Weekly VRDNs (Bayerische Hypotheken-Und Wechsel-Bank AG LIQ) 1,000,000
3,000,000 New Jersey State, UT GO Bonds, 7.20% Bonds, 4/15/1999 3,050,126
1,250,000 North Brunswick Township, NJ, 4.00% BANs, 12/30/1998 1,250,592
2,453,950 Pine Hill Borough, NJ, 3.84% BANs, 8/6/1999 2,455,542
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4)
Weekly VRDNs 10,000,000
1,685,000 Seaside Heights Borough, NJ, (Series B), 4.25% BANs, 11/5/
1998 1,685,081
2,727,500 Union Beach, NJ, 4.00% BANs, 1/21/1999 2,729,872
3,200,000 Union County, NJ Utilities Authority, Trust Receipts FR/RI-
38 Weekly VRDNs (Ogden Martin Systems Of Union Inc.)/(AMBAC
INS)/(Bank of New York, New York LIQ) 3,200,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW JERSEY-CONTINUED
$ 4,100,000 Wall Township, NJ, 4.00% BANs, 3/19/1999 $ 4,104,334
4,421,802 Washington Borough, NJ, 4.25% BANs, 12/11/1998 4,423,430
2,900,000 Washington Township, NJ, 4.25% BANs, 1/15/1999 2,904,374
1,000,000 Washington Township, NJ, 4.00% BANs, 8/6/1999 1,001,828
Total 167,716,493
PUERTO RICO-1.3%
2,294,762 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) 2,294,762
Total Investments (at amortized cost) 2 $ 170,011,255
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 26.5% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
96.90% 3.10%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($171,272,885) at October 31, 1998.
The following acronyms are used throughout this portfolio:
<TABLE>
<CAPTION>
<S> <C>
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
EDA -Economic Development Authority
FGIC -Financial Guaranty Insurance Company
GO -General Obligation
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCFA -Pollution Control Finance Authority
PLC -Public Limited Company
SA -Support Agreement
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 170,011,255
Income receivable 1,358,113
Receivable for shares sold 800,000
Receivable for investments sold 5,373,000
Total assets 177,542,368
LIABILITIES:
Payable for investments purchased $ 5,387,007
Income distribution payable 306,191
Payable to Bank 536,200
Accrued expenses 40,085
Total liabilities 6,269,483
Net Assets for 171,272,885 shares outstanding $ 171,272,885
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE
INSTITUTIONAL SHARES:
$106,032,438 / 106,032,438 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$65,240,447 / 65,240,447 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 7,523,204
EXPENSES:
Investment advisory fee $ 831,577
Administrative personnel and services fee 155,000
Custodian fees 9,425
Transfer and dividend disbursing agent fees and expenses 51,841
Directors'/Trustees' fees 1,878
Auditing fees 12,692
Legal fees 13,798
Portfolio accounting fees 64,338
Distribution services fee-Institutional Service Shares 66,126
Shareholder services fee-Institutional Shares 354,422
Shareholder services fee-Institutional Service Shares 165,314
Share registration costs 32,181
Printing and postage 20,723
Insurance premiums 15,931
Miscellaneous 1,785
Total expenses 1,797,031
WAIVERS:
Waiver of investment advisory fee $ (162,550)
Waiver of distribution services fee-Institutional Service
Shares (66,126)
Waiver of shareholder services fee-Institutional Shares (283,538)
Waiver of shareholder services fee-Institutional Service
Shares (66,126)
Total waivers (578,340)
Net expenses 1,218,691
Net investment income $ 6,304,513
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 6,304,513 $ 5,218,833
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (4,351,312) (4,020,737)
Institutional Service Shares (1,953,201) (1,198,096)
Change in net assets resulting from distributions to
shareholders (6,304,513) (5,218,833)
SHARE TRANSACTIONS:
Proceeds from sale of shares 670,567,607 561,976,671
Net asset value of shares issued to shareholders in payment
of distributions declared 1,275,927 1,135,725
Cost of shares redeemed (667,515,788) (540,696,148)
Change in net assets resulting from share transactions 4,327,746 22,416,248
Change in net assets 4,327,746 22,416,248
NET ASSETS:
Beginning of period 166,945,139 144,528,891
End of period $ 171,272,885 $ 166,945,139
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 to provide current income which is exempt from
federal regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal.
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, 1998, capital paid-in aggregated
$171,272,885.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 217,162,372 176,733,811
Shares issued to shareholders in payment of distributions
declared 1,232,816 814,310
Shares redeemed (207,693,139) (151,816,611)
Net change resulting from Institutional Service Share
transactions 10,702,049 25,731,510
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 453,405,235 385,242,860
Shares issued to shareholders in payment of distributions
declared 43,111 321,415
Shares redeemed (459,822,649) (388,879,537)
Net change resulting from Institutional Share transactions (6,374,303) (3,315,262)
Net change resulting from share transactions 4,327,746 22,416,248
</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, Inc.
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 daily average net assets
of the Institutional Service Shares, annually, to compensate FSC. 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, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (of
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $267,281,098 and
$313,625,000, 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, 1998, 46.9% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 5.8% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian and the broker. As to the security purchased but not received we
requested confirmation from the broker and, when the reply was not
received, we carried out alternative auditing procedures. 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
New Jersey Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
[Graphic]
New Jersey Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229709
0100802A-SS (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
New Jersey Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for New Jersey Municipal Cash Trust
dated December 31, 1998. Obtain the prospectus without charge by calling 1-800-
341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229709
0100802B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax and New Jersey state income tax imposed
upon non-corporate taxpayers. This policy is fundamental and cannot be changed
without shareholder approval.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by a nationally recognized rating service, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor
that exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: Fleet
Securities Corp., Rochester, New York, owned approximately 35,746,806 Shares
(32.08%); First Union National Bank, Charlotte, North Carolina, owned
approximately 21,153,246 Shares (18.99%); United National Bank, Bridgewater, New
Jersey, owned approximately 18,720,088 Shares (16.80%); and The Bopac Company,
Valley National Bank, Clifton, New Jersey, owned approximately 6,894,944 Shares
(6.19%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: First Union Capital Markets Corp, Charlotte, North Carolina, owned
approximately 21,606,669 Shares (25.75%); Fiduciary Tr Co. International, New
York, New York, owned approximately 13,814,500 Shares (16.47%); and Tellson &
Co., Gladstone, New Jersey, owned approximately 11,587,208 Shares (13.81%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing New Jersey laws, distributions made by the Fund will not be
subject to New Jersey income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest or gain from obligations issued by or on behalf of the State of New
Jersey or any county, municipality, school or other district, agency, authority,
commission, instrumentality, public corporation, body corporate and politic or
political subdivision of New Jersey; or (ii) interest or gain from obligations
(such as obligations of the United States) that are statutorily free from New
Jersey taxation under federal or New Jersey state laws. Conversely, to the
extent that distributions by the Fund are attributable to other types of
obligations, such distributions will be subject to New Jersey income taxes.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey Corporation Business Tax or New Jersey Corporation Income
Tax.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other positions held, total
compensation received as a Trustee from the Trust for its most recent fiscal
year, and the total compensation received from the Federated Fund Complex for
the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Total
Name Compensation
Birthdate Aggregate From Trust
Address Principal Occupations Compensation and Fund
Position With Trust for Past 5 Years From Trust Complex
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of the Federated $ 0 $0 for the
Birthdate: July 28, 1924 Fund Complex. Chairman and Director, Federated Investors, Inc.; Trust and 56
Federated Investors Tower Chairman and Trustee, Federated Advisers, Federated Management, and other
1001 Liberty Avenue Federated Research; Chairman and Director, Federated Research Corp., investment
Pittsburgh, PA and Federated Global Research Corp.; Chairman, Passport Research, companies in
CHAIRMAN and TRUSTEE Ltd. the Fund
Complex
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director, Member $4,076.31 $111,222 for
Birthdate: February 3, 1934 of Executive Committee, Children's Hospital of Pittsburgh; formerly: the Trust
15 Old Timber Trail Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; and 56 other
Pittsburgh, PA Director, Member of Executive Committee, University of Pittsburgh. investment
TRUSTEE companies in
the Fund
Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; President, $4,484.62 $122,362 for
Birthdate: June 23, 1937 Investment Properties Corporation; Senior Vice President, John R. the Trust
Wood/IPC Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in private and 56 other
John R. Wood and Associates, Inc. real estate ventures in Southwest Florida; formerly: President, investment
Realtors Naples Property Management, Inc. and Northgate Village Development companies in
3255 Tamiami Trail North Naples, Corporation. the Fund
FL Complex
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; Director and $4,484.62 $122,362 for
Birthdate: July 4, 1918 Member of the Executive Committee, Michael Baker, Inc.; formerly: the Trust
One PNC Plaza-23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; and 56 other
Pittsburgh, PA Director, Ryan Homes, Inc. investment
TRUSTEE companies in
Retired: Director, United Refinery; Director, Forbes Fund; Chairman, the Fund
Pittsburgh Foundation; Chairman, Pittsburgh Civic Light Opera. Complex
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; Attorney-at-law; $4,484.62 $122,362 for
Birthdate: May 18, 1922 Director, The Emerging Germany Fund, Inc. the Trust
571 Hayward Mill Road and 56 other
Concord, MA Retired: President, Boston Stock Exchange, Inc.; Regional investment
TRUSTEE Administrator, United States Securities and Exchange Commission. companies in
the Fund
Complex
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; Professor of $4,076.31 $111,222 for
Birthdate: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University of the Trust
3471 Fifth Avenue Pittsburgh Medical Center Downtown; Hematologist, Oncologist, and and 56 other
Suite 1111 Internist, Presbyterian and Montefiore Hospitals; Member, National investment
Pittsburgh, PA Board of Trustees, Leukemia Society of America. companies in
TRUSTEE the Fund
Complex
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund Complex; Attorney, of $4,484.62 $122,362 for
Birthdate: June 18, 1924 Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park the Trust
Miller, Ament, Henny & Kochuba Restaurants, Inc.; formerly: Counsel, Horizon Financial, F.A., and 56 other
205 Ross Street Western Region; Partner, Meyer and Flaherty. investment
Pittsburgh, PA companies in
TRUSTEE the Fund
Complex
Peter E. Madden Director or Trustee of the Federated Fund Complex; formerly: $4,076.31 $111,222 for
Birthdate: March 16, 1942 Representative, Commonwealth of Massachusetts General Court; the Trust
One Royal Palm Way President, State Street Bank and Trust Company and State Street and 56 other
100 Royal Palm Way Corporation. investment
Palm Beach, FL companies in
TRUSTEE Retired: Director, VISA USA and VISA International; Chairman and the Fund
Director, Massachusetts Bankers Association; Director, Depository Complex
Trust Corporation.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President, Law $4,076.31 $111,222 for
Birthdate: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica & Murray. the Trust
President, Duquesne University and 56 other
Pittsburgh, PA Retired: Dean and Professor of Law, University of Pittsburgh School investment
TRUSTEE of Law; Dean and Professor of Law, Villanova University School of companies in
Law. the Fund
Complex
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; President, World $4,076.31 $111,222 for
Birthdate: September 14, 1925 Society of Ekistics, Athens; Professor, International Politics; the Trust
1202 Cathedral of Learning Management Consultant; Trustee, Carnegie Endowment for International and 56 other
University of Pittsburgh Peace, RAND Corporation, Online Computer Library Center, Inc., investment
Pittsburgh, PA National Defense University and U.S. Space Foundation; President companies in
TRUSTEE Emeritus, University of Pittsburgh; Founding Chairman, National the Fund
Advisory Council for Environmental Policy and Technology, Federal Complex
Emergency Management Advisory Board and Czech Management Center,
Prague.
Retired: Professor, United States Military Academy; Professor,
United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; Public $4,076.31 $111,222 for
Birthdate: June 21, 1935 Relations/Marketing/Conference Planning. the Trust
4905 Bayard Street and 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of America; investment
TRUSTEE business owner. companies in
the Fund
Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, Federated $ 0 $0 for the
Birthdate: May 2, 1929 Securities Corp. Trust and 8
Federated Investors Tower other
1001 Liberty Avenue investment
Pittsburgh, PA companies in
PRESIDENT and TRUSTEE the Fund
Complex
J. Christopher Donahue##* President or Executive Vice President of the Federated Fund Complex; $ 0 $0 for the
Birthdate: April 11, 1949 Director or Trustee of some of the Funds in the Federated Fund Trust and 18
Federated Investors Tower Complex; President and Director, Federated Investors, Inc.; other
1001 Liberty Avenue President and Trustee, Federated Advisers, Federated Management, and investment
Pittsburgh, PA Federated Research; President and Director, Federated Research Corp. companies in
EXECUTIVE VICE PRESDIENT and Federated Global Research Corp.; President, Passport Research, the Fund
Ltd.; Trustee, Federated Shareholder Services Company; Director, Complex
Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the Federated Fund $ 0 $0 for the
Birthdate: October 22, 1930 Complex; President, Executive Vice President and Treasurer of some Trust and 1
Federated Investors Tower of the Funds in the Federated Fund Complex; Vice Chairman, Federated other
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Advisers, Federated investment
Pittsburgh, PA Management, Federated Research, Federated Research Corp., Federated companies in
EXECUTIVE VICE PRESIDENT Global Research Corp. and Passport Research, Ltd.; Executive Vice the Fund
President and Director, Federated Securities Corp.; Trustee, Complex
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated Fund $ 0 $0 for the
Birthdate: October 26, 1938 Complex; Executive Vice President, Secretary, and Director, Trust and 56
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Advisers, Federated other
1001 Liberty Avenue Management, and Federated Research; Director, Federated Research investment
Pittsburgh, PA Corp. and Federated Global Research Corp.; Director, Federated companies in
EXECUTIVE VICE PRESIDENT and Services Company; Director, Federated Securities Corp. the Fund
SECRETARY Complex
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President - Funds $0 $0 for the
Birthdate: June 17, 1954 Financial Services Division, Federated Investors, Inc.; Formerly: Trust and 56
Federated Investors Tower various management positions within Funds Financial Services other
1001 Liberty Avenue Division of Federated Investors, Inc. investment
Pittsburgh, PA companies in
TREASURER the Fund
Complex
Richard B. Fisher* President or Vice President of some of the Funds in the Federated $ 0 $0 for the
Birthdate: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in the Trust and 6
Federated Investors Tower Federated Fund Complex; Executive Vice President, Federated other
1001 Liberty Avenue Investors, Inc.; Chairman and Director, Federated Securities Corp. investment
Pittsburgh, PA companies in
VICE PRESIDENT the Fund
Complex
William D. Dawson, III Chief Investment Officer of this Fund and various other Funds in the $ 0 $0 for the
Birthdate: March 3, 1949 Federated Fund Fomplex; Executive Vice President, Federated Trust and 41
Federated Investors Tower Investment Counseling, Federated Global Research Corp., Federated other
1001 Liberty Avenue Advisers, Federated Management, Federated Research, and Passport investment
Pittsburgh, PA Research, Ltd.; Registered Representative, Federated Securities companies in
Chief Investment Officer Corp.; Portfolio Manager, Federated Administrative Services; Vice the Fund
President, Federated Investors, Inc.; Formerly: Executive Vice Complex
President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight investment $ 0 $0 for the
Birthdate: September 12, 1953 companies in the Federated Fund Complex; Senior Vice President, Trust and 7
Federated Investors Tower Federated Investment Counseling, Federated Advisers, Federated other
1001 Liberty Avenue Global Research Corp., Federated Management, Federated Research, investment
Pittsburgh, PA Federated Research Corp. and Passport Research, Ltd.; Formerly: Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President, Federated Advisers, Federated Management, Federated the Fund
PRESIDENT Research, Federated Research Corp. , Passport Research, Ltd. and Complex
Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four investment $ 0 $0 for the
Birthdate: January 15, 1960 companies in the Federated Fund Complex; Vice President, Federated Trust and 3
Federated Investors Tower Investment Counseling, Federated Advisers, Federated Global Research other
1001 Liberty Avenue Corp., Federated Management, Federated Research, Federated Research investment
Pittsburgh, PA Corp. and Passport Research, Ltd.; Formerly: Assistant Vice companies in
SENIOR PORTFOLIO MANAGER/VICE President and Investment Analyst, Federated Research Corp. and the Fund
PRESIDENT Passport Research, Ltd. ; Assistant Vice President, Federated Complex
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- --------------------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Advisory Fee Earned $831,577 $669,639 $501,943
Advisory Fee Reduction 162,550 176,158 215,343
Brokerage Commissions 0 0 0
Administrative Fee 155,000 155,000 155,108
12b-1 Fee
Institutional Service 0 ---- ----
Shares
Shareholder Services Fee
Institutional Shares 70,884 ---- ----
Institutional Service 99,188 ---- ----
Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on
Institutional Shares December 13, 1990
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.12% 3.04% 3.07%
Yield 2.76% -- -- --
Effective Yield 2.80% -- -- --
Tax-Equivalent Yield 5.18% -- -- --
- ----------------------------------------------------------------------------------------------
<CAPTION>
Share Class 7-Day Period 1 Year 5 Years Since Inception on
Institutional Service Shares December 13, 1990
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.01% 2.94% 2.98%
Yield 2.66% -- -- --
Effective Yield 2.70% -- -- --
Tax-Equivalent Yield 5.00% -- -- --
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax- equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF NEW JERSERY
SINGLE RETURN
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 16.75% 33.53% 37.37% 42.37% 45.97%
- ------------------------------------------------------------------------------------
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- ------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------
1.50% 1.80% 2.26% 2.40% 2.60% 2.78%
2.00% 2.40% 3.01% 3.19% 3.47% 3.70%
2.50% 3.00% 3.76% 3.99% 4.34% 4.63%
3.00% 3.60% 4.51% 4.79% 5.21% 5.55%
3.50% 4.20% 5.27% 5.59% 6.07% 6.48%
4.00% 4.80% 6.02% 6.39% 6.94% 7.40%
4.50% 5.41% 6.77% 7.19% 7.81% 8.33%
5.00% 6.01% 7.52% 7.98% 8.68% 9.25%
5.50% 6.61% 8.27% 8.78% 9.54% 10.18%
6.00% 7.21% 9.03% 9.58% 10.41% 11.10%
</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 1998
STATE OF NEW JERSERY
MARRIED FILING JOINT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 16.75% 33.53% 37.37% 42.37% 45.97%
- ------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
- ------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------
1.50% 1.80% 2.26% 2.40% 2.60% 2.78%
2.00% 2.40% 3.01% 3.19% 3.47% 3.70%
2.50% 3.00% 3.76% 3.99% 4.34% 4.63%
3.00% 3.60% 4.51% 4.79% 5.21% 5.55%
3.50% 4.20% 5.27% 5.59% 6.07% 6.48%
4.00% 4.80% 6.02% 6.39% 6.94% 7.40%
4.50% 5.41% 6.77% 7.19% 7.81% 8.33%
5.00% 6.01% 7.52% 7.98% 8.68% 9.25%
5.50% 6.61% 8.27% 8.78% 9.54% 10.18%
6.00% 7.21% 9.03% 9.58% 10.41% 11.10%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. short-term ratings are designated Moody's
Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH IBCA, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
NEW JERSEY MUNICIPAL CASH TRUST
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
New York Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 28
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income taxes imposed by
New York State and New York municipalities consistent with stability of
principal. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN
INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the personal
income taxes imposed by New York State and New York municipalities.
Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market
fund.Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-6
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Cash II Shares
total returns on a yearly basis.
The Fund's Cash II Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Cash II Shares year-to-date total return as of the most recent
calendar quarter of September 30, 1998, was 2.22%.
Within the period shown in the Chart, the Fund's Cash II Shares highest
quarterly return was 0.88% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.45% (quarter ended March 31, 1994).
The Fund's Cash II Shares Seven-Day Net Yield as of 12/31/97 was 3.39%.
The following table represents the Fund's Cash II Shares Average Total
Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.12%
5 Years 2.76%
Start of Performance 1 2.88%
1 The Fund's Cash II Shares start of performance date was April 25, 1991.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
NEW YORK MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Cash II Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or
redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 0.15%
Total Annual Fund Operating Expenses 1.05%
1 Although not contractually obligated to do so, the adviser
and distributor waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal
year ended October 31, 1998.
Waiver of Fund Expenses 0.34%
Total Actual Annual Fund Operating Expenses (after waivers) 0.71%
2 The adviser voluntarily waived a portion of the management fee.
The adviser can terminate this voluntary waiver at any time. The
management fee paid by the Fund (after the voluntary waiver) was
0.31% for the year ended October 31, 1998.
3 The distribution (12b-1) fee has been voluntarily waived. This
voluntary waiver can be terminated at any time. There was no
distribution (12b-1) fee paid by the Fund (after the voluntary
reduction) for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Cash II Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Cash II Shares
for the time periods indicated and then redeem all of your shares at the end
of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Cash II Shares' operating expenses are
BEFORE WAIVERS as shown above and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $107 $334 $579 $1,283
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the
Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New
York. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 3:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.The required minimum initial investment for Fund Shares is $25,000.
There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep
in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Service Shares and Cash II
Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Cash II Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment
professionals. The Fund may not be a suitable investment for retirement
plans or for non-New York taxpayers because it invests in New York tax-
exempt securities. When the Distributor receives marketing fees, it may pay
some or all of them to investment professionals. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number
Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchase and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from New York state personal income tax to
the extent they are derived from interest on obligations exempt from New
York personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is: Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
FINANCIAL HIGHLIGHTS-CASH II SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.02% 3.07% 3.05% 3.37% 2.15%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.71% 0.71% 0.71% 0.71% 0.71%
Net investment income 2.98% 3.01% 3.02% 3.20% 2.19%
Expense waiver/reimbursement 2 0.34% 0.34% 0.36% 0.36% 0.21%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $43,957 $21,402 $25,571 $14,439 $134,051
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.1% 1
NEW YORK-98.4%
$ 4,760,000 Albany City School District, NY, 4.00% TANs, 11/30/1998 $ 4,761,463
9,195,000 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
5,000,000 Allegany-Limestone, NY Central School District, 4.05% BANs,
12/30/1998 5,001,010
9,000,000 Broadalbin-Perth, NY Central School District, 3.80% BANs, 2/
24/1999 9,004,083
3,500,000 Cayuga County, NY IDA, (Series 1998) Weekly VRDNs (NFR
Northeast, Inc.)/(KeyBank, N.A. LOC) 3,500,000
950,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/
(KeyBank, N.A. LOC) 950,000
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine
Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000
900,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine
Midland Bank N.A., Buffalo, NY LOC) 900,000
655,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (Specialty
Retailers, Inc.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 655,000
3,100,000 Colonie, NY IDA, 4.00% TOBs (800 North Pearl Associates)/
(Fleet Bank N.A. LOC), Optional Tender 12/1/1998 3,100,000
2,500,000 Columbia County, NY IDA, (Series 1998A) Weekly VRDNs (Empire
Homes, LLC)/(KeyBank, N.A. LOC) 2,500,000
4,720,000 Corinth, NY IDA, Solid Waste Disposal Revenue Bonds (Series
A), 3.80% TOBs (International Paper Co.), Optional Tender 3/
1/1999 4,720,000
1,200,000 Dutchess County, NY IDA, Series 1995 Weekly VRDNs (Laerdal
Medical Corp.)/(Bank of New York, New York LOC) 1,200,000
2,140,000 Erie County, NY IDA, (Series A) Weekly VRDNs (Gemcor)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 2,140,000
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Servotronics, Inc. Project)/(Fleet Bank N.A. LOC) 5,000,000
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES
Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000
725,000 Fulton County, NY IDA, 4.05% TOBs (Gates Mills Inc.)/(Fleet
Bank N.A. LOC), Optional Tender 12/1/1998 725,000
3,510,000 Fulton County, NY, 4.00% BANs, 4/30/1999 3,513,333
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 1,300,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs
(Northeastern Industrial Park, Inc.)/(Fleet Bank N.A. LOC) $ 1,300,000
3,740,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's
Kitchen)/(Bank of New York, New York LOC) 3,740,000
5,000,000 Levittown Union Free School District, NY, 3.80% TANs, 6/23/
1999 5,003,062
3,850,000 Liverpool Central School District, NY, 4.00% RANs, 8/3/1999 3,860,904
6,985,000 Livonia, NY Central School District, 3.75% BANs, 3/30/1999 6,988,023
1,745,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs
(Madison, NY Upstate Metals)/(Fleet Bank N.A. LOC) 1,745,000
4,400,000 Madison County, NY IDA, (Series A) Weekly VRDNs (Owl Wire and
Cable)/
(KeyBank, N.A. LOC) 4,400,000
7,000,000 Madrid-Waddington, NY Central School District, 3.40% BANs,
10/29/1999 7,004,651
12,393,873 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust
Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 12,393,873
6,000,000 Mayfield, NY Central School District, 3.45% BANs, 10/15/1999 6,002,746
34,395,000 Metropolitan Transportation Authority, New York, MERLOTs
(Series 1997 C-2) Weekly VRDNs (Corestates Bank N.A.,
Philadelphia, PA LIQ)/(FGIC LOC) 34,395,000
4,265,000 Metropolitan Transportation Authority, New York, Trust
Receipts (Series 1997 FR/RI-9) Weekly VRDNs (FGIC INS)/(Bank
of New York, New York LIQ) 4,265,000
2,170,000 Miller Place, NY Union Free School District, 3.80% TANs, 6/
30/1999 2,171,793
3,300,000 Monroe County, NY Airport Authority, (PT-98) Weekly VRDNs
(Greater Rochester International Airport)/(MBIA Insurance
Corporation INS)/(Merrill Lynch Capital Services, Inc. LIQ) 3,300,000
12,000,000 New Paltz, NY Central School District, 3.95% BANs, 6/15/1999 12,010,699
4,900,000 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 New York City Housing Development Corp., Municipal
Securities Trust Receipts (Series 1996-CMC1B) Weekly VRDNs
(Chase Manhattan Corp. LIQ) 4,900,000
13,090,000 2 New York City Municipal Water Finance Authority, Floater
Certificates (Series 1998-5), 3.30%, 6/15/2005 TOBs (Morgan
Stanley, Dean Witter Municipal Funding, Inc. LIQ)/(United
States Treasury PRF), Mandatory Tender 12/24/1998 13,090,000
83,334 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank
N.A., New York LOC) 83,334
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 7,075,000 New York City, NY IDA, CDC 1997H - Class A Certificates
Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC Municipal
Products, Inc. LIQ) $ 7,075,000
8,570,000 New York City, NY IDA, CDC Municipal Products (Series 1998D)
Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC Municipal
Products, Inc. LIQ) 8,570,000
3,500,000 New York City, NY IDA, CDC Municipal Products, Inc. (Series
1996H) Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC
Municipal Products, Inc. LIQ) 3,500,000
9,010,000 New York City, NY IDA, Class A Certificates (Series CDC-
1997E) Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC
Municipal Products, Inc. LIQ) 9,010,000
16,595,000 New York City, NY Transitional Finance Authority, PT-1047
Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 16,595,000
17,300,000 New York City, NY, (PA-156) Weekly VRDNs (Merrill Lynch
Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services,
Inc. LOC) 17,300,000
11,445,000 New York City, NY, UT GO (Series A), 4.25% Bonds, 8/1/1999 11,490,531
6,000,000 New York City, NY, UT GO (Series G), 3.90% Bonds, 8/1/1999 6,004,344
5,475,000 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 2 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 LIQ), Optional Tender 8/5/1999 6,245,000
5,980,000 New York State Dormitory Authority, PT-130 (Series 1997)
Weekly VRDNs (United Health Services Hospitals, Inc.)/(AMBAC
INS)/(Credit Suisse First Boston LIQ) 5,980,000
5,445,000 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
10,000,000 New York State Energy Research & Development Authority,
(Series 1985A), 3.58% TOBs (Long Island Lighting Co.)/
(Deutsche Bank, AG LOC), Optional Tender 3/1/1999 10,000,000
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
25,970,000 2 New York State Energy Research & Development Authority, PT-
219, 3.75% TOBs (Consolidated Edison Co.)/(AMBAC INS)/
(Bayerische Vereinsbank AG, Munich LIQ), Mandatory Tender 4/
15/1999 25,970,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 12,200,000 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) $ 12,200,000
2,500,000 New York State HFA, Health Facilities Revenue Bonds (PA-143)
Weekly VRDNs (New York City, NY)/(Merrill Lynch Capital
Services, Inc. LOC) 2,500,000
4,290,000 New York State Job Development Authority, Weekly VRDNs (New
York State GTD)/(Bayerische Landesbank Girozentrale and
Morgan Guaranty Trust Co., New York LOCs) 4,290,000
2,575,000 New York State Job Development Authority, (Series C-1)
3.60%, 3/01/2000 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 2,575,000
730,000 New York State Job Development Authority, (Series D-1)
3.50%, 3/01/1999 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 730,000
3,215,000 New York State Job Development Authority, (Series E-1)
3.50%, 3/01/1999 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 3,215,000
4,400,000 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) 4,400,000
3,160,000 New York State Medical Care Facilities Finance Agency,
Hospital Insured Mortgage Revenue Bonds (PT-154) Weekly
VRDNs (FHA INS)/(Banco Santander SA LIQ) 3,160,000
3,700,000 New York State Mortgage Agency, (Series PA-29) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
3,220,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services,
Inc. LIQ) 3,220,000
4,085,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds
(Series PT-15B) Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 4,085,000
8,645,000 New York State Mortgage Agency, PA-406 Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 8,645,000
5,000,000 2 New York State Mortgage Agency, PT-164, 3.675% TOBs
(Banque Nationale de Paris LIQ), Optional Tender 3/18/1999 5,000,000
6,500,000 New York State Thruway Authority, (PA-172) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch
Capital Services, Inc. LOC) 6,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 18,000,000 2 New York State Thruway Authority, Trust Receipts (Series
1998 FR/RI-A61), 3.45% TOBs (FGIC INS)/(Bank of New York,
New York LIQ), Optional Tender 2/1/1999 $ 18,000,000
8,400,000 New York State Urban Development Corp., Municipal
SecuritiesTrust Receipts (Series 1996-CMC6) Weekly VRDNs
(Chase Manhattan Corp. LIQ) 8,400,000
4,100,000 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) 4,100,000
190,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 190,000
1,200,000 Onondaga County, NY IDA, (Series 1997) Weekly VRDNs
(General Super Plating Co., Inc.)/(KeyBank, N.A. LOC) 1,200,000
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
1,300,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City Bank, Ohio LOC) 1,300,000
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/
(Credit Lyonnais, Paris LOC) 5,700,000
9,900,000 Perry Central School District, NY, 3.80% BANs, 6/15/1999 9,907,663
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
3,000,000 Portville, NY Central School District, 3.50% BANs, 10/20/1999 3,002,785
4,500,000 Riverhead, NY IDA, IDRB (Series 1998) Weekly VRDNs (Altaire
Pharmaceuticals, Inc.)/(Mellon Bank NA, Pittsburgh LOC) 4,500,000
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam
Industrial Park)/(Fleet Bank N.A. LOC) 1,000,000
151,931 Schenectady, NY IDA Weekly VRDNs (McClellan Street
Associates)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan
Bank N.A., New York LOC) 151,931
1,485,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs
(Fortitech Holding Corporation Project)/(Fleet Bank N.A. LOC) 1,485,000
7,510,000 Sherburne-Earlville Central School District, NY, 3.75% BANs,
3/18/1999 7,512,988
1,332,500 Solvay, NY, (Series A), 3.40% BANs, 10/14/1999 1,333,111
3,997,500 Solvay, NY, (Series B), 3.45% BANs, 10/14/1999 3,999,334
2,880,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy
Conveyor Corp. Project)/(Chase Manhattan Bank N.A., New York
LOC) 2,880,000
3,540,000 Southeast, NY IDA, Variable Rate IDRB 1996 Weekly VRDNs (The
Rawplug Company, Inc.)/(Bank of New York, New York LOC) 3,540,000
1,200,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 1,200,000
800,000 Suffolk County, NY IDA Weekly VRDNs (YM-YWHA of Suffolk)/
(European American Bank, New York LOC) 800,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 6,665,000 Suffolk County, NY IDA, (Series 1997B) Weekly VRDNs
(Maryhaven Center of Hope)/(KeyBank, N.A. LOC) $ 6,665,000
5,000,000 Suffolk County, NY IDA, (Series 1998A) Weekly VRDNs
(Episcopal Health Services, Inc. Civic Facility)/(Paribas,
Paris LOC) 5,000,000
1,800,000 Suffolk County, NY IDA, 5.525% TOBs (Grainger (W.W.), Inc.),
Optional Tender 12/1/1998 1,800,000
6,300,000 Triborough Bridge & Tunnel Authority, NY, Trust Receipts
(Series 1998 FR/RI-A1) Weekly VRDNs (Bayerische Hypotheken-
Und Wechsel-Bank Ag LIQ) 6,300,000
2,400,000 United Nations, NY Development Corp., (PA-155) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch
Capital Services, Inc. LOC) 2,400,000
2,000,000 VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes
Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai
Banking Corp. LIQ) 2,000,000
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Spence Engineering Co.)/(First Union National Bank,
Charlotte, N.C. LOC) 7,500,000
4,470,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy
Hill Corp.)/
(First Union National Bank, Charlotte, N.C. LOC) 4,470,000
Total 548,061,660
PUERTO RICO-0.7%
4,001,821 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/(State Street Bank and Trust Co. LOC) 4,001,821
Total Investments (at amortized cost) 3 $ 552,063,482
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 32.5% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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 identfied 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
93.15% 6.85%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $68,305,000 which represents 12.3% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($556,968,156) at October 31, 1998.
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
GO -General Obligation
GTD -Guaranty
HFA -Housing Finance Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOCs -Letter(s) of Credit
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity
Optional Tender Series
PRF -Prerefunded
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 552,063,482
Cash 112,995
Income receivable 4,777,943
Receivable for shares sold 1,082,111
Total assets 558,036,531
LIABILITIES:
Payable for shares redeemed $ 10,756
Income distribution payable 940,915
Accrued expenses 116,704
Total liabilities 1,068,375
Net Assets for 556,968,156 shares outstanding $ 556,968,156
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$513,011,465 / 513,011,465 shares outstanding $1.00
CASH II SHARES:
$43,956,691 / 43,956,691 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 20,643,421
EXPENSES:
Investment advisory fee $ 2,250,094
Administrative personnel and services fee 424,181
Custodian fees 23,218
Transfer and dividend disbursing agent fees and expenses 126,021
Directors'/Trustees' fees 4,680
Auditing fees 12,500
Legal fees 17,114
Portfolio accounting fees 111,614
Distribution services fee-Institutional Service Shares 1,331,251
Distribution services fee-Cash II Shares 75,058
Shareholder services fee-Institutional Service Shares 1,331,251
Shareholder services fee-Cash II Shares 75,058
Share registration costs 45,514
Printing and postage 31,991
Insurance premiums 37,315
Miscellaneous 3,266
Total expenses 5,900,126
WAIVERS:
Waiver of investment advisory fee $ (500,559)
Waiver of distribution services fee-Institutional Service
Shares (1,331,251)
Waiver of distribution services fee-Cash II Shares (75,058)
Waiver of shareholder services fee-Institutional Service
Shares (875,361)
Total waivers (2,782,229)
Net expenses 3,117,897
Net investment income $ 17,525,524
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 17,525,524 $ 14,299,081
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (16,632,253) (13,606,648)
Cash II Shares (893,271) (692,433)
Change in net assets resulting from distributions
to shareholders (17,525,524) (14,299,081)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,229,397,824 1,611,371,202
Net asset value of shares issued to shareholders in payment
of distributions declared 7,306,584 5,353,288
Cost of shares redeemed (2,125,311,852) (1,502,253,158)
Change in net assets resulting from share transactions 111,392,556 114,471,332
Change in net assets 111,392,556 114,471,332
NET ASSETS:
Beginning of period 445,575,600 331,104,268
End of period $ 556,968,156 $ 445,575,600
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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 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 ("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,
1998, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
New York Municipal
Water Finance Authority,
(Series 1998-5) 10/08/1998 $ 13,090,000
New York State Dormitory Authority
PT-128 (Series 1997) 9/3/1998 6,245,000
New York State Energy Research &
Development Authority,
(Series PT-219) 7/24/1998 25,970,000
New York State Thruway Authority,
(Series 1998 FR/RI-A61) 9/30/1998 18,000,000
New York State Mortgage Agency
PT-164 3/25/1998 5,000,000
</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, 1998, capital paid-in aggregated
$556,968,156.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH II SHARES
Shares sold 164,753,848 108,671,749
Shares issued to shareholders in payment of distributions
declared 719,604 525,148
Shares redeemed (142,918,616) (113,365,882)
Net change resulting from Cash II Share transactions 22,554,836 (4,168,985)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 2,064,643,976 1,502,699,453
Shares issued to shareholders in payment of distributions
declared 6,586,980 4,828,140
Shares redeemed (1,982,393,236) (1,388,887,276)
Net change resulting from Institutional Service Share
transactions 88,837,720 118,640,317
Net change resulting from share transactions 111,392,556 114,471,332
</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, Inc.
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, 1998, 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 $796,328,283 and
$830,441,098, 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, 1998, 56.0% 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.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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 of October 31, 1998, 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 of October 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
New York Municipal
Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by
visiting or writing the Public Reference Room of the Securities and
Exchange Commission in Washington, DC 20549-6009 or from the
Commission's Internet site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's
operations and copying charges.
[Graphic]
New York Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229733
G00208-02 (12/98)
[Graphic]
PROSPECTUS
New York Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 28
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income taxes imposed by
New York State and New York municipalities consistent with stability of
principal. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the personal
income taxes imposed by New York State and New York municipalities.
Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-7
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon net asset
value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of Septmember 30, 1998, was 2.35%
Within the period shown in the Chart, the Fund's highest quarterly return
was 1.41% (quarter ended December 31, 1990). Its lowest quarterly return
was 0.49% (quarter ended March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.57%.
The following table represents the Fund's Institutional Service Shares
Average Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.30%
5 Years 2.95%
10 Years 3.77%
Start of Performance 1 2.88%
1 The Fund's Institutional Service Shares start of performance date was
November 24, 1982.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
NEW YORK MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
<S> <C>
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 4 0.25%
Other Expenses 0.15%
Total Annual Fund Operating Expenses 1.05%
1 Although not contractually obligated to do so, the adviser, distributor and
shareholder service provider waived certain amounts.
These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.50%
Total Actual Annual Fund Operating Expenses (after waivers) 0.55%
2 The adviser voluntarily waived a portion of the management fee. The adviser can
terminate this voluntary waiver at any time. The management fee paid by the Fund
(after the voluntary waiver) was 0.31% for the year ended October 31, 1998.
3 The distribution (12b-1) fee has been voluntarily waived. This voluntary waiver
can be terminated at any time. There was no distribution (12b-1) fee paid by the
Fund (after the voluntary waiver) for the year ended October 31, 1998.
4 The shareholder services fee has been voluntarily reduced. This voluntary reduction
can be terminated at any time. The shareholder services fee paid by the Fund (after
the voluntary reduction) was 0.09% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Institutional Service
Shares' operating expenses are BEFORE WAIVERS as estimated above and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $107 $334 $579 $1,283
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income taxes imposed by New
York State and New York municipalities. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and liquidity
than the issuer. For this reason, the Adviser usually evaluates the credit
risk of a fixed income security based solely upon its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New
York. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 3:00 p.m. (Eastern time), and as of the
end of regular trading (normally 4:00 p.m. Eastern time), each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your
Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Service Shares and Cash II
Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-New York taxpayers
because it invests in New York tax-exempt securities. When the Distributor
receives marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Institutional Service
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different
sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner
of Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be procesed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securites exchange member.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account
will continue to receive the daily dividend declared on the Shares to be
redeemed until the check is presented for payment. Checks may be made
payable only to third-parties and may not be used to redeem Shares or to
close your account.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from New York state personal income tax to
the extent they are derived from interest on obligations exempt from New
York personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax preparer regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to their
customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on
page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.04 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.19% 3.26% 3.24% 3.56% 2.35%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.55% 0.53% 0.53% 0.54% 0.52%
Net investment income 3.12% 3.21% 3.18% 3.49% 2.31%
Expense waiver/reimbursement 2 50% 0.52% 0.54% 0.53% 0.13%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $513,011 $424,174 $305,533 $276,149 $236,580
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.1% 1
NEW YORK-98.4%
$ 4,760,000 Albany City School District, NY, 4.00% TANs, 11/30/1998 $ 4,761,463
9,195,000 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
5,000,000 Allegany-Limestone, NY Central School District, 4.05% BANs,
12/30/1998 5,001,010
9,000,000 Broadalbin-Perth, NY Central School District, 3.80% BANs,
2/24/1999 9,004,083
3,500,000 Cayuga County, NY IDA, (Series 1998) Weekly VRDNs (NFR
Northeast, Inc.)/(KeyBank, N.A. LOC) 3,500,000
950,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/
(KeyBank, N.A. LOC) 950,000
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine
Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000
900,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine
Midland Bank N.A.,
Buffalo, NY LOC) 900,000
655,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (Specialty
Retailers, Inc.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 655,000
3,100,000 Colonie, NY IDA, 4.00% TOBs (800 North Pearl Associates)/
(Fleet Bank N.A. LOC), Optional Tender 12/1/1998 3,100,000
2,500,000 Columbia County, NY IDA, (Series 1998A) Weekly VRDNs (Empire
Homes, LLC)/(KeyBank, N.A. LOC) 2,500,000
4,720,000 Corinth, NY IDA, Solid Waste Disposal Revenue Bonds (Series
A), 3.80% TOBs (International Paper Co.), Optional Tender 3/1/1999 4,720,000
1,200,000 Dutchess County, NY IDA, Series 1995 Weekly VRDNs (Laerdal
Medical Corp.)/(Bank of New York, New York LOC) 1,200,000
2,140,000 Erie County, NY IDA, (Series A) Weekly VRDNs (Gemcor)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 2,140,000
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Servotronics, Inc. Project)/(Fleet Bank N.A. LOC) 5,000,000
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES
Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000
725,000 Fulton County, NY IDA, 4.05% TOBs (Gates Mills Inc.)/(Fleet
Bank N.A. LOC), Optional Tender 12/1/1998 725,000
3,510,000 Fulton County, NY, 4.00% BANs, 4/30/1999 3,513,333
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 1,300,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs
(Northeastern Industrial Park, Inc.)/(Fleet Bank N.A. LOC) $ 1,300,000
3,740,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's
Kitchen)/(Bank of New York, New York LOC) 3,740,000
5,000,000 Levittown Union Free School District, NY, 3.80% TANs, 6/23/
1999 5,003,062
3,850,000 Liverpool Central School District, NY, 4.00% RANs, 8/3/1999 3,860,904
6,985,000 Livonia, NY Central School District, 3.75% BANs, 3/30/1999 6,988,023
1,745,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs
(Madison, NY Upstate Metals)/(Fleet Bank N.A. LOC) 1,745,000
4,400,000 Madison County, NY IDA, (Series A) Weekly VRDNs (Owl Wire and
Cable)/
(KeyBank, N.A. LOC) 4,400,000
7,000,000 Madrid-Waddington, NY Central School District, 3.40% BANs,
10/29/1999 7,004,651
12,393,873 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust
Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 12,393,873
6,000,000 Mayfield, NY Central School District, 3.45% BANs, 10/15/1999 6,002,746
34,395,000 Metropolitan Transportation Authority, New York, MERLOTs
(Series 1997 C-2) Weekly VRDNs (Corestates Bank N.A.,
Philadelphia, PA LIQ)/(FGIC LOC) 34,395,000
4,265,000 Metropolitan Transportation Authority, New York, Trust
Receipts (Series 1997 FR/RI-9) Weekly VRDNs (FGIC INS)/(Bank
of New York, New York LIQ) 4,265,000
2,170,000 Miller Place, NY Union Free School District, 3.80% TANs, 6/
30/1999 2,171,793
3,300,000 Monroe County, NY Airport Authority, (PT-98) Weekly VRDNs
(Greater Rochester International Airport)/(MBIA Insurance
Corporation INS)/(Merrill Lynch Capital Services, Inc. LIQ) 3,300,000
12,000,000 New Paltz, NY Central School District, 3.95% BANs, 6/15/1999 12,010,699
4,900,000 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 New York City Housing Development Corp., Municipal
Securities Trust Receipts (Series 1996-CMC1B) Weekly VRDNs
(Chase Manhattan Corp. LIQ) 4,900,000
13,090,000 2 New York City Municipal Water Finance Authority, Floater
Certificates (Series 1998-5), 3.30%, 6/15/2005 TOBs (Morgan
Stanley, Dean Witter Municipal Funding, Inc. LIQ)/(United
States Treasury PRF), Mandatory Tender 12/24/1998 13,090,000
83,334 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank
N.A., New York LOC) 83,334
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 7,075,000 New York City, NY IDA, CDC 1997H - Class A Certificates
Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC Municipal
Products, Inc. LIQ) $ 7,075,000
8,570,000 New York City, NY IDA, CDC Municipal Products (Series 1998D)
Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC Municipal
Products, Inc. LIQ) 8,570,000
3,500,000 New York City, NY IDA, CDC Municipal Products, Inc. (Series
1996H) Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC
Municipal Products, Inc. LIQ) 3,500,000
9,010,000 New York City, NY IDA, Class A Certificates (Series CDC-
1997E) Weekly VRDNs (Japan Airlines Co.)/(FSA INS)/(CDC
Municipal Products, Inc. LIQ) 9,010,000
16,595,000 New York City, NY Transitional Finance Authority, PT-1047
Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 16,595,000
17,300,000 New York City, NY, (PA-156) Weekly VRDNs (Merrill Lynch
Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services,
Inc. LOC) 17,300,000
11,445,000 New York City, NY, UT GO (Series A), 4.25% Bonds, 8/1/1999 11,490,531
6,000,000 New York City, NY, UT GO (Series G), 3.90% Bonds, 8/1/1999 6,004,344
5,475,000 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 2 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 LIQ), Optional Tender 8/5/1999 6,245,000
5,980,000 New York State Dormitory Authority, PT-130 (Series 1997)
Weekly VRDNs (United Health Services Hospitals, Inc.)/(AMBAC
INS)/(Credit Suisse First Boston LIQ) 5,980,000
5,445,000 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
10,000,000 New York State Energy Research & Development Authority,
(Series 1985A), 3.58% TOBs (Long Island Lighting Co.)/
(Deutsche Bank, AG LOC), Optional Tender 3/1/1999 10,000,000
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
25,970,000 2 New York State Energy Research & Development Authority, PT-
219, 3.75% TOBs (Consolidated Edison Co.)/(AMBAC INS)/
(Bayerische Vereinsbank AG, Munich LIQ), Mandatory Tender 4/
15/1999 25,970,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 12,200,000 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) $ 12,200,000
2,500,000 New York State HFA, Health Facilities Revenue Bonds (PA-143)
Weekly VRDNs (New York City, NY)/(Merrill Lynch Capital
Services, Inc. LOC) 2,500,000
4,290,000 New York State Job Development Authority, Weekly VRDNs (New
York State GTD)/(Bayerische Landesbank Girozentrale and
Morgan Guaranty Trust Co., New York LOCs) 4,290,000
2,575,000 New York State Job Development Authority, (Series C-1)
3.60%, 3/01/2000 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 2,575,000
730,000 New York State Job Development Authority, (Series D-1)
3.50%, 3/01/1999 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 730,000
3,215,000 New York State Job Development Authority, (Series E-1)
3.50%, 3/01/1999 Monthly VRDNs (New York State GTD)/
(Bayerische Landesbank Girozentrale and Morgan Guaranty
Trust Co., New York LOCs) 3,215,000
4,400,000 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) 4,400,000
3,160,000 New York State Medical Care Facilities Finance Agency,
Hospital Insured Mortgage Revenue Bonds (PT-154) Weekly
VRDNs (FHA INS)/(Banco Santander SA LIQ) 3,160,000
3,700,000 New York State Mortgage Agency, (Series PA-29) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
3,220,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services,
Inc. LIQ) 3,220,000
4,085,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds
(Series PT-15B) Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 4,085,000
8,645,000 New York State Mortgage Agency, PA-406 Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 8,645,000
5,000,000 2 New York State Mortgage Agency, PT-164, 3.675% TOBs
(Banque Nationale de Paris LIQ), Optional Tender 3/18/1999 5,000,000
6,500,000 New York State Thruway Authority, (PA-172) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch
Capital Services, Inc. LOC) 6,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 18,000,000 2 New York State Thruway Authority, Trust Receipts (Series
1998 FR/RI-A61), 3.45% TOBs (FGIC INS)/(Bank of New York,
New York LIQ), Optional Tender 2/1/1999 $ 18,000,000
8,400,000 New York State Urban Development Corp., Municipal
SecuritiesTrust Receipts (Series 1996-CMC6) Weekly VRDNs
(Chase Manhattan Corp. LIQ) 8,400,000
4,100,000 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) 4,100,000
190,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/
(Marine Midland
Bank N.A., Buffalo, NY LOC) 190,000
1,200,000 Onondaga County, NY IDA, (Series 1997) Weekly VRDNs
(General Super Plating Co., Inc.)/(KeyBank, N.A. LOC) 1,200,000
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
1,300,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City Bank, Ohio LOC) 1,300,000
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/
(Credit Lyonnais, Paris LOC) 5,700,000
9,900,000 Perry Central School District, NY, 3.80% BANs, 6/15/1999 9,907,663
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
3,000,000 Portville, NY Central School District, 3.50% BANs, 10/20/
1999 3,002,785
4,500,000 Riverhead, NY IDA, IDRB (Series 1998) Weekly VRDNs (Altaire
Pharmaceuticals, Inc.)/(Mellon Bank NA, Pittsburgh LOC) 4,500,000
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam
Industrial Park)/(Fleet Bank N.A. LOC) 1,000,000
151,931 Schenectady, NY IDA Weekly VRDNs (McClellan Street
Associates)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan
Bank N.A., New York LOC) 151,931
1,485,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs
(Fortitech Holding Corporation Project)/(Fleet Bank N.A.
LOC) 1,485,000
7,510,000 Sherburne-Earlville Central School District, NY, 3.75% BANs,
3/18/1999 7,512,988
1,332,500 Solvay, NY, (Series A), 3.40% BANs, 10/14/1999 1,333,111
3,997,500 Solvay, NY, (Series B), 3.45% BANs, 10/14/1999 3,999,334
2,880,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy
Conveyor Corp. Project)/(Chase Manhattan Bank N.A., New York
LOC) 2,880,000
3,540,000 Southeast, NY IDA, Variable Rate IDRB 1996 Weekly VRDNs (The
Rawplug Company, Inc.)/(Bank of New York, New York LOC) 3,540,000
1,200,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 1,200,000
800,000 Suffolk County, NY IDA Weekly VRDNs (YM-YWHA of Suffolk)/
(European American Bank, New York LOC) 800,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW YORK-CONTINUED
$ 6,665,000 Suffolk County, NY IDA, (Series 1997B) Weekly VRDNs
(Maryhaven Center of Hope)/(KeyBank, N.A. LOC) $ 6,665,000
5,000,000 Suffolk County, NY IDA, (Series 1998A) Weekly VRDNs
(Episcopal Health Services, Inc. Civic Facility)/(Paribas,
Paris LOC) 5,000,000
1,800,000 Suffolk County, NY IDA, 5.525% TOBs (Grainger (W.W.), Inc.),
Optional Tender 12/1/1998 1,800,000
6,300,000 Triborough Bridge & Tunnel Authority, NY, Trust Receipts
(Series 1998 FR/RI-A1) Weekly VRDNs (Bayerische Hypotheken-
Und Wechsel-Bank Ag LIQ) 6,300,000
2,400,000 United Nations, NY Development Corp., (PA-155) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch
Capital Services, Inc. LOC) 2,400,000
2,000,000 VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes
Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai
Banking Corp. LIQ) 2,000,000
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Spence Engineering Co.)/(First Union National Bank,
Charlotte, N.C. LOC) 7,500,000
4,470,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy
Hill Corp.)/
(First Union National Bank, Charlotte, N.C. LOC) 4,470,000
Total 548,061,660
PUERTO RICO-0.7%
4,001,821 Commonwealth of Puerto Rico Municipal Revenues Collection
Center, 1997A LeaseTOPS Trust Weekly VRDNs (ABN AMRO Bank
N.V., Amsterdam LIQ)/
(State Street Bank and Trust Co. LOC) 4,001,821
Total Investments (at amortized cost) 3 $ 552,063,482
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 32.5% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
93.15% 6.85%
2 Denotes a restricted security which is subject
to restrictions on resale under Federal Securities
laws. At October 31, 1998, these securities amounted
to $68,305,000 which represents 12.3% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($556,968,156) at October 31, 1998.
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
GO -General Obligation
GTD -Guaranty
HFA -Housing Finance Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
LOCs -Letter(s) of Credit
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
PRF -Prerefunded
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 552,063,482
Cash 112,995
Income receivable 4,777,943
Receivable for shares sold 1,082,111
Total assets 558,036,531
LIABILITIES:
Payable for shares redeemed $ 10,756
Income distribution payable 940,915
Accrued expenses 116,704
Total liabilities 1,068,375
Net Assets for 556,968,156 shares outstanding $ 556,968,156
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SERVICE SHARES:
$513,011,465 / 513,011,465 shares outstanding $1.00
CASH II SHARES:
$43,956,691 / 43,956,691 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 20,643,421
EXPENSES:
Investment advisory fee $ 2,250,094
Administrative personnel and services fee 424,181
Custodian fees 23,218
Transfer and dividend disbursing agent fees and expenses 126,021
Directors'/Trustees' fees 4,680
Auditing fees 12,500
Legal fees 17,114
Portfolio accounting fees 111,614
Distribution services fee-Institutional Service Shares 1,331,251
Distribution services fee-Cash II Shares 75,058
Shareholder services fee-Institutional Service Shares 1,331,251
Shareholder services fee-Cash II Shares 75,058
Share registration costs 45,514
Printing and postage 31,991
Insurance premiums 37,315
Miscellaneous 3,266
Total expenses 5,900,126
WAIVERS:
Waiver of investment advisory fee $ (500,559)
Waiver of distribution services fee-Institutional Service
Shares (1,331,251)
Waiver of distribution services fee-Cash II Shares (75,058)
Waiver of shareholder services fee-Institutional Service
Shares (875,361)
Total waivers (2,782,229)
Net expenses 3,117,897
Net investment income $ 17,525,524
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 17,525,524 $ 14,299,081
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (16,632,253) (13,606,648)
Cash II Shares (893,271) (692,433)
Change in net assets resulting from distributions
to shareholders (17,525,524) (14,299,081)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,229,397,824 1,611,371,202
Net asset value of shares issued to shareholders in payment
of distributions declared 7,306,584 5,353,288
Cost of shares redeemed (2,125,311,852) (1,502,253,158)
Change in net assets resulting from share transactions 111,392,556 114,471,332
Change in net assets 111,392,556 114,471,332
NET ASSETS:
Beginning of period 445,575,600 331,104,268
End of period $ 556,968,156 $ 445,575,600
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 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 ("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,
1998, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
New York Municipal Water Finance Authority,
(Series 1998-5) 10/08/1998 $ 13,090,000
New York State Dormitory Authority
PT-128 (Series 1997) 9/3/1998 6,245,000
New York State Energy Research
& Development Authority,
(Series PT-219) 7/24/1998 25,970,000
New York State Thruway Authority,
(Series 1998
FR/RI-A61) 9/30/1998 18,000,000
New York State Mortgage Agency
PT-164 3/25/1998 5,000,000
</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, 1998, capital paid-in aggregated
$556,968,156.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 2,064,643,976 1,502,699,453
Shares issued to shareholders in payment of distributions
declared 6,586,980 4,828,140
Shares redeemed (1,982,393,236) (1,388,887,276)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE
TRANSACTIONS 88,837,720 118,640,317
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH II SHARES
Shares sold 164,753,848 108,671,749
Shares issued to shareholders in payment of distributions
declared 719,604 525,148
Shares redeemed (142,918,616) (113,365,882)
NET CHANGE RESULTING FROM CASH II SHARE TRANSACTIONS 22,554,836 (4,168,985)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 111,392,556 114,471,332
</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, Inc.
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, 1998, 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 $796,328,283 and
$830,441,098, 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, 1998, 56.0% 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.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year
2000 issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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 investments, as of October 31, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
New York Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on the
Public Reference Room's operations and copying charges.
[Graphic]
New York Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229741
G00208-01 (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
New York Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
CASH II SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for New York Municipal Cash Trust,
dated December 31, 1998. Obtain the prospectuses without charge by calling 1-
800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229741
Cusip 314229733
8120103B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Service Shares and Cash II Shares (Shares). This
SAI relates to all of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders
could not collect from the municipality's general taxes or revenues. Therefore,
any shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTMENT RATINGS
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"), MIG-1 or
MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by
Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by New York State and New York municipalities or
so that at least 80% of its net assets is invested in obligations, the interest
income from which is exempt from federal regular income tax and the personal
income taxes imposed by New York State and New York municipalities. This policy
is fundamental and cannot be changed without shareholder approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
Borrowing Money
The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of 5% of its total
assets or in an amount up to one-third of the value of its total assets,
including the amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This borrowing provision is not for
investment leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. Interest paid on
borrowed funds will serve to reduce the Fund's income. The Fund will liquidate
any such borrowings as soon as possible and may not purchase any portfolio
instruments while any borrowings are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding 10% of the value of its total assets at the
time of the pledge.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in New
York tax-exempt securities secured by real estate or interests in real estate.
Investing in Commodities and Minerals
The Fund will not purchase or sell commodities, commodity contracts, or oil,
gas, or other mineral exploration or development programs.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Making Loans
The Fund will not make loans except that it may acquire publicly or non-publicly
issued New York tax-exempt securities, in accordance with its investment
objective, policies, and limitations, and the Trust's Declaration of Trust.
Acquiring Securities
The Fund will not acquire the voting securities of any issuer, except as part of
a merger, consolidation, reorganization, or acquisition of assets.
Investing in Securities of Other Investment Companies
The Fund will not invest in securities issued by any other investment company or
investment trust. Investments in Any One Issuer With respect to securities
comprising 75% of its assets, the Fund will not invest more than 10% of its
total assets in the securities of any one issuer.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, 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 user are considered to be issued solely by that user. If in the
case of an industrial development bond or government issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers (or in the alternative, guarantors, where applicable)
which have records of less than three years of continuous operations, including
the operation of any predecessor.
Investing in Issuers Whose Securities Are Owned by Officers and Trustees of the
Trust
The Fund will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or its investment adviser, owning
individually more than 0.5% of 1% of the issuer's securities, together own more
than 5% of the issuer's securities.
Investing in Options
The Fund will not purchase or sell puts, calls, straddles, spreads, or any
combination of them, except that the Fund may purchase tax-exempt securities
accompanied by agreements of sellers to repurchase them at the Fund's option.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements maturing in more than seven
days.
Issuing Senior Securities
The Fund will not issue senior securities, except as permitted by the investment
objective and policies and limitations of the Fund.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. Shareholders will be notified before any material change in these
limitations becomes effective.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (CASH SERIES SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV.
The portfolio securities will be selected in a manner that the Fund's Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 9, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Fiduciary Trust Co. International, New York, New York, owned
approximately 113,414,400 shares (19.68%) and Fleet Securities Corp., Rochester,
New York, owned approximately 78,301,022 shares (13.58%).
As of December 9, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash II Shares: Compass
Investment Services Corp., Melville, New York, owned approximately 5,347,549
shares (11.07%); North Fork Bank, Mattituck, New York, owned approximately
4,867,570 shares (10.08%) and Barrons Educational Series, Inc., Hauppa, New
York, owned approximately 3,667,532 shares (7.59%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing New York laws, distributions made by the Fund will not be subject
to New York State or New York City personal income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal Revenue
Code, and represent interest income attributable to obligations issued by the
State of New York and its political subdivisions as well as certain other
obligations, the interest on which is exempt from New York State and New York
City personal income taxes, such as, for example, certain obligations of the
Commonwealth of Puerto Rico. Conversely, to the extent that distributions made
by the Fund are derived from other types of obligations, such distributions will
be subject to New York State and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York State and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of the
dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business taxes to the same extent that they are exempt from the New York City
personal income taxes.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 9, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation
Address Principal Occupations Compensation From Trust and
Position With Trust for Past 5 Years From Trust Fund Complex
- ------------------------------ --------------------------------------------------------- --------------- -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -----------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $2,250,094 $1,787,405 $1,298,934
- -------------------------------------------------------------------------------------
Advisory Fee Reduction $ 500,559 $ 421,045 $ 351,948
- -------------------------------------------------------------------------------------
Brokerage Commissions $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------
Administrative Fee $ 424,181 $ 337,389 $ 245,547
- -------------------------------------------------------------------------------------
12b-1 Fee
- -------------------------------------------------------------------------------------
Institutional Service Shares $ 0 --- ---
-----------------------------------------------------------------------------------
Cash II Shares $ 0 --- ---
- -------------------------------------------------------------------------------------
Shareholder Services Fee
- -------------------------------------------------------------------------------------
Institutional Service Shares $ 455,890 --- ---
-----------------------------------------------------------------------------------
Cash II Shares $ 75,058 --- ---
- -------------------------------------------------------------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon
such variables as: portfolio quality; average portfolio maturity; type and value
of portfolio securities; changes in interest rates; changes or differences in
the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year, ten-year and since inception
periods ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the Seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years 10 Years Since Inception on November 28, 1982
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Return -- 3.19% 3.12% 3.65% 4.05%
Yield 2.87% -- -- -- --
Effective Yield 2.91% -- -- -- --
Tax-Equivalent Yield 5.43% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years 10-Years Since Inception on April 25, 1991
Cash II Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Return -- 3.02% 2.93% 2.89%
Yield 2.71% -- -- -- --
Effective Yield 2.75% -- -- -- --
Tax-Equivalent Yield 5.14% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998 STATE OF NEW YORK
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Combined Federal and
State Tax Bracket: 21.850% 34.850% 37.850% 42.850% 46.450%
- -----------------------------------------------------------------------------------------------------------------------------------
Joint Return $1-42,350 $42,351-102,300 $102,301-155,950 $155,951-278,450 OVER $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Single Return $1-25,350 $25,351-61,400 $61,401-128,100 $128,101-278,450 OVER $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Yield Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------------------------------
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
- -----------------------------------------------------------------------------------------------------------------------------------
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
- -----------------------------------------------------------------------------------------------------------------------------------
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
- -----------------------------------------------------------------------------------------------------------------------------------
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
- -----------------------------------------------------------------------------------------------------------------------------------
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
- -----------------------------------------------------------------------------------------------------------------------------------
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
- -----------------------------------------------------------------------------------------------------------------------------------
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
- -----------------------------------------------------------------------------------------------------------------------------------
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
- -----------------------------------------------------------------------------------------------------------------------------------
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
- -----------------------------------------------------------------------------------------------------------------------------------
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based
on intensive, diligent credit analysis--is backed by over 22 years of
experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing
effort to trust clients is headed by Timothy C. Pillion, Senior Vice President,
Bank Marketing & Sales.
Broker/Dealers And Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
NEW YORK MUNICIPAL CASH TRUST
Institutional Service Shares
Cash II Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
A money market mutual fund seeking current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Last Meeting of Shareholders 12
Report of Independent Public Accountants 31
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income which is
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. While there is no assurance that the Find will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Ohio state
income taxes. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-8
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Cash II Shares
total return on a yearly basis.
The Fund's Cash II Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.
The Fund's Cash II Shares year-to-date total return as of the most recent
calendar quarter of September 30, 1998 was 2.15%.
Within the period shown in the Chart, the Fund's Cash II Shares highest
quarterly return was 0.87% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.44% (quarter ended March 31, 1994).
The Fund's Cash II Shares Seven-Day Net Yield as of 12/31/97 was 3.31%.
The following table represents the Fund's Cash II Shares Average Annual
Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.02%
5 Years 2.70%
Start of Performance 1 2.85%
1 The Fund's Cash II Shares start of performance date was April 22, 1991.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance.
This information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
What are the Fund's Fees and Expenses?
OHIO MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy, hold
and redeem shares of the Fund's Cash II Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.30%
Shareholder Services Fee 0.25%
Other Expenses 0.20%
Total Annual Fund Operating Expenses 1.15%
1 Although not contractually obligated to do so, the adviser and
distributor waived certain amounts. These are shown below along with
the net expenses the Fund would actually paid for the fiscal year
ended October 31, 1998.
Waiver of Fund Expenses 0.28%
Total Actual Annual Operating Expenses (after waivers) 0.87%
2 The adviser voluntarily waived a portion of the management fee.
The adviser can terminate this voluntary waiver at any time. The
management fee paid by the Fund (after the voluntary
waiver) was 0.17% for the year ended October 31, 1998.
3 The distribution (12b-i) fee for the Fund has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary reduction) was 0.25%
for the fiscal year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Ohio Municipal Cash Trust's Cash II Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Cash II Shares
for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a
5% return each year and that the Ohio Municipal Cash Trust's Cash II
Shares' operating expenses are BEFORE WAIVERS as estimated above and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $117 $365 $633 $1,398
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income taxes imposed by the
State of Ohio and Ohio municipalities. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Ohio.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep
in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash II Shares each representing interests in a single
portfolio of securities.
This prospectus relates only to Cash II Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment
professionals. The Fund may not be a suitable investment for retirement
plans or for non-Ohio taxpayers because it invests in Ohio tax-exempt
securities. When the Distributor receives marketing fees, it may pay some
or all of them to investment professionals. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Class II Shares. Because
these Shares pay marketing fees on an ongoing basis, your investment cost
may be higher over time than other shares with different sales charges and
marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Ohio state personal income tax to the
extent they are derived from interest on obligations exempt from Ohio
personal income taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Redemptions are taxable
sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Last Meeting of Shareholders
A special meeting of shareholders of Ohio Municipal Cash Trust was held on
May 21, 1998. On February 24, 1998, the record date for shareholders voting
at the meeting, there were 407,796,744 total outstanding shares. The
following items were considered by shareholders of the Fund and the results
of their voting were as follows:
AGENDA ITEM
To approve or disapprove amending and changing from fundamental to an
operating policy the Fund's ability to invest in restricted securities. The
results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAINED NON-VOTE
221,451,369 6,231,898 8,923,545 17,751
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Cash II Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 31.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 2.91% 2.98% 2.96% 3.30% 2.10%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.87% 0.87% 0.87% 0.87% 0.85%
Net investment income 2.86% 2.94% 2.92% 3.25% 2.09%
Expense waiver/reimbursement 2 0.28% 0.28% 0.31% 0.29% 0.24%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $342,946 $245,329 $206,149 $188,234 $156,051
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.4% 1
OHIO-99.4%
$ 2,250,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs
(Visiting Nurses)/(National City Bank, Cleveland, OH LOC) $ 2,250,000
1,925,000 Akron, OH, Street Improvement Special Assessment Notes
(Series 1997), 4.26% RANs,
12/18/1998 1,925,976
3,000,000 American Municipal Power-Ohio, Inc., Electric System
Improvement Revenue Bonds, 3.85% BANs (Bryan, OH), 8/27/1999 3,000,000
2,425,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care,
Inc.)/(National City Bank, Ohio LOC) 2,425,000
1,750,000 Ashland, OH, 3.95% TANs, 7/15/1999 1,752,954
28,560,000 Banc One Capital Higher Education Tax-Exempt Income Trust,
(Series 2 Certificates of Ownership) Weekly VRDNs (Bank One,
Kentucky LOC) 28,560,000
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank,
N.A. LOC) 5,875,000
1,400,000 Belmont County, OH, 4.18% BANs, 12/1/1998 1,400,311
3,140,000 Bowling Green, OH, (Series 1998), 3.80% BANs, 6/17/1999 3,140,944
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/
(Bank of
Tokyo-Mitsubishi Ltd. LOC) 4,000,000
3,100,000 Butler County, OH, 3.50% BANs, 3/19/1999 3,104,654
1,500,000 Butler County, OH, 4.10% BANs, 8/5/1999 1,504,383
5,750,000 Clark County, OH, Multifamily Housing Revenue Bonds (Series
1997) Weekly VRDNs
(Ohio Masonic Home)/(Huntington National Bank, Columbus, OH
LOC) 5,750,000
6,900,000 Clermont County, OH, Variable Rate IDRB's (Series 1997)
Weekly VRDNs (Buriot International, Inc.)/(KeyBank, N.A.
LOC) 6,900,000
2,110,000 Cleveland, OH Airport System, Series C, 4.25% Bonds (FSA
INS), 1/1/1999 2,111,516
2,000,000 Cleveland, OH IDA, (Series B), 4.50% BANs, 10/1/1999 2,019,618
2,335,000 2 Cleveland, OH Parking Facilities, PA-182 (Series 1996)
Weekly VRDNs (MBIA INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 2,335,000
1,600,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton
Memorial Hospital)/(National City Bank, Columbus, OH LOC) 1,600,000
1,700,000 Columbiana County, OH, Industrial Development Revenue Bonds
Weekly VRDNs
(C & S Land Company Project)/(Bank One, Ohio, N.A. LOC) 1,700,000
5,000,000 Cuyahoga County, OH Hospital Authority, (Series 1998B)
Weekly VRDNs (Cleveland Clinic)/(Chase Manhattan Bank N.A.,
New York LIQ) 5,000,000
2,000,000 Cuyahoga County, OH Hospital Authority, (Series C) Weekly
VRDNs (Cleveland Clinic)/(Bank of America NT and SA, San
Francisco LIQ) 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 500,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection
League (Cuyahoga County))/(KeyBank, N.A. LOC) $ 500,000
1,350,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community,
Inc.)/
(KeyBank, N.A. LOC) 1,350,000
2,350,000 Cuyahoga County, OH IDA Weekly VRDNs (H.P. Parking Co.)/
(KeyBank, N.A. LOC) 2,350,000
260,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel
Service, Inc.)/
(Huntington National Bank, Columbus, OH LOC) 260,000
850,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing
Corp.)/(National City Bank, Kentucky LOC) 850,000
2,600,000 Cuyahoga County, OH IDA, (Series 1988) Weekly VRDNs (Trebmal
Landerhaven)/
(Star Bank, NA, Cincinnati LOC) 2,600,000
3,100,000 Cuyahoga County, OH IDA, (Series 1997) Weekly VRDNs
(Northstar Plastics, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,100,000
1,700,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs
(Avalon Precision Casting Co. Project)/(KeyBank, N.A. LOC) 1,700,000
3,500,000 Dayton, OH Department of Aviation, (Series 1998), 3.65%
BANs, 6/15/1999 3,503,796
1,755,000 Delaware County, OH, (Street Improvement), 4.00% BANs, 7/28/
1999 1,758,738
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air
Waves, Inc. Project)/(KeyBank, N.A. LOC) 1,585,000
5,000,000 Dublin, OH, (Series 1998B), 3.75% BANs, 12/17/1998 5,000,302
8,500,000 Dublin, OH, Industrial Development Refunding Revenue Bonds
(Series 1997) Weekly VRDNs (Witco Corp.)/(Fleet National
Bank, Springfield, MA LOC) 8,500,000
5,055,000 Erie County, OH, Adjustable Rate Demand Health Care
Facilities Bonds (Series 1996A) Weekly VRDNs (Providence
Care Center)/(Fifth Third Bank of Northwestern OH LOC) 5,055,000
1,150,000 Fairfield County, OH, 4.45% BANs, 7/27/1999 1,156,105
1,750,000 Fairlawn City, OH, 3.90% BANs, 1/20/1999 1,750,933
7,000,000 Franklin County, OH Hospital Facility Authority, (Series
1992) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank,
Cincinnati LOC) 7,000,000
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC
Bank, Ohio, N.A. LOC) 4,500,000
2,820,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing
Corp.)/(Fifth Third Bank, Cincinnati LOC) 2,820,000
3,130,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 3,130,000
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
1,815,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's
(Series 1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington
National Bank, Columbus, OH LOC) 1,815,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 1,810,000 Franklin County, OH, Adjustable Rate Demand Economic
Development Revenue Refunding Bonds (Series 1996) Weekly
VRDNs (CPM Investments)/(Huntington National Bank, Columbus,
OH LOC) $ 1,810,000
4,500,000 Franklin County, OH, Adjustable Rate Demand Multifamily
Housing Revenue Bonds (Series 1998), 3.85% TOBs (Jefferson
Chase L.P.)/(Fifth Third Bank, Cincinnati LOC), Mandatory
Tender 12/1/1998 4,500,000
1,350,000 Franklin County, OH, Health Care Facilities Revenue Bonds
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third
Bank of Northwestern OH LOC) 1,350,000
21,300,000 Franklin County, OH, Hospital Revenue Bonds (Series 1995)
Weekly VRDNs (Holy Cross Health System Corp.)/(Morgan
Guaranty Trust Co., New York LIQ) 21,300,000
4,995,000 2 Franklin County, OH, PT156 (Series 1993A), 3.75% TOBs
(Riverside United Methodist Hospital)/(AMBAC INS)/
(Bayerische Hypotheken-Und Wechsel-Bank Ag LIQ), Optional
Tender 1/14/1999 4,995,000
1,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park
Community)/(Fifth Third Bank, Cincinnati LOC) 1,000,000
2,000,000 Hamilton, OH, (Issue I & IV), 3.75% BANs, 6/11/1999 2,000,000
1,305,000 Hamilton, OH, 3.49% BANs, 10/22/1999 1,307,329
7,500,000 Henry County, OH, Series 1996 Automatic Feed Project Weekly
VRDNs (Huntington National Bank, Columbus, OH LOC) 7,500,000
3,600,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Medex, Inc.)/(Bank One, Ohio, N.A. LOC) 3,600,000
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
1,095,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs
(Lasermike, Inc. Project)/(KeyBank, N.A. LOC) 1,095,000
1,723,000 Huber Heights, OH, Various Purpose Assessment, 3.74% BANs,
3/12/1999 1,723,235
1,700,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs
(Raven's Metal Products, Inc. Project)/(FirstMerit Bank,
N.A. LOC) 1,700,000
3,160,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Apsco Properties, LTD.)/(FirstMerit Bank, N.A. LOC) 3,160,000
3,975,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs
(Spitzer Great Lakes Ltd., Inc.)/(Bank One, Ohio, N.A. LOC) 3,975,000
1,105,000 Lorain Port Authority, OH, Adjustable Rate Demand Port
Development Refunding Revenue Bonds (Series 1996) Weekly
VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,105,000
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs
(Brush Wellman, Inc.)/(National City Bank, Cleveland, OH LOC) 8,305,000
1,100,000 Louisville City, OH, 4.25% BANs, 5/3/1999 1,101,592
400,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank,
N.A. LOC) 400,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 1,510,000 Lucas County, OH, Hospital Facility Improvement Revenue
Bonds (Series 93) Weekly VRDNs (Lott Industries, Inc.)/
(National City Bank, Cleveland, OH LOC) $ 1,510,000
220,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs
(Sunshine Children's Home)/(National City Bank, Cleveland,
OH LOC) 220,000
2,150,000 Lyndhurst, OH, 3.875% BANs, 3/17/1999 2,151,738
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs
(International Towers, Inc.)/(PNC Bank, N.A. LOC) 5,325,000
5,360,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995)
Weekly VRDNs (Copeland Oaks Project)/(Bank One, Ohio, N.A.
LOC) 5,360,000
310,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products,
Inc.)/(Bank One, Ohio, N.A. LOC) 310,000
1,500,000 Marion County, OH Health Care Facilities Weekly VRDNs
(Marion Area Counseling Center, Inc.)/(Huntington National
Bank, Columbus, OH LOC) 1,500,000
1,135,000 Marion County, OH Hospital Authority, (Series 1991) Weekly
VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One,
Ohio, N.A. LOC) 1,135,000
1,150,000 Mason City, OH, 3.95% BANs, 12/17/1998 1,150,209
3,500,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/
(KeyBank, N.A. LOC) 3,500,000
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71
Associates Ltd.)/(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
6,250,000 Medina County, OH, (Series 1998) Weekly VRDNs (Mack
Industries)/(Huntington National Bank, Columbus, OH LOC) 6,250,000
3,000,000 Medina County, OH, (Series 1998) Weekly VRDNs (Michael Day
Enterprises)/(KeyBank, N.A. LOC) 3,000,000
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
1,750,000 Mentor Village, OH School District, 3.95% BANs, 5/6/1999 1,750,599
3,280,000 Mentor, OH, Adjustable Rate IDRB's (Series 1997) Weekly
VRDNs (Risch Investments/Roll Kraft, Inc.)/(Bank One, Ohio,
N.A. LOC) 3,280,000
4,500,000 Miami County, OH, 3.90% BANs, 7/15/1999 4,506,696
4,675,000 Montgomery County, OH, Variable Rate Limited Obligation
Revenue Bonds (Series 1996) Weekly VRDNs (Society of St.
Vincent De Paul)/(National City Bank, Ohio LOC) 4,675,000
1,870,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited
Partnership)/(Huntington National Bank, Columbus, OH LOC) 1,870,000
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
730,000 North Olmsted, OH IDA, 3.95% TOBs (Therm-All)/(National City
Bank, Ohio LOC), Optional Tender 2/1/1999 730,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 1,175,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A.
LOC) $ 1,175,000
7,775,000 2 Ohio HFA, (Series 1990-C) PT-239, 3.15% TOBs (GNMA COL)/
(Credit Suisse First Boston LIQ), Optional Tender 9/8/1999 7,775,000
6,835,000 Ohio HFA, 3.85% TOBs (Lincoln Park Associates)/(Bank One,
Ohio, N.A. LOC), Optional Tender 11/1/1998 6,835,000
2,680,000 Ohio HFA, PT-122 Weekly VRDNs (GNMA COL)/(Banco Santander SA
LIQ) 2,680,000
10,000,000 Ohio HFA, Residential Mortgage Revenue Notes (1998 Series A-2),
3.80% BANs, 3/1/1999 10,000,000
5,195,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ) 5,195,000
8,880,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 8,880,000
3,300,000 Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs
(GNMA GTD)/(Bank of New York, New York LIQ) 3,300,000
9,250,000 Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 9,250,000
20,000,000 2 Ohio HFA, Variable Rate Certificates (Series 1998Q), 3.75%
TOBs (GNMA COL)/(Bank of America NT and SA, San Francisco
LIQ), Optional Tender 8/4/1999 20,000,000
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs
(Timken Co.)/(Credit Suisse First Boston LOC) 1,000,000
2,800,000 Ohio State Air Quality Development Authority, (Series 1988A)
Weekly VRDNs (PPG Industries, Inc.) 2,800,000
3,000,000 Ohio State Air Quality Development Authority, (Series C),
4.20% TOBs (Ohio Edison Co.)/(Barclays Bank PLC, London
LOC), Optional Tender 9/1/1999 3,008,826
7,600,000 Ohio State Air Quality Development Authority, Air Quality
Development Revenue Bonds (1995 Series B) Weekly VRDNs (JMG
Funding Limited Partnership)/(Societe Generale, Paris LOC) 7,600,000
1,565,000 Ohio State Higher Education Facility, Revenue Bonds Weekly
VRDNs (Notre Dame College Project)/(National City Bank,
Cleveland, OH LOC) 1,565,000
1,000,000 Ohio State Public Facilities Commission, (Series II A),
5.20% Bonds (AMBAC INS), 5/1/1999 1,008,923
4,400,000 Ohio State Public Facilities Commission, (Series II-1998A),
4.25% Bonds, 12/1/1998 4,402,260
5,000,000 Ohio State Public Facilities Commission, (Series II-B),
4.50% Bonds, 11/1/1998 5,000,000
3,200,000 Ohio State Public Facilities Commission, Higher Education
Cap Facs (Series II-B), 5.00% Bonds, 11/1/1998 3,200,000
2,500,000 Ohio State Water Development Authority, Multimodal Water
Development (Series 1993) Weekly VRDNs (Timken Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,500,000
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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 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), 3.60% CP (Duquesne Light Power Co.)/(Toronto-Dominion
Bank LOC), Mandatory Tender 11/12/1998 4,000,000
10,000,000 Ohio State Water Development Authority, Pollution Control
Revenue Refunding Bonds (Series 1997) Weekly VRDNs (Philip
Morris Cos., Inc.) 10,000,000
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC
Bank, N.A. LOC) 400,000
4,350,000 Ohio State, Adjustable Rate Weekly VRDNs (General Motors
Corp.) 4,350,000
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
930,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw,
Inc.)/(National City Bank, Columbus, OH LOC) 930,000
1,200,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic
Corp.)/(National City Bank, Columbus, OH LOC) 1,200,000
4,840,000 Ohio Water Development Authority, PA-201 Weekly VRDNs (AMBAC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,840,000
4,600,000 Oregon City, OH, (Series 1997-3), 4.00% BANs, 12/3/1998 4,600,581
1,000,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours,
Inc.)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,000,000 Pickerington Local School District, OH, 4.04% BANs, 1/22/1999 2,001,487
35,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank
One, Ohio, N.A. LOC) 35,000
5,000,000 Portage County, OH IDA, (Series 1998) Weekly VRDNs (Amweld
Building Products, Inc.)/(First Union National Bank,
Charlotte, N.C. LOC) 5,000,000
305,000 Portage County, OH IDA, 3.90% TOBs (Neidlinger)/(KeyBank,
N.A. LOC), Optional Tender
3/1/1999 305,000
4,050,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs
(Barnette Project)/(National City, Northeast LOC) 4,050,000
735,000 Portage County, OH IDA, Industries Revenue Bonds Weekly
VRDNs (Lovejoy Industries)/(Star Bank, NA, Cincinnati LOC) 735,000
3,690,000 Preble Shawnee, OH Local Schools, 4.00% BANs, 3/31/1999 3,695,149
5,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs
(Rickenbacker Holdings, Inc.)/(Bank One, Ohio, N.A. LOC) 5,000,000
4,275,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series
1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth
Third Bank, Cincinnati LOC) 4,275,000
2,000,000 Ross County, OH, Hospital Revenue Bonds Weekly VRDNs (Adena
Health System)/(Fifth Third Bank, Cincinnati LOC) 2,000,000
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC
INS)/(First National Bank of Chicago LIQ) 5,200,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 1,600,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs
(St. Francis Home)/(National City Bank, Cleveland, OH LOC) $ 1,600,000
2,000,000 Seven Hills City, OH, (Series 1998), 3.85% BANs, 8-1/2/1999 2,000,741
400,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank,
N.A. LOC) 400,000
1,000,000 South Euclid, OH, Sewer System Improvements, 3.95% BANs, 4/
7/1999 1,001,037
800,000 Stark County, OH IDR Weekly VRDNs (Sancap Abrasives, Inc.)/
(KeyBank, N.A. LOC) 800,000
6,600,000 Stark County, OH IDR Weekly VRDNs (Shearer's Foods, Inc.)/
(Bank One, Ohio, N.A. LOC) 6,600,000
1,945,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof
Morris)/(KeyBank, N.A. LOC) 1,945,000
1,210,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Ohio, N.A. LOC) 1,210,000
1,140,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro
Machinery Corp., Project)/(Huntington National Bank,
Columbus, OH LOC) 1,140,000
2,250,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited
Partnership)/(KeyBank, N.A. LOC) 2,250,000
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry
London Candies, Inc.)/(Bank One, Ohio, N.A. LOC) 4,500,000
1,300,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker
McMillen Co.)/(National City, Northeast LOC) 1,300,000
3,180,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Malco
Products, Inc.)/(Bank One, Ohio, N.A. LOC) 3,180,000
905,000 Summit County, OH IDR, 3.80% TOBs (Matech Machine Tool Co.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 2/1/1999 905,000
745,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank
One, Ohio, N.A. LOC), Optional Tender 2/15/1999 745,000
975,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial
Products, Inc.)/(Bank One, Ohio, N.A. LOC), Optional Tender
11/1/1998 975,000
590,000 Summit County, OH IDR, 3.90% TOBs (Bechmer-Boyce Project)/
(KeyBank, N.A. LOC), Optional Tender 1/15/1999 590,000
290,000 Summit County, OH IDR, 3.90% TOBs (Keltec Industries)/(Bank
One, Ohio, N.A. LOC), Optional Tender 3/1/1999 290,000
690,000 Summit County, OH IDR, 3.90% TOBs (Universal Rack)/(National
City Bank, Cleveland, OH LOC), Optional Tender 3/1/1999 690,000
1,325,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs (Fomo Products, Inc.)/(FirstMerit Bank, N.A. LOC) 1,325,000
755,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs
(Austin Printing Co., Inc.)/(Bank One, Ohio, N.A. LOC) 755,000
2,545,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs
(Harry London Candies, Inc.)/(Bank One, Ohio, N.A. LOC) 2,545,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 745,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs
(Cardtech Project (OH))/(KeyBank, N.A. LOC) $ 745,000
1,215,000 Summit County, OH IDR, Industrial Development Bonds (Series
1996) Weekly VRDNs (Creative Screen Print Project)/(National
City, Northeast LOC) 1,215,000
1,045,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly
VRDNs (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,045,000
2,155,000 Summit County, OH IDR, Variable Rate IDRB's (Series 1998A)
Weekly VRDNs
(Wintek Ltd.)/(FirstMerit Bank, N.A. LOC) 2,155,000
6,000,000 Summit County, OH, (Series A), 4.50% BANs, 6/3/1999 6,025,399
3,415,000 Summit County, OH, Adjustable Rate Healthcare Facilities
Revenue Bonds (Series 1996) Weekly VRDNs (United Disability
Services, Inc.)/(FirstMerit Bank, N.A. LOC) 3,415,000
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
2,100,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs
(McSonald Steel Corp.)/(PNC Bank, N.A. LOC) 2,100,000
1,270,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994)
Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Ohio, N.A. LOC) 1,270,000
1,050,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995)
Weekly VRDNs
(Primary Packaging, Inc.)/(FirstMerit Bank, N.A. LOC) 1,050,000
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
1,030,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, NA, Cincinnati LOC) 1,030,000
1,095,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, NA, Cincinnati LOC) 1,095,000
1,000,000 Wood County, OH Weekly VRDNs (Principle Business
Enterprises)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,030,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/
(Huntington National Bank, Columbus, OH LOC) 2,030,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
OHIO-CONTINUED
$ 1,000,000 Wood County, OH, Williams Industrial Service, Inc., Project
Weekly VRDNs (Williams Industrial Service, Inc.)/(Huntington
National Bank, Columbus, OH LOC) $ 1,000,000
3,950,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A)
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine
Midland Bank N.A., Buffalo, NY LOC) 3,950,000
Total Investments (at amortized cost) 3 $ 566,006,031
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 44.9% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.0% 4.0%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $35,105,000 which represents 6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($569,237,375) at October 31, 1998.
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
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
GTD -Guaranty
HFA -Housing Finance Authority
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
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 566,006,031
Cash 361,802
Income receivable 3,658,143
Receivable for shares sold 3,212
Total assets 570,029,188
LIABILITIES:
Payable for shares redeemed $ 18,618
Income distribution payable 530,528
Accrued expenses 242,667
Total liabilities 791,813
Net Assets for 569,237,375 shares outstanding $ 569,237,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$94,895,944 / 94,895,944 shares outstanding $1.00
CASH II SHARES:
$342,946,498 / 342,946,498 shares outstanding $1.00
INSTITUTIONAL SHARES:
$131,394,933 / 131,394,933 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 16,793,463
EXPENSES:
Investment advisory fee $ 1,795,830
Administrative personnel and services fee 338,546
Custodian fees 15,476
Transfer and dividend disbursing agent fees and expenses 308,672
Directors'/Trustees' fees 2,258
Auditing fees 13,000
Legal fees 16,903
Portfolio accounting fees 110,848
Distribution services fee-Cash II Shares 847,854
Shareholder services fee-Institutional Service Shares 208,486
Shareholder services fee-Cash II Shares 706,545
Shareholder services fee-Institutional Shares 207,293
Share registration costs 47,435
Printing and postage 34,042
Insurance premiums 28,241
Miscellaneous 4,249
Total expenses 4,685,678
WAIVERS:
Waiver of investment advisory fee $ (1,034,602)
Waiver of distribution services fee-Cash II Shares (141,309)
Waiver of shareholder services fee-Institutional Service
Shares (41,697)
Waiver of shareholder services fee-Institutional Shares (207,293)
Total waivers (1,424,901)
Net expenses 3,260,777
Net investment income $ 13,532,686
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,532,686 $ 11,151,320
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (2,641,476) (2,309,907)
Cash II Shares (8,076,502) (6,696,096)
Institutional Shares (2,814,708) (2,145,317)
Change in net assets resulting from distributions to
shareholders (13,532,686) (11,151,320)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,158,852,726 1,714,819,513
Net asset value of shares issued to shareholders in payment
of distributions declared 8,564,300 7,135,525
Cost of shares redeemed (1,979,838,390) (1,678,846,130)
Change in net assets resulting from share transactions 187,578,636 43,108,908
Change in net assets 187,578,636 43,108,908
NET ASSETS:
Beginning of period 381,658,739 338,549,831
End of period $ 569,237,375 $ 381,658,739
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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 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,
1998 is as follows:
SECURITY Acquisition Acquisition
Date Cost
Franklin County, OH, PT-156 (Series 1993A) 1/23/1998 4,995,000
Ohio HFA, PT-239
(Series 1990-C) 10/9/1998 7,775,000
Ohio HFA, Variable Rate
Certificates (Series 1998Q) 8/25/1998 20,000,000
Cleveland, OH Parking Facilities, PA-182
(Series 1996) 10/10/1997 2,335,000
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. At October 31, 1998, capital paid-in
aggregated $569,237,375.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH II SHARES:
Shares sold 1,005,297,220 846,566,747
Shares issued to shareholders in payment of distributions
declared 7,890,344 6,536,111
Shares redeemed (915,569,899) (813,922,799)
Net change resulting from Cash II share transactions 97,617,665 39,180,059
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 311,583,533 204,340,077
Shares issued to shareholders in payment of distributions
declared 576,992 477,179
Shares redeemed (297,884,069) (183,918,781)
Net change resulting from Institutional Service share
transactions 14,276,456 20,898,475
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 841,971,973 663,912,689
Shares issued to shareholders in payment of distributions
declared 96,964 122,235
Shares redeemed (766,384,422) (681,004,550)
Net change resulting from Institutional share transactions 75,684,515 (16,969,626)
Net change resulting from share transactions 187,578,636 43,108,908
</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, Inc.
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 Class II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the 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, 1998, 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 $700,580,000 and
$652,664,786, 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, 1998, 64.5% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 15.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND THE SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH II SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's
Internet site at http://www.sec.gov. You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying charges.
[Graphic]
Ohio Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229840
1030105A-CII (12/98)
[Graphic]
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 10
Last Meeting of Shareholders 10
Report of Independent Public Accountants 29
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income which is
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. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Ohio state
income taxes. Interest from the Fund's investments may be subject to
the federal alternative miminum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-9
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998 was 2.53%.
Within the period shown in the Chart, the Fund's Institutional Shares
highest quarterly return was 0.91% (quarter ended June 30, 1997). Its
lowest quarterly return was 0.80% (quarter ended March 31, 1997).
The Fund's Institutional Shares Shares Seven-Day Net Yield as of 12/31/97
was 3.81%.
The following table represents the Fund's Institutional Shares Average
Total Return through 12/31/1997.
CALENDAR PERIOD FUND
1 Year 3.53%
Start of Performance 1 3.48%
1 The Fund's Institutional Shares start of performance date was
March 5, 1996.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
OHIO MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly from Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption
proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses that are Deducted from Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.21%
Total Annual Fund Operating Expenses 0.86%
</TABLE>
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts.
These are shown below along with the net expenses the Fund actually paid for the
fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
Waiver of Fund Expenses 0.48%
Total Actual Annual Fund Operating Expenses (after waivers) 0.38%
</TABLE>
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.17% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily waived. This voluntary
waiver can be terminated at any time. There was no shareholder services fee paid
by the Fund (after the voluntary waiver) for the year ended October 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Ohio Municipal Cash Trust's Institutional Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Ohio Municipal Cash Trust's
Institutional Shares operating expenses are BEFORE WAIVERS as shown above
and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $88 $274 $477 $1,061
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income taxes imposed by the
State of Ohio and Ohio municipalities. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Ohio.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.The required minimum initial investment for Fund Shares is $25,000.
There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash II Shares each representing interests in a single
portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agent or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Ohio taxpayers because
it invests in Ohio tax-exempt securities. The Distributor and its
affiliates may pay out of their assets amounts (including items of material
value) to investment professionals for marketing and servicing Shares. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).
You will receive that day's dividend if the investment professional
forwards the order to the Fund and the Fund receives payment by 3:00 p.m.
(Eastern time). You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemtion instructions as
outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.If you call
before 12:00 noon (Eastern time), your redemption will be wired to you the
same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:your redemption will be sent to an address
other than the address of record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including dividends and capital
gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Ohio state personal income tax to the
extent they are derived from interest on obligations exempt from Ohio
personal income taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Redemptions are taxable
sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Last Meeting of Shareholders
A special meeting of shareholders of Ohio Municipal Cash Trust was held on
May 21, 1998. On February 24, 1998, the record date for shareholders voting
at the meeting, there were 407,796,744 total outstanding shares. The
following items were considered by shareholders of the Fund and the results
of their voting were as follows:
AGENDA ITEM
To approve or disapprove amending and changing from fundamental to an
operating policy the Fund's ability to invest in restricted securities. The
results of shareholders voting were as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAINED NON-VOTE
<S> <C> <C> <C>
221,451,369 6,231,898 8,923,545 17,751
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1
<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 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 3.43% 3.49% 2.22%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.38% 0.37% 0.37% 4
Net investment income 3.39% 3.40% 3.38% 4
Expense waiver/reimbursement 3 0.48% 0.48% 0.51% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $131,395 $55,710 $72,680
</TABLE>
1 Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-99.4% 1
OHIO-99.4%
$ 2,250,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs
(Visiting Nurses)/(National City Bank, Cleveland, OH LOC) $ 2,250,000
1,925,000 Akron, OH, Street Improvement Special Assessment Notes
(Series 1997), 4.26% RANs,
12/18/1998 1,925,976
3,000,000 American Municipal Power-Ohio, Inc., Electric System
Improvement Revenue Bonds, 3.85% BANs (Bryan, OH), 8/27/1999 3,000,000
2,425,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care,
Inc.)/(National City Bank, Ohio LOC) 2,425,000
1,750,000 Ashland, OH, 3.95% TANs, 7/15/1999 1,752,954
28,560,000 Banc One Capital Higher Education Tax-Exempt Income Trust,
(Series 2 Certificates of Ownership) Weekly VRDNs (Bank One,
Kentucky LOC) 28,560,000
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank,
N.A. LOC) 5,875,000
1,400,000 Belmont County, OH, 4.18% BANs, 12/1/1998 1,400,311
3,140,000 Bowling Green, OH, (Series 1998), 3.80% BANs, 6/17/1999 3,140,944
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/
(Bank of
Tokyo-Mitsubishi Ltd. LOC) 4,000,000
3,100,000 Butler County, OH, 3.50% BANs, 3/19/1999 3,104,654
1,500,000 Butler County, OH, 4.10% BANs, 8/5/1999 1,504,383
5,750,000 Clark County, OH, Multifamily Housing Revenue Bonds (Series
1997) Weekly VRDNs
(Ohio Masonic Home)/(Huntington National Bank, Columbus, OH
LOC) 5,750,000
6,900,000 Clermont County, OH, Variable Rate IDRB's (Series 1997)
Weekly VRDNs (Buriot International, Inc.)/(KeyBank, N.A.
LOC) 6,900,000
2,110,000 Cleveland, OH Airport System, Series C, 4.25% Bonds (FSA
INS), 1/1/1999 2,111,516
2,000,000 Cleveland, OH IDA, (Series B), 4.50% BANs, 10/1/1999 2,019,618
2,335,000 2 Cleveland, OH Parking Facilities, PA-182 (Series 1996)
Weekly VRDNs (MBIA INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 2,335,000
1,600,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton
Memorial Hospital)/(National City Bank, Columbus, OH LOC) 1,600,000
1,700,000 Columbiana County, OH, Industrial Development Revenue Bonds
Weekly VRDNs
(C & S Land Company Project)/(Bank One, Ohio, N.A. LOC) 1,700,000
5,000,000 Cuyahoga County, OH Hospital Authority, (Series 1998B)
Weekly VRDNs (Cleveland Clinic)/(Chase Manhattan Bank N.A.,
New York LIQ) 5,000,000
2,000,000 Cuyahoga County, OH Hospital Authority, (Series C) Weekly
VRDNs (Cleveland Clinic)/(Bank of America NT and SA, San
Francisco LIQ) 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 500,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection
League (Cuyahoga County))/(KeyBank, N.A. LOC) $ 500,000
1,350,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community,
Inc.)/
(KeyBank, N.A. LOC) 1,350,000
2,350,000 Cuyahoga County, OH IDA Weekly VRDNs (H.P. Parking Co.)/
(KeyBank, N.A. LOC) 2,350,000
260,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel
Service, Inc.)/
(Huntington National Bank, Columbus, OH LOC) 260,000
850,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing
Corp.)/(National City Bank, Kentucky LOC) 850,000
2,600,000 Cuyahoga County, OH IDA, (Series 1988) Weekly VRDNs (Trebmal
Landerhaven)/
(Star Bank, NA, Cincinnati LOC) 2,600,000
3,100,000 Cuyahoga County, OH IDA, (Series 1997) Weekly VRDNs
(Northstar Plastics, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,100,000
1,700,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs
(Avalon Precision Casting Co. Project)/(KeyBank, N.A. LOC) 1,700,000
3,500,000 Dayton, OH Department of Aviation, (Series 1998), 3.65%
BANs, 6/15/1999 3,503,796
1,755,000 Delaware County, OH, (Street Improvement), 4.00% BANs, 7/28/
1999 1,758,738
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air
Waves, Inc. Project)/(KeyBank, N.A. LOC) 1,585,000
5,000,000 Dublin, OH, (Series 1998B), 3.75% BANs, 12/17/1998 5,000,302
8,500,000 Dublin, OH, Industrial Development Refunding Revenue Bonds
(Series 1997) Weekly VRDNs (Witco Corp.)/(Fleet National
Bank, Springfield, MA LOC) 8,500,000
5,055,000 Erie County, OH, Adjustable Rate Demand Health Care
Facilities Bonds (Series 1996A) Weekly VRDNs (Providence
Care Center)/(Fifth Third Bank of Northwestern OH LOC) 5,055,000
1,150,000 Fairfield County, OH, 4.45% BANs, 7/27/1999 1,156,105
1,750,000 Fairlawn City, OH, 3.90% BANs, 1/20/1999 1,750,933
7,000,000 Franklin County, OH Hospital Facility Authority, (Series
1992) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank,
Cincinnati LOC) 7,000,000
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC
Bank, Ohio, N.A. LOC) 4,500,000
2,820,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing
Corp.)/(Fifth Third Bank, Cincinnati LOC) 2,820,000
3,130,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 3,130,000
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
1,815,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's
(Series 1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington
National Bank, Columbus, OH LOC) 1,815,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,810,000 Franklin County, OH, Adjustable Rate Demand Economic
Development Revenue Refunding Bonds (Series 1996) Weekly
VRDNs (CPM Investments)/(Huntington National Bank, Columbus,
OH LOC) $ 1,810,000
4,500,000 Franklin County, OH, Adjustable Rate Demand Multifamily
Housing Revenue Bonds (Series 1998), 3.85% TOBs (Jefferson
Chase L.P.)/(Fifth Third Bank, Cincinnati LOC), Mandatory
Tender 12/1/1998 4,500,000
1,350,000 Franklin County, OH, Health Care Facilities Revenue Bonds
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third
Bank of Northwestern OH LOC) 1,350,000
21,300,000 Franklin County, OH, Hospital Revenue Bonds (Series 1995)
Weekly VRDNs (Holy Cross Health System Corp.)/(Morgan
Guaranty Trust Co., New York LIQ) 21,300,000
4,995,000 2 Franklin County, OH, PT156 (Series 1993A), 3.75% TOBs
(Riverside United Methodist Hospital)/(AMBAC INS)/
(Bayerische Hypotheken-Und Wechsel-Bank AG LIQ), Optional
Tender 1/14/1999 4,995,000
1,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park
Community)/(Fifth Third Bank, Cincinnati LOC) 1,000,000
2,000,000 Hamilton, OH, (Issue I & IV), 3.75% BANs, 6/11/1999 2,000,000
1,305,000 Hamilton, OH, 3.49% BANs, 10/22/1999 1,307,329
7,500,000 Henry County, OH, Series 1996 Automatic Feed Project Weekly
VRDNs (Huntington National Bank, Columbus, OH LOC) 7,500,000
3,600,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Medex, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,600,000
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
1,095,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs
(Lasermike, Inc. Project)/(KeyBank, N.A. LOC) 1,095,000
1,723,000 Huber Heights, OH, Various Purpose Assessment, 3.74% BANs,
3/12/1999 1,723,235
1,700,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs
(Raven's Metal Products, Inc. Project)/(FirstMerit Bank,
N.A. LOC) 1,700,000
3,160,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Apsco Properties, Ltd.)/(FirstMerit Bank, N.A. LOC) 3,160,000
3,975,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs
(Spitzer Great Lakes Ltd., Inc.)/(Bank One, Ohio, N.A. LOC) 3,975,000
1,105,000 Lorain Port Authority, OH, Adjustable Rate Demand Port
Development Refunding Revenue Bonds (Series 1996) Weekly
VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,105,000
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs
(Brush Wellman, Inc.)/(National City Bank, Cleveland, OH
LOC) 8,305,000
1,100,000 Louisville City, OH, 4.25% BANs, 5/3/1999 1,101,592
400,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank,
N.A. LOC) 400,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,510,000 Lucas County, OH, Hospital Facility Improvement Revenue
Bonds (Series 93) Weekly VRDNs (Lott Industries, Inc.)/
(National City Bank, Cleveland, OH LOC) $ 1,510,000
220,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs
(Sunshine Children's Home)/(National City Bank, Cleveland,
OH LOC) 220,000
2,150,000 Lyndhurst, OH, 3.875% BANs, 3/17/1999 2,151,738
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs
(International Towers, Inc.)/(PNC Bank, N.A. LOC) 5,325,000
5,360,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995)
Weekly VRDNs (Copeland Oaks Project)/(Bank One, Ohio, N.A.
LOC) 5,360,000
310,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/
(Bank One, Ohio, N.A. LOC) 310,000
1,500,000 Marion County, OH Health Care Facilities Weekly VRDNs
(Marion Area Counseling Center, Inc.)/(Huntington National
Bank, Columbus, OH LOC) 1,500,000
1,135,000 Marion County, OH Hospital Authority, (Series 1991) Weekly
VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One,
Ohio, N.A. LOC) 1,135,000
1,150,000 Mason City, OH, 3.95% BANs, 12/17/1998 1,150,209
3,500,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/
(KeyBank, N.A. LOC) 3,500,000
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71
Associates Ltd.)/(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
6,250,000 Medina County, OH, (Series 1998) Weekly VRDNs (Mack
Industries)/(Huntington National Bank, Columbus, OH LOC) 6,250,000
3,000,000 Medina County, OH, (Series 1998) Weekly VRDNs (Michael Day
Enterprises)/(KeyBank, N.A. LOC) 3,000,000
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
1,750,000 Mentor Village, OH School District, 3.95% BANs, 5/6/1999 1,750,599
3,280,000 Mentor, OH, Adjustable Rate IDRB's (Series 1997) Weekly
VRDNs (Risch Investments/Roll Kraft, Inc.)/(Bank One, Ohio,
N.A. LOC) 3,280,000
4,500,000 Miami County, OH, 3.90% BANs, 7/15/1999 4,506,696
4,675,000 Montgomery County, OH, Variable Rate Limited Obligation
Revenue Bonds (Series 1996) Weekly VRDNs (Society of St.
Vincent De Paul)/(National City Bank, Ohio LOC) 4,675,000
1,870,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited
Partnership)/(Huntington National Bank, Columbus, OH LOC) 1,870,000
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
730,000 North Olmsted, OH IDA, 3.95% TOBs (Therm-All)/(National City
Bank, Ohio LOC), Optional Tender 2/1/1999 730,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,175,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A.
LOC) $ 1,175,000
7,775,000 2 Ohio HFA, (Series 1990-C) PT-239, 3.15% TOBs (GNMA COL)/
(Credit Suisse First Boston LIQ), Optional Tender 9/8/1999 7,775,000
6,835,000 Ohio HFA, 3.85% TOBs (Lincoln Park Associates)/(Bank One,
Ohio, N.A. LOC), Optional Tender 11/1/1998 6,835,000
2,680,000 Ohio HFA, PT-122 Weekly VRDNs (GNMA COL)/(Banco Santander SA
LIQ) 2,680,000
10,000,000 Ohio HFA, Residential Mortgage Revenue Notes (1998 Series A-
2), 3.80% BANs, 3/1/1999 10,000,000
5,195,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ) 5,195,000
8,880,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 8,880,000
3,300,000 Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs
(GNMA GTD)/(Bank of New York, New York LIQ) 3,300,000
9,250,000 Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 9,250,000
20,000,000 2 Ohio HFA, Variable Rate Certificates (Series 1998Q), 3.75%
TOBs (GNMA COL)/(Bank of America NT and SA, San Francisco
LIQ), Optional Tender 8/4/1999 20,000,000
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs
(Timken Co.)/(Credit Suisse First Boston LOC) 1,000,000
2,800,000 Ohio State Air Quality Development Authority, (Series 1988A)
Weekly VRDNs (PPG Industries, Inc.) 2,800,000
3,000,000 Ohio State Air Quality Development Authority, (Series C),
4.20% TOBs (Ohio Edison Co.)/(Barclays Bank PLC, London
LOC), Optional Tender 9/1/1999 3,008,826
7,600,000 Ohio State Air Quality Development Authority, Air Quality
Development Revenue Bonds (1995 Series B) Weekly VRDNs (JMG
Funding Limited Partnership)/(Societe Generale, Paris LOC) 7,600,000
1,565,000 Ohio State Higher Education Facility, Revenue Bonds Weekly
VRDNs (Notre Dame College Project)/(National City Bank,
Cleveland, OH LOC) 1,565,000
1,000,000 Ohio State Public Facilities Commission, (Series II A),
5.20% Bonds (AMBAC INS), 5/1/1999 1,008,923
4,400,000 Ohio State Public Facilities Commission, (Series II-1998A),
4.25% Bonds, 12/1/1998 4,402,260
5,000,000 Ohio State Public Facilities Commission, (Series II-B),
4.50% Bonds, 11/1/1998 5,000,000
3,200,000 Ohio State Public Facilities Commission, Higher Education
Cap Facs (Series II-B), 5.00% Bonds, 11/1/1998 3,200,000
2,500,000 Ohio State Water Development Authority, Multimodal Water
Development (Series 1993) Weekly VRDNs (Timken Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,500,000
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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals -continued 1
OHIO-CONTINUED
$ 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), 3.60% CP (Duquesne Light Power Co.)/(Toronto-Dominion
Bank LOC), Mandatory Tender 11/12/1998 4,000,000
10,000,000 Ohio State Water Development Authority, Pollution Control
Revenue Refunding Bonds (Series 1997) Weekly VRDNs (Philip
Morris Cos., Inc.) 10,000,000
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC
Bank, N.A. LOC) 400,000
4,350,000 Ohio State, Adjustable Rate Weekly VRDNs (General Motors
Corp.) 4,350,000
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
930,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw,
Inc.)/(National City Bank, Columbus, OH LOC) 930,000
1,200,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic
Corp.)/(National City Bank, Columbus, OH LOC) 1,200,000
4,840,000 Ohio Water Development Authority, PA-201 Weekly VRDNs (AMBAC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,840,000
4,600,000 Oregon City, OH, (Series 1997-3), 4.00% BANs, 12/3/1998 4,600,581
1,000,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours,
Inc.)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,000,000 Pickerington Local School District, OH, 4.04% BANs, 1/22/
1999 2,001,487
35,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank
One, Ohio, N.A. LOC) 35,000
5,000,000 Portage County, OH IDA, (Series 1998) Weekly VRDNs (Amweld
Building Products, Inc.)/(First Union National Bank,
Charlotte, N.C. LOC) 5,000,000
305,000 Portage County, OH IDA, 3.90% TOBs (Neidlinger)/(KeyBank,
N.A. LOC), Optional Tender
3/1/1999 305,000
4,050,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs
(Barnette Project)/(National City, Northeast LOC) 4,050,000
735,000 Portage County, OH IDA, Industries Revenue Bonds Weekly
VRDNs (Lovejoy Industries)/(Star Bank, NA, Cincinnati LOC) 735,000
3,690,000 Preble Shawnee, OH Local Schools, 4.00% BANs, 3/31/1999 3,695,149
5,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs
(Rickenbacker Holdings, Inc.)/(Bank One, Ohio, N.A. LOC) 5,000,000
4,275,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series
1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth
Third Bank, Cincinnati LOC) 4,275,000
2,000,000 Ross County, OH, Hospital Revenue Bonds Weekly VRDNs (Adena
Health System)/(Fifth Third Bank, Cincinnati LOC) 2,000,000
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC
INS)/(First National Bank of Chicago LIQ) 5,200,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,600,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs
(St. Francis Home)/(National City Bank, Cleveland, OH LOC) $ 1,600,000
2,000,000 Seven Hills City, OH, (Series 1998), 3.85% BANs, 8-1/2/1999 2,000,741
400,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank,
N.A. LOC) 400,000
1,000,000 South Euclid, OH, Sewer System Improvements, 3.95% BANs, 4/
7/1999 1,001,037
800,000 Stark County, OH IDR Weekly VRDNs (Sancap Abrasives, Inc.)/
(KeyBank, N.A. LOC) 800,000
6,600,000 Stark County, OH IDR Weekly VRDNs (Shearer's Foods, Inc.)/
(Bank One, Ohio, N.A. LOC) 6,600,000
1,945,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof
Morris)/(KeyBank, N.A. LOC) 1,945,000
1,210,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Ohio, N.A. LOC) 1,210,000
1,140,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro
Machinery Corp., Project)/(Huntington National Bank,
Columbus, OH LOC) 1,140,000
2,250,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited
Partnership)/
(KeyBank, N.A. LOC) 2,250,000
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry
London Candies, Inc.)/
(Bank One, Ohio, N.A. LOC) 4,500,000
1,300,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker
McMillen Co.)/(National City, Northeast LOC) 1,300,000
3,180,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Malco
Products, Inc.)/(Bank One, Ohio, N.A. LOC) 3,180,000
905,000 Summit County, OH IDR, 3.80% TOBs (Matech Machine Tool Co.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 2/1/1999 905,000
745,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank
One, Ohio, N.A. LOC), Optional Tender 2/15/1999 745,000
975,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial
Products, Inc.)/(Bank One, Ohio, N.A. LOC), Optional Tender
11/1/1998 975,000
590,000 Summit County, OH IDR, 3.90% TOBs (Bechmer-Boyce Project)/
(KeyBank, N.A. LOC), Optional Tender 1/15/1999 590,000
290,000 Summit County, OH IDR, 3.90% TOBs (Keltec Industries)/(Bank
One, Ohio, N.A. LOC), Optional Tender 3/1/1999 290,000
690,000 Summit County, OH IDR, 3.90% TOBs (Universal Rack)/(National
City Bank, Cleveland,
OH LOC), Optional Tender 3/1/1999 690,000
1,325,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs (Fomo Products, Inc.)/(FirstMerit Bank, N.A.
LOC) 1,325,000
755,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs
(Austin Printing Co., Inc.)/(Bank One, Ohio, N.A. LOC) 755,000
2,545,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs
(Harry London Candies, Inc.)/(Bank One, Ohio, N.A. LOC) 2,545,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 745,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs
(Cardtech Project (OH))/(KeyBank, N.A. LOC) $ 745,000
1,215,000 Summit County, OH IDR, Industrial Development Bonds (Series
1996) Weekly VRDNs (Creative Screen Print Project)/(National
City, Northeast LOC) 1,215,000
1,045,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly
VRDNs (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,045,000
2,155,000 Summit County, OH IDR, Variable Rate IDRB's (Series 1998A)
Weekly VRDNs
(Wintek Ltd.)/(FirstMerit Bank, N.A. LOC) 2,155,000
6,000,000 Summit County, OH, (Series A), 4.50% BANs, 6/3/1999 6,025,399
3,415,000 Summit County, OH, Adjustable Rate Healthcare Facilities
Revenue Bonds (Series 1996) Weekly VRDNs (United Disability
Services, Inc.)/(FirstMerit Bank, N.A. LOC) 3,415,000
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
2,100,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs
(McSonald Steel Corp.)/
(PNC Bank, N.A. LOC) 2,100,000
1,270,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994)
Weekly VRDNs
(Churchill Downs, Inc.)/(Bank One, Ohio, N.A. LOC) 1,270,000
1,050,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995)
Weekly VRDNs
(Primary Packaging, Inc.)/(FirstMerit Bank, N.A. LOC) 1,050,000
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
1,030,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, N.A., Cincinnati LOC) 1,030,000
1,095,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, N.A., Cincinnati LOC) 1,095,000
1,000,000 Wood County, OH Weekly VRDNs (Principle Business
Enterprises)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,030,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/
(Huntington National Bank, Columbus, OH LOC) 2,030,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals -continued 1
OHIO-CONTINUED
$ 1,000,000 Wood County, OH, Williams Industrial Service, Inc., Project
Weekly VRDNs (Williams Industrial Service, Inc.)/(Huntington
National Bank, Columbus, OH LOC) $ 1,000,000
3,950,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A)
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine
Midland Bank N.A., Buffalo, NY LOC) 3,950,000
Total Investments (at amortized cost) 3 $ 566,006,031
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 44.9% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
96.0% 4.0%
</TABLE>
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $35,105,000 which represents 6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($569,237,375) at October 31, 1998.
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
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
GTD -Guaranty
HFA -Housing Finance Authority
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
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 566,006,031
Cash 361,802
Income receivable 3,658,143
Receivable for shares sold 3,212
Total assets 570,029,188
LIABILITIES:
Payable for shares redeemed $ 18,618
Income distribution payable 530,528
Accrued expenses 242,667
Total liabilities 791,813
Net Assets for 569,237,375 shares outstanding $ 569,237,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SERVICE SHARES:
$94,895,944 / 94,895,944 shares outstanding $1.00
CASH II SHARES:
$342,946,498 / 342,946,498 shares outstanding $1.00
INSTITUTIONAL SHARES:
$131,394,933 / 131,394,933 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 16,793,463
EXPENSES:
Investment advisory fee $ 1,795,830
Administrative personnel and services fee 338,546
Custodian fees 15,476
Transfer and dividend disbursing agent fees and expenses 308,672
Directors'/Trustees' fees 2,258
Auditing fees 13,000
Legal fees 16,903
Portfolio accounting fees 110,848
Distribution services fee-Cash II Shares 847,854
Shareholder services fee-Institutional Service Shares 208,486
Shareholder services fee-Cash II Shares 706,545
Shareholder services fee-Institutional Shares 207,293
Share registration costs 47,435
Printing and postage 34,042
Insurance premiums 28,241
Miscellaneous 4,249
Total expenses 4,685,678
WAIVERS:
Waiver of investment advisory fee $ (1,034,602)
Waiver of distribution services fee-Cash II Shares (141,309)
Waiver of shareholder services fee-Institutional Service
Shares (41,697)
Waiver of shareholder services fee-Institutional Shares (207,293)
Total waivers (1,424,901)
Net expenses 3,260,777
Net investment income $ 13,532,686
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,532,686 $ 11,151,320
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (2,641,476) (2,309,907)
Cash II Shares (8,076,502) (6,696,096)
Institutional Shares (2,814,708) (2,145,317)
Change in net assets resulting from distributions to
shareholders (13,532,686) (11,151,320)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,158,852,726 1,714,819,513
Net asset value of shares issued to shareholders in payment
of distributions declared 8,564,300 7,135,525
Cost of shares redeemed (1,979,838,390) (1,678,846,130)
Change in net assets resulting from share transactions 187,578,636 43,108,908
Change in net assets 187,578,636 43,108,908
NET ASSETS:
Beginning of period 381,658,739 338,549,831
End of period $ 569,237,375 $ 381,658,739
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 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,
1998 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Franklin County, OH,
PT-156 (Series 1993A) 1/23/1998 4,995,000
Ohio HFA, PT-239
(Series 1990-C) 10/9/1998 7,775,000
Ohio HFA, Variable Rate
Certificates (Series 1998Q) 8/25/1998 20,000,000
Cleveland, OH Parking
Facilities, PA-182
(Series 1996) 10/10/1997 2,335,000
</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, 1998, capital paid-in
aggregated $569,237,375.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 841,971,973 663,912,689
Shares issued to shareholders in payment of distributions
declared 96,964 122,235
Shares redeemed (766,384,422) (681,004,550)
Net change resulting from Institutional share transactions 75,684,515 (16,969,626)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH II SHARES:
Shares sold 1,005,297,220 846,566,747
Shares issued to shareholders in payment of distributions
declared 7,890,344 6,536,111
Shares redeemed (915,569,899) (813,922,799)
Net change resulting from Cash II share transactions 97,617,665 39,180,059
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 311,583,533 204,340,077
Shares issued to shareholders in payment of distributions
declared 576,992 477,179
Shares redeemed (297,884,069) (183,918,781)
Net change resulting from Institutional Service share
transactions 14,276,456 20,898,475
Net change resulting from share transactions 187,578,636 43,108,908
</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, Inc.
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 Class II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the 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. For the period ended October 31, 1998, the Fund shares did not
incur a shareholder services fee. 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, 1998, 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 $700,580,000 and
$652,664,786, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
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, 1998, 64.5% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 15.4% of total investments.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust
and the Shareholders of 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and semi-
annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information
on the Public Reference Room's operations and copying charges.
[Graphic]
Ohio Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229659
G00211-01-IS (12/98)
[Graphic]
[Graphic]
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Last Meeting of Shareholders 11
Report of Independent Public Accountants 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income which is
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. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Ohio state
income taxes. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-10
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon net
asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998 was 2.38%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 0.95% (quarter ended June 30, 1991).
Its lowest quarterly return was 0.52% (quarter ended March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.61%.
The following table represents the Fund's Institutional Service Shares
Average Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.33%
5 Years 3.01%
Start of Performance 1 3.16%
1 The Fund's Institutional Service Shares start of performance date was
April 22, 1991.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
OHIO MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <S>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses that are Deducted from Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.20%
Total Annual Fund Operating Expenses 0.85%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived certain amounts. These are shown below along with the net expenses the Fund
actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.28%
Total Actual Annual Fund Operating Expenses (after waivers) 0.57%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver)
was 0.17% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can be
terminated at any time. The shareholder services fee paid by the Fund (after the
voluntary reduction) was 0.20% for the fiscal year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Ohio Municipal Cash Trust's Institutional Service Shares with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Ohio Municipal Cash
Trust's Institutional Service Shares operating expenses are BEFORE WAIVERS
as shown above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming
no redemption $87 $271 $471 $1,049
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income taxes imposed by the
State of Ohio and Ohio municipalities. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety
of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Ohio.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash II Shares each representing interests in a single
portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-Ohio taxpayers because it invests
in Ohio tax-exempt securities. The Distributor and its affiliates may pay
out of their assets amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor
is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time).
You will receive that day's dividend if the investment professional
forwards the order to the Fund and the Fund receives payment by 3:00 p.m.
(Eastern time). You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number
on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.If you call
before 12:00 noon (Eastern time), your redemption will be wired to you the
same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain.
Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Ohio state personal income tax to the
extent they are derived from interest on obligations exempt from Ohio
personal income taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Redemptions are taxable
sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Last Meeting of Shareholders
A special meeting of shareholders of Ohio Municipal Cash Trust was held on
May 21, 1998. On February 24, 1998, the record date for shareholders voting
at the meeting, there were 407,796,744 total outstanding shares. The
following items were considered by shareholders of the Fund and the results
of their voting were as follows:
AGENDA ITEM
To approve or disapprove amending and changing from fundamental to an
operating policy the Fund's ability to invest in restricted securities. The
results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAINED NON-VOTE
221,451,369 6,231,898 8,923,545 17,751
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.04 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.22% 3.29% 3.27% 3.61% 2.41%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.57% 0.57% 0.57% 0.57% 0.55%
Net investment income 3.17% 3.25% 3.23% 3.56% 2.36%
Expense waiver/reimbursement 2 0.28% 0.28% 0.31% 0.29% 0.07%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $94,896 $80,619 $59,721 $72,931 $62,499
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-99.4% 1
OHIO-99.4%
$ 2,250,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs
(Visiting Nurses)/(National City Bank, Cleveland, OH LOC) $ 2,250,000
1,925,000 Akron, OH, Street Improvement Special Assessment Notes
(Series 1997), 4.26% RANs, 12/18/1998 1,925,976
3,000,000 American Municipal Power-Ohio, Inc., Electric System
Improvement Revenue Bonds, 3.85% BANs (Bryan, OH), 8/27/1999 3,000,000
2,425,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care,
Inc.)/(National City Bank, Ohio LOC) 2,425,000
1,750,000 Ashland, OH, 3.95% TANs, 7/15/1999 1,752,954
28,560,000 Banc One Capital Higher Education Tax-Exempt Income Trust,
(Series 2 Certificates of Ownership) Weekly VRDNs (Bank One,
Kentucky LOC) 28,560,000
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank,
N.A. LOC) 5,875,000
1,400,000 Belmont County, OH, 4.18% BANs, 12/1/1998 1,400,311
3,140,000 Bowling Green, OH, (Series 1998), 3.80% BANs, 6/17/1999 3,140,944
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
3,100,000 Butler County, OH, 3.50% BANs, 3/19/1999 3,104,654
1,500,000 Butler County, OH, 4.10% BANs, 8/5/1999 1,504,383
5,750,000 Clark County, OH, Multifamily Housing Revenue Bonds (Series
1997) Weekly VRDNs (Ohio Masonic Home)/(Huntington National
Bank, Columbus, OH LOC) 5,750,000
6,900,000 Clermont County, OH, Variable Rate IDRB's (Series 1997)
Weekly VRDNs (Buriot International, Inc.)/(KeyBank, N.A. LOC) 6,900,000
2,110,000 Cleveland, OH Airport System, Series C, 4.25% Bonds (FSA
INS), 1/1/1999 2,111,516
2,000,000 Cleveland, OH IDA, (Series B), 4.50% BANs, 10/1/1999 2,019,618
2,335,000 2 Cleveland, OH Parking Facilities, PA-182 (Series 1996)
Weekly VRDNs (MBIA INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 2,335,000
1,600,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton
Memorial Hospital)/(National City Bank, Columbus, OH LOC) 1,600,000
1,700,000 Columbiana County, OH, Industrial Development Revenue Bonds
Weekly VRDNs (C & S Land Company Project)/(Bank One, Ohio,
N.A. LOC) 1,700,000
5,000,000 Cuyahoga County, OH Hospital Authority, (Series 1998B)
Weekly VRDNs (Cleveland Clinic)/(Chase Manhattan Bank N.A.,
New York LIQ) 5,000,000
2,000,000 Cuyahoga County, OH Hospital Authority, (Series C) Weekly
VRDNs (Cleveland Clinic)/(Bank of America NT and SA, San
Francisco LIQ) 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 500,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection
League (Cuyahoga County))/(KeyBank, N.A. LOC) $ 500,000
1,350,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community,
Inc.)/(KeyBank, N.A. LOC) 1,350,000
2,350,000 Cuyahoga County, OH IDA Weekly VRDNs (H.P. Parking Co.)/
(KeyBank, N.A. LOC) 2,350,000
260,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel
Service, Inc.)/(Huntington National Bank, Columbus, OH LOC) 260,000
850,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing
Corp.)/(National City Bank, Kentucky LOC) 850,000
2,600,000 Cuyahoga County, OH IDA, (Series 1988) Weekly VRDNs (Trebmal
Landerhaven)/(Star Bank, NA, Cincinnati LOC) 2,600,000
3,100,000 Cuyahoga County, OH IDA, (Series 1997) Weekly VRDNs
(Northstar Plastics, Inc.)/(Bank One, Ohio, N.A. LOC) 3,100,000
1,700,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs
(Avalon Precision Casting Co. Project)/(KeyBank, N.A. LOC) 1,700,000
3,500,000 Dayton, OH Department of Aviation, (Series 1998), 3.65%
BANs, 6/15/1999 3,503,796
1,755,000 Delaware County, OH, (Street Improvement), 4.00% BANs,
7/28/1999 1,758,738
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air
Waves, Inc. Project)/(KeyBank, N.A. LOC) 1,585,000
5,000,000 Dublin, OH, (Series 1998B), 3.75% BANs, 12/17/1998 5,000,302
8,500,000 Dublin, OH, Industrial Development Refunding Revenue Bonds
(Series 1997) Weekly VRDNs (Witco Corp.)/(Fleet National
Bank, Springfield, MA LOC) 8,500,000
5,055,000 Erie County, OH, Adjustable Rate Demand Health Care
Facilities Bonds (Series 1996A) Weekly VRDNs (Providence
Care Center)/(Fifth Third Bank of Northwestern OH LOC) 5,055,000
1,150,000 Fairfield County, OH, 4.45% BANs, 7/27/1999 1,156,105
1,750,000 Fairlawn City, OH, 3.90% BANs, 1/20/1999 1,750,933
7,000,000 Franklin County, OH Hospital Facility Authority, (Series
1992) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank,
Cincinnati LOC) 7,000,000
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC
Bank, Ohio, N.A. LOC) 4,500,000
2,820,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing
Corp.)/(Fifth Third Bank, Cincinnati LOC) 2,820,000
3,130,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 3,130,000
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
1,815,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's
(Series 1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington
National Bank, Columbus, OH LOC) 1,815,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,810,000 Franklin County, OH, Adjustable Rate Demand Economic
Development Revenue Refunding Bonds (Series 1996) Weekly
VRDNs (CPM Investments)/(Huntington National Bank, Columbus,
OH LOC) $ 1,810,000
4,500,000 Franklin County, OH, Adjustable Rate Demand Multifamily
Housing Revenue Bonds (Series 1998), 3.85% TOBs (Jefferson
Chase L.P.)/(Fifth Third Bank, Cincinnati LOC), Mandatory
Tender 12/1/1998 4,500,000
1,350,000 Franklin County, OH, Health Care Facilities Revenue Bonds
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third
Bank of Northwestern OH LOC) 1,350,000
21,300,000 Franklin County, OH, Hospital Revenue Bonds (Series 1995)
Weekly VRDNs (Holy Cross Health System Corp.)/(Morgan
Guaranty Trust Co., New York LIQ) 21,300,000
4,995,000 2 Franklin County, OH, PT156 (Series 1993A), 3.75% TOBs
(Riverside United Methodist Hospital)/(AMBAC INS)/
(Bayerische Hypotheken-Und Wechsel-Bank Ag LIQ), Optional
Tender 1/14/1999 4,995,000
1,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park
Community)/(Fifth Third Bank, Cincinnati LOC) 1,000,000
2,000,000 Hamilton, OH, (Issue I & IV), 3.75% BANs, 6/11/1999 2,000,000
1,305,000 Hamilton, OH, 3.49% BANs, 10/22/1999 1,307,329
7,500,000 Henry County, OH, Series 1996 Automatic Feed Project Weekly
VRDNs (Huntington National Bank, Columbus, OH LOC) 7,500,000
3,600,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Medex, Inc.)/(Bank One, Ohio, N.A. LOC) 3,600,000
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
1,095,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs
(Lasermike, Inc. Project)/(KeyBank, N.A. LOC) 1,095,000
1,723,000 Huber Heights, OH, Various Purpose Assessment, 3.74% BANs,
3/12/1999 1,723,235
1,700,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs
(Raven's Metal Products, Inc. Project)/(FirstMerit Bank,
N.A. LOC) 1,700,000
3,160,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly
VRDNs (Apsco Properties, LTD.)/(FirstMerit Bank, N.A. LOC) 3,160,000
3,975,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs
(Spitzer Great Lakes Ltd., Inc.)/(Bank One, Ohio, N.A. LOC) 3,975,000
1,105,000 Lorain Port Authority, OH, Adjustable Rate Demand Port
Development Refunding Revenue Bonds (Series 1996) Weekly
VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,105,000
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs
(Brush Wellman, Inc.)/(National City Bank, Cleveland, OH LOC) 8,305,000
1,100,000 Louisville City, OH, 4.25% BANs, 5/3/1999 1,101,592
400,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank,
N.A. LOC) 400,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,510,000 Lucas County, OH, Hospital Facility Improvement Revenue
Bonds (Series 93) Weekly VRDNs (Lott Industries, Inc.)/
(National City Bank, Cleveland, OH LOC) $ 1,510,000
220,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs
(Sunshine Children's Home)/(National City Bank, Cleveland,
OH LOC) 220,000
2,150,000 Lyndhurst, OH, 3.875% BANs, 3/17/1999 2,151,738
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs
(International Towers, Inc.)/(PNC Bank, N.A. LOC) 5,325,000
5,360,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995)
Weekly VRDNs (Copeland Oaks Project)/(Bank One, Ohio,
N.A. LOC) 5,360,000
310,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products,
Inc.)/(Bank One, Ohio, N.A. LOC) 310,000
1,500,000 Marion County, OH Health Care Facilities Weekly VRDNs
(Marion Area Counseling Center, Inc.)/(Huntington National
Bank, Columbus, OH LOC) 1,500,000
1,135,000 Marion County, OH Hospital Authority, (Series 1991) Weekly
VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One,
Ohio, N.A. LOC) 1,135,000
1,150,000 Mason City, OH, 3.95% BANs, 12/17/1998 1,150,209
3,500,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/
(KeyBank, N.A. LOC) 3,500,000
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71
Associates Ltd.)/(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
6,250,000 Medina County, OH, (Series 1998) Weekly VRDNs (Mack
Industries)/(Huntington National Bank, Columbus, OH LOC) 6,250,000
3,000,000 Medina County, OH, (Series 1998) Weekly VRDNs (Michael Day
Enterprises)/(KeyBank, N.A. LOC) 3,000,000
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
1,750,000 Mentor Village, OH School District, 3.95% BANs, 5/6/1999 1,750,599
3,280,000 Mentor, OH, Adjustable Rate IDRB's (Series 1997) Weekly
VRDNs (Risch Investments/Roll Kraft, Inc.)/(Bank One, Ohio,
N.A. LOC) 3,280,000
4,500,000 Miami County, OH, 3.90% BANs, 7/15/1999 4,506,696
4,675,000 Montgomery County, OH, Variable Rate Limited Obligation
Revenue Bonds (Series 1996) Weekly VRDNs (Society of St.
Vincent De Paul)/(National City Bank, Ohio LOC) 4,675,000
1,870,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited
Partnership)/(Huntington National Bank, Columbus, OH LOC) 1,870,000
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
730,000 North Olmsted, OH IDA, 3.95% TOBs (Therm-All)/(National City
Bank, Ohio LOC), Optional Tender 2/1/1999 730,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,175,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank,
N.A. LOC) $ 1,175,000
7,775,000 2 Ohio HFA, (Series 1990-C) PT-239, 3.15% TOBs (GNMA COL)/
(Credit Suisse First Boston LIQ), Optional Tender 9/8/1999 7,775,000
6,835,000 Ohio HFA, 3.85% TOBs (Lincoln Park Associates)/(Bank One,
Ohio, N.A. LOC), Optional Tender 11/1/1998 6,835,000
2,680,000 Ohio HFA, PT-122 Weekly VRDNs (GNMA COL)/(Banco Santander SA
LIQ) 2,680,000
10,000,000 Ohio HFA, Residential Mortgage Revenue Notes (1998 Series A-2),
3.80% BANs, 3/1/1999 10,000,000
5,195,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ) 5,195,000
8,880,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 8,880,000
3,300,000 Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs
(GNMA GTD)/(Bank of New York, New York LIQ) 3,300,000
9,250,000 Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs
(GNMA COL)/(Bank of New York, New York LIQ) 9,250,000
20,000,000 2 Ohio HFA, Variable Rate Certificates (Series 1998Q), 3.75%
TOBs (GNMA COL)/(Bank of America NT and SA, San Francisco
LIQ), Optional Tender 8/4/1999 20,000,000
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs
(Timken Co.)/(Credit Suisse First Boston LOC) 1,000,000
2,800,000 Ohio State Air Quality Development Authority, (Series 1988A)
Weekly VRDNs (PPG Industries, Inc.) 2,800,000
3,000,000 Ohio State Air Quality Development Authority, (Series C),
4.20% TOBs (Ohio Edison Co.)/(Barclays Bank PLC, London
LOC), Optional Tender 9/1/1999 3,008,826
7,600,000 Ohio State Air Quality Development Authority, Air Quality
Development Revenue Bonds (1995 Series B) Weekly VRDNs (JMG
Funding Limited Partnership)/(Societe Generale, Paris LOC) 7,600,000
1,565,000 Ohio State Higher Education Facility, Revenue Bonds Weekly
VRDNs (Notre Dame College Project)/(National City Bank,
Cleveland, OH LOC) 1,565,000
1,000,000 Ohio State Public Facilities Commission, (Series II A),
5.20% Bonds (AMBAC INS), 5/1/1999 1,008,923
4,400,000 Ohio State Public Facilities Commission, (Series II-1998A),
4.25% Bonds, 12/1/1998 4,402,260
5,000,000 Ohio State Public Facilities Commission, (Series II-B),
4.50% Bonds, 11/1/1998 5,000,000
3,200,000 Ohio State Public Facilities Commission, Higher Education
Cap Facs (Series II-B), 5.00% Bonds, 11/1/1998 3,200,000
2,500,000 Ohio State Water Development Authority, Multimodal Water
Development (Series 1993) Weekly VRDNs (Timken Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,500,000
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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 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), 3.60% CP (Duquesne Light Power Co.)/(Toronto-Dominion
Bank LOC), Mandatory Tender 11/12/1998 4,000,000
10,000,000 Ohio State Water Development Authority, Pollution Control
Revenue Refunding Bonds (Series 1997) Weekly VRDNs (Philip
Morris Cos., Inc.) 10,000,000
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC
Bank, N.A. LOC) 400,000
4,350,000 Ohio State, Adjustable Rate Weekly VRDNs (General Motors
Corp.) 4,350,000
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
930,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw,
Inc.)/(National City Bank, Columbus, OH LOC) 930,000
1,200,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic
Corp.)/(National City Bank, Columbus, OH LOC) 1,200,000
4,840,000 Ohio Water Development Authority, PA-201 Weekly VRDNs (AMBAC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,840,000
4,600,000 Oregon City, OH, (Series 1997-3), 4.00% BANs, 12/3/1998 4,600,581
1,000,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours,
Inc.)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,000,000 Pickerington Local School District, OH, 4.04% BANs,
1/22/1999 2,001,487
35,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank
One, Ohio, N.A. LOC) 35,000
5,000,000 Portage County, OH IDA, (Series 1998) Weekly VRDNs (Amweld
Building Products, Inc.)/(First Union National Bank,
Charlotte, N.C. LOC) 5,000,000
305,000 Portage County, OH IDA, 3.90% TOBs (Neidlinger)/(KeyBank,
N.A. LOC), Optional Tender
3/1/1999 305,000
4,050,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs (Barnette Project)/(National City, Northeast LOC) 4,050,000
735,000 Portage County, OH IDA, Industries Revenue Bonds Weekly
VRDNs (Lovejoy Industries)/(Star Bank, NA, Cincinnati LOC) 735,000
3,690,000 Preble Shawnee, OH Local Schools, 4.00% BANs, 3/31/1999 3,695,149
5,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs
(Rickenbacker Holdings, Inc.)/(Bank One, Ohio, N.A. LOC) 5,000,000
4,275,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series
1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth
Third Bank, Cincinnati LOC) 4,275,000
2,000,000 Ross County, OH, Hospital Revenue Bonds Weekly VRDNs (Adena
Health System)/(Fifth Third Bank, Cincinnati LOC) 2,000,000
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC
INS)/(First National Bank of Chicago LIQ) 5,200,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,600,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs
(St. Francis Home)/(National City Bank, Cleveland, OH LOC) $ 1,600,000
2,000,000 Seven Hills City, OH, (Series 1998), 3.85% BANs, 8-1/2/1999 2,000,741
400,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank,
N.A. LOC) 400,000
1,000,000 South Euclid, OH, Sewer System Improvements, 3.95% BANs,
4/7/1999 1,001,037
800,000 Stark County, OH IDR Weekly VRDNs (Sancap Abrasives, Inc.)/
(KeyBank, N.A. LOC) 800,000
6,600,000 Stark County, OH IDR Weekly VRDNs (Shearer's Foods, Inc.)/
(Bank One, Ohio, N.A. LOC) 6,600,000
1,945,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof
Morris)/(KeyBank, N.A. LOC) 1,945,000
1,210,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Ohio, N.A. LOC) 1,210,000
1,140,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro
Machinery Corp., Project)/(Huntington National Bank,
Columbus, OH LOC) 1,140,000
2,250,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited
Partnership)/(KeyBank, N.A. LOC) 2,250,000
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry
London Candies, Inc.)/(Bank One, Ohio, N.A. LOC) 4,500,000
1,300,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker
McMillen Co.)/(National City, Northeast LOC) 1,300,000
3,180,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Malco
Products, Inc.)/(Bank One, Ohio, N.A. LOC) 3,180,000
905,000 Summit County, OH IDR, 3.80% TOBs (Matech Machine Tool Co.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 2/1/1999 905,000
745,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank
One, Ohio, N.A. LOC), Optional Tender 2/15/1999 745,000
975,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial
Products, Inc.)/(Bank One, Ohio, N.A. LOC), Optional Tender
11/1/1998 975,000
590,000 Summit County, OH IDR, 3.90% TOBs (Bechmer-Boyce Project)/
(KeyBank, N.A. LOC), Optional Tender 1/15/1999 590,000
290,000 Summit County, OH IDR, 3.90% TOBs (Keltec Industries)/(Bank
One, Ohio, N.A. LOC), Optional Tender 3/1/1999 290,000
690,000 Summit County, OH IDR, 3.90% TOBs (Universal Rack)/(National
City Bank, Cleveland, OH LOC), Optional Tender 3/1/1999 690,000
1,325,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996)
Weekly VRDNs (Fomo Products, Inc.)/(FirstMerit Bank, N.A.
LOC) 1,325,000
755,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs
(Austin Printing Co., Inc.)/(Bank One, Ohio, N.A. LOC) 755,000
2,545,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs
(Harry London Candies, Inc.)/(Bank One, Ohio, N.A. LOC) 2,545,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 745,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs
(Cardtech Project (OH))/(KeyBank, N.A. LOC) $ 745,000
1,215,000 Summit County, OH IDR, Industrial Development Bonds (Series
1996) Weekly VRDNs (Creative Screen Print Project)/(National
City, Northeast LOC) 1,215,000
1,045,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly
VRDNs (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,045,000
2,155,000 Summit County, OH IDR, Variable Rate IDRB's (Series 1998A)
Weekly VRDNs (Wintek Ltd.)/(FirstMerit Bank, N.A. LOC) 2,155,000
6,000,000 Summit County, OH, (Series A), 4.50% BANs, 6/3/1999 6,025,399
3,415,000 Summit County, OH, Adjustable Rate Healthcare Facilities
Revenue Bonds (Series 1996) Weekly VRDNs (United Disability
Services, Inc.)/(FirstMerit Bank, N.A. LOC) 3,415,000
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
2,100,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs
(McSonald Steel Corp.)/(PNC Bank, N.A. LOC) 2,100,000
1,270,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994)
Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Ohio,
N.A. LOC) 1,270,000
1,050,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995)
Weekly VRDNs (Primary Packaging, Inc.)/(FirstMerit Bank,
N.A. LOC) 1,050,000
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
1,030,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, NA, Cincinnati LOC) 1,030,000
1,095,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, NA, Cincinnati LOC) 1,095,000
1,000,000 Wood County, OH Weekly VRDNs (Principle Business
Enterprises)/(National City Bank, Cleveland, OH LOC) 1,000,000
2,030,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/
(Huntington National Bank, Columbus, OH LOC) 2,030,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
Short-Term Municipals-continued 1
OHIO-CONTINUED
$ 1,000,000 Wood County, OH, Williams Industrial Service, Inc., Project
Weekly VRDNs (Williams Industrial Service, Inc.)/(Huntington
National Bank, Columbus, OH LOC) $ 1,000,000
3,950,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A)
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine
Midland Bank N.A., Buffalo, NY LOC) 3,950,000
Total Investments (at amortized cost) 3 $ 566,006,031
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 44.9% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1 or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.0% 4.0%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $35,105,000 which represents 6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($569,237,375) at October 31, 1998.
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
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
GTD -Guaranty
HFA -Housing Finance Authority
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
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
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
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 566,006,031
Cash 361,802
Income receivable 3,658,143
Receivable for shares sold 3,212
Total assets 570,029,188
LIABILITIES:
Payable for shares redeemed $ 18,618
Income distribution payable 530,528
Accrued expenses 242,667
Total liabilities 791,813
Net Assets for 569,237,375 shares outstanding $ 569,237,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$94,895,944 / 94,895,944 shares outstanding $1.00
CASH II SHARES:
$342,946,498 / 342,946,498 shares outstanding $1.00
INSTITUTIONAL SHARES:
$131,394,933 / 131,394,933 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 16,793,463
EXPENSES:
Investment advisory fee $ 1,795,830
Administrative personnel and services fee 338,546
Custodian fees 15,476
Transfer and dividend disbursing agent fees and expenses 308,672
Directors'/Trustees' fees 2,258
Auditing fees 13,000
Legal fees 16,903
Portfolio accounting fees 110,848
Distribution services fee-Cash II Shares 847,854
Shareholder services fee-Institutional Service Shares 208,486
Shareholder services fee-Cash II Shares 706,545
Shareholder services fee-Institutional Shares 207,293
Share registration costs 47,435
Printing and postage 34,042
Insurance premiums 28,241
Miscellaneous 4,249
Total expenses 4,685,678
WAIVERS:
Waiver of investment advisory fee $ (1,034,602)
Waiver of distribution services fee-Cash II Shares (141,309)
Waiver of shareholder services fee-Institutional Service
Shares (41,697)
Waiver of shareholder services fee-Institutional Shares (207,293)
Total waivers (1,424,901)
Net expenses 3,260,777
Net investment income $ 13,532,686
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,532,686 $ 11,151,320
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (2,641,476) (2,309,907)
Cash II Shares (8,076,502) (6,696,096)
Institutional Shares (2,814,708) (2,145,317)
Change in net assets resulting from distributions to
shareholders (13,532,686) (11,151,320)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,158,852,726 1,714,819,513
Net asset value of shares issued to shareholders in payment
of distributions declared 8,564,300 7,135,525
Cost of shares redeemed (1,979,838,390) (1,678,846,130)
Change in net assets resulting from share transactions 187,578,636 43,108,908
Change in net assets 187,578,636 43,108,908
NET ASSETS:
Beginning of period 381,658,739 338,549,831
End of period $ 569,237,375 $ 381,658,739
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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 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,
1998, is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Franklin County, OH,
PT-156 (Series 1993A) 1/23/1998 4,995,000
Ohio HFA, PT-239
(Series 1990-C) 10/9/1998 7,775,000
Ohio HFA, Variable Rate
Certificates (Series
1998Q) 8/25/1998 20,000,000
Cleveland, OH Parking
Facilities, PA-182
(Series 1996) 10/10/1997 2,335,000
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. At October 31, 1998, capital paid-in
aggregated $569,237,375.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES:
<S> <C> <C>
Shares sold 311,583,533 204,340,077
Shares issued to shareholders in payment of distributions
declared 576,992 477,179
Shares redeemed (297,884,069) (183,918,781)
Net change resulting from Institutional Service share
transactions 14,276,456 20,898,475
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
CASH II SHARES:
<S> <C> <C>
Shares sold 1,005,297,220 846,566,747
Shares issued to shareholders in payment of distributions
declared 7,890,344 6,536,111
Shares redeemed (915,569,899) (813,922,799)
Net change resulting from Cash II share transactions 97,617,665 39,180,059
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES:
<S> <C> <C>
Shares sold 841,971,973 663,912,689
Shares issued to shareholders in payment of distributions
declared 96,964 122,235
Shares redeemed (766,384,422) (681,004,550)
Net change resulting from Institutional share transactions 75,684,515 (16,969,626)
Net change resulting from share transactions 187,578,636 43,108,908
</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, Inc.
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 Class II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the 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, 1998, 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 $700,580,000 and
$652,664,786, 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, 1998, 64.5% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 15.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust and
and Shareholders of 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and semi-
annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
Ohio Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229857
G00211-02-SS (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Ohio Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
CASH II SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Ohio Municipal Cash Trust, dated
December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229659
Cusip 314229857
Cusip 314229840
1030105B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares and Cash II
Shares. This SAI relates to all of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTMENT RATINGS
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's (S&P), MIG-1 or MIG-2
by Moody's Investors Service, Inc. (Moody's), or F-1+, F-1, or F-2 by Fitch
IBCA, Inc. (Fitch) are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in determining
whether a security rated by more than one rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and Ohio state
income taxes. This policy is fundamental and cannot be changed without
shareholder approval.
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
and engage in 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 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 tax-exempt securities or temporary investments or enter
into repurchase agreements, in accordance with its investment objective,
policies, limitations, and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items (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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund 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 Board 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 for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the Rule)
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (CASH II SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other
special events at recreational-type facilities, or items of material value.
These payments will be based upon the amount of Shares the investment
professional sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV.
The portfolio securities will be selected in a manner that the Fund's Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Parcol & Company, Oaks, Pennsylvania, owned approximately 50,343,466
shares (47.00%); SNBSO & Company, Springfield, Ohio, owned approximately
14,220,669 shares (13.28%); Delaware County Bank, Delaware, Ohio, owned
approximately 10,814,838 shares (10.10%); Kent Sporting Goods, New London, Ohio,
owned approximately 6,551,746 shares (6.12%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash II Shares: Gradison &
Company, Inc. (for the benefit of its customers), Cincinnati, Ohio, owned
approximately 303,066,951 shares (79.68%) and FirstMerit Bank, N.A., Akron,
Ohio, owned approximately 28,278,371 shares (7.43%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Panabco, Newark, Ohio, owned approximately 72,834,796 shares (45.59%); Key Trust
Co. TTEE, Cleveland, Ohio, owned approximately 18,078,430 shares (11.32%);
Mahoning National Bank, Youngstown, Ohio, owned approximately 16,150,195 shares
(10.11%); and Grand Old Co., The First National Bank, Zanesville, Ohio, owned
approximately 10,027,969 shares (6.28%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax. The Fund will be treated as a single, separate entity for federal
income tax purposes so that income earned and capital gains and losses realized
by the Trust's other portfolios will be separate from those realized by the
Fund.
STATE TAXES
Under existing 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).
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation
Address Principal Occupations Compensation From Trust and
Position With Trust for Past 5 Years From Trust Fund Complex
- ------------------------------ -------------------------------------------------------- --------------- -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- ------------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended October 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $1,795,830 $1,448,035 $1,183,374
- -------------------------------------------------------------------------------------
Advisory Fee Reduction 1,034,602 846,106 570,677
- -------------------------------------------------------------------------------------
Brokerage Commissions 0 0 0
- -------------------------------------------------------------------------------------
Administrative Fee 338,546 273,333 223,680
- -------------------------------------------------------------------------------------
12b-1 Fee
- -------------------------------------------------------------------------------------
Cash II Series Shares 706,545 --- ---
------------------------------------------------------------------------------------
Shareholder Services Fee
- -------------------------------------------------------------------------------------
Institutional Shares 0 ---
------------------------------------------------------------------------------------
Institutional Service Shares 166,789 --- ---
------------------------------------------------------------------------------------
Cash II Series Shares 706,545 --- ---
- -------------------------------------------------------------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon
such variables as: portfolio quality; average portfolio maturity; type and value
of portfolio securities; changes in interest rates; changes or differences in
the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-years and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the Seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year Since Inception on March 5, 1996
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.43% 3.44%
Yield 3.05% -- --
Effective Yield 3.09% -- --
Tax-Equivalent Yield 5.81% -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on April 22, 1991
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.22% 3.16% 3.16%
Yield 2.85% -- -- --
Effective Yield 2.89% -- -- --
Tax-Equivalent Yield 5.43% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on April 22, 1991
Cash II Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 2.91% 2.85% 2.85%
Yield 2.55% -- -- --
Effective Yield 2.58% -- -- --
Tax-Equivalent Yield 4.85% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 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
adjusted to reflect the taxable yield that Shares would have had to earn to
equal the actual yield, assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998 STATE OF OHIO
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Combined Federal and
State Tax Bracket: 19.993% 34.624% 37.624% 43.201% 46.801%
- -----------------------------------------------------------------------------------------------------------------------------------
Joint Return $1-42,350 $42,351-102,300 $102,301-155,950 $155,951-278,450 OVER $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Yield Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------------------------------
1.50% 1.87% 2.29% 2.40% 2.64% 2.82%
- -----------------------------------------------------------------------------------------------------------------------------------
2.00% 2.50% 3.06% 3.21% 3.52% 3.76%
- -----------------------------------------------------------------------------------------------------------------------------------
2.50% 3.12% 3.82% 4.01% 4.40% 4.70%
- -----------------------------------------------------------------------------------------------------------------------------------
3.00% 3.75% 4.59% 4.81% 5.28% 5.64%
- -----------------------------------------------------------------------------------------------------------------------------------
3.50% 4.37% 5.35% 5.61% 6.16% 6.58%
- -----------------------------------------------------------------------------------------------------------------------------------
4.00% 5.00% 6.12% 6.41% 7.04% 7.52%
- -----------------------------------------------------------------------------------------------------------------------------------
4.50% 5.62% 6.88% 7.21% 7.92% 8.46%
- -----------------------------------------------------------------------------------------------------------------------------------
5.00% 6.25% 7.66% 8.02% 8.80% 9.40%
- -----------------------------------------------------------------------------------------------------------------------------------
5.50% 6.87% 8.41% 8.82% 9.68% 10.34%
- -----------------------------------------------------------------------------------------------------------------------------------
6.00% 7.50% 9.18% 9.62% 10.56% 11.28%
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based
on intensive, diligent credit analysis--is backed by over 22 years of
experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing
effort to trust clients is headed by Timothy C. Pillion, Senior Vice President,
Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
OHIO MUNICIPAL CASH TRUST
Cash II Shares, Institutional Service Shares
Federated Investors Funds
Institutional Shares
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
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities
in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 8
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Independent Public Accountants 29
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania consistent with stability of principal. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Pennsylvania
dividend and interest income tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market
fund.Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-11
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Cash Series
Shares total returns on a yearly basis.
The Fund's Cash Series Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon net asset value.
The Fund's Cash Series Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998 was 2.02%.
Within the period shown in the Chart, the Fund's Cash Series Shares highest
quarterly return was 1.03% (quarter ended June 30, 1991). Its lowest
quarterly return was 0.37% (quarter ended March 31, 1994).
The Fund's Cash Series Shares Seven-Day Net Yield as of 12/31/97 was 3.05%.
The following table represents the Fund's Cash Series Shares Average Annual
Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 2.81%
5 Years 2.47%
Start of Performance 1 2.70%
1 The Fund's Cash Series Shares start of performance date was January 25,
1991.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
PENNSYLVANIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Cash Series Shares.
<TABLE>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 3 0.40%
Shareholder Services Fee 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 1.31%
</TABLE>
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
Waiver of Fund Expenses 0.26%
Total Actual Annual Fund Operating Expenses (after waivers) 1.05%
</TABLE>
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid
by the Fund (after the voluntary waiver) was 0.29% for the year ended
October 31, 1998.
3 The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid
by the Fund (after the voluntary reduction) was 0.35% for the year
ended October 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Cash Series Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Cash Series Shares
for the time periods indicated and then redeem all of your shares at the end
of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Cash Series Shares' operating expenses
are BEFORE WAIVERS as shown above and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $133 $415 $718 $1,579
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Pennsylvania dividend and interest income
tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees
to pay amounts due on a fixed income security if the issuer defaults. In
some cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources
and liquidity than the issuer. For this reason, the Adviser usually
evaluates the credit risk of a fixed income security based solely upon
its credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Pennsylvania. In addition, a substantial part of the Fund's portfolio may
be comprised of tax-exempt securities issued or credit enhanced by
companies in similar businesses or with other similar characteristics. As a
result, the Fund will be more susceptible to any economic, business,
political, or other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.The required minimum initial investment for Fund Shares is $10,000.
There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep
in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash Series Shares each representing interests in a
single portfolio of securities.
This prospectus relates only to Cash Series Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment
professionals. The Fund may not be a suitable investment for retirement
plans or for non-Pennsylvania taxpayers because it invests in Pennsylvania
tax-exempt securities. When the Distributor receives marketing fees, it
may pay some or all of them to investment professionals. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing
fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Cash Series Shares.
Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different
sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number
on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Pennsylvania state personal income tax
to the extent they are derived from interest on obligations exempt from
Pennsylvania personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Cash Series Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page
29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 2.74% 2.77% 2.75% 3.02% 1.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.05% 1.05% 1.05% 1.05% 1.04%
Net investment income 2.70% 2.72% 2.72% 2.98% 1.73%
Expense waiver/reimbursement 2 0.26% 0.27% 0.27% 0.28% 0.18%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $47,940 $23,777 $19,825 $28,255 $18,352
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.5% 1
PENNSYLVANIA-99.5%
$ 4,000,000 Allegheny County, PA HDA, Variable Rate Demand Hospital
Revenue Bonds (Series B of 1998), 4.25% TOBs (South Hills
Health System)/(PNC Bank, N.A. LOC), Mandatory Tender 3/31/
1999 $ 4,007,940
1,010,000 Allegheny County, PA Housing Development Authority, 6.40%
Bonds (Children's Hospital of Pittsburgh)/(MBIA INS), 7/1/
1999 1,029,663
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
4,560,000 Allegheny County, PA IDA, Commercial Development Revenue
Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center
Associates)/(Mellon Bank N.A., Pittsburgh LOC) 4,560,000
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.05% TOBs
(Duquesne Light Power Co.)/(Canadian Imperial Bank of
Commerce, Toronto LOC), Mandatory Tender 1/28/1999 5,000,000
3,040,000 Allegheny County, PA IDA, Variable Rate Demand Revenue Bonds
(Series A of 1997) Weekly VRDNs (Jewish Community Center)/
(National City, Pennsylvania LOC) 3,040,000
1,795,000 Altoona, PA City Authority, Water Revenue Refunding Bonds
(Series 1997) PA-321 Weekly VRDNs (Blair County, PA)/(FGIC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 1,795,000
5,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E),
3.80% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC),
Mandatory Tender 12/1/1998 5,000,000
5,000,000 Bensalem Township School District, PA, 3.97% TRANs, 6/30/
1999 5,000,927
1,055,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,055,000
575,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/
(Corestates Bank N.A., Philadelphia, PA LOC) 575,000
520,000 Berks County, PA IDA, (1996 Series A) Weekly VRDNs (Lebanon
Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 520,000
1,500,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow
Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA
LOC) 1,500,000
6,000,000 Berks County, PA IDA, (Series 1998) Weekly VRDNs (Eastern
Industries, Inc.)/(Dauphin Deposit Bank and Trust LOC) 6,000,000
3,330,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1996) Weekly VRDNs (Ram Industries, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,330,000
1,585,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1995) Weekly VRDNs (Grafika Commercial Printing,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,585,000
235,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 235,000
910,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 910,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Bethlehem, PA Area School District, UT GO Bonds, 6.35% Bonds
(AMBAC INS), 9/1/1999 $ 1,024,085
2,375,000 Boyertown, PA Area School District, (Series of 1998/99),
4.00% TRANs, 6/30/1999 2,377,272
1,855,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,855,000
2,560,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/
(Corestates Bank N.A., Philadelphia, PA LOC) 2,560,000
2,865,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot
Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,865,000
3,205,000 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) 3,205,000
4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd., Osaka LOC) 4,000,000
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
1,200,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco,
Inc.)/(Chase Manhattan Bank N.A., New York LOC) 1,200,000
2,125,000 Butler County, PA IDA, (Series 1998) Weekly VRDNs (Allegheny
Metalworking Corp.)/(National City, Pennsylvania LOC) 2,125,000
2,270,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-
Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 2,270,000
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
6,000,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds
(Series 1996A), 3.80% TOBs (Lutheran Welfare)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
6,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/
(ABN AMRO Bank N.V., Amsterdam LOC) 6,400,000
1,300,000 Carbon County, PA IDA Weekly VRDNs (Summit Management &
Utilities, Inc.)/
(PNC Bank, N.A. LOC) 1,300,000
5,000,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.60% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/12/1998 5,000,000
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/16/1998 1,290,000
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Bonds,
4.15% RANs (Horsehead Resource Development, Inc.)/(Chase
Manhattan Bank N.A., New York LOC), 12/3/1998 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 3,060,000 Chartiers Valley Industrial & Commercial Development
Authority, Nursing home Revenue Refunding Bonds (Series
1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) $ 3,060,000
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/
(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000
2,500,000 Coatsville, PA School District, 4.05% TRANs, 6/30/1999 2,502,367
1,000,000 Commonwealth of Pennsylvania, GO UT Refunding Bonds (First
Series A), 6.60% Bonds,
6/1/1999 1,019,654
4,000,000 Commonwealth of Pennsylvania, PA-274 (1st Series of 1997)
Weekly VRDNs
(AMBAC INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,000,000
25,000,000 Commonwealth of Pennsylvania, Trust Receipts (Series 1998
FR/RI-A9) Weekly VRDNs (MBIA INS)/(Bayerische Hypotheken-Und
Wechsel-Bank AG LIQ) 25,000,000
1,100,000 Cumberland County, PA IDA, Industrial Development Bonds
(Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,100,000
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
1,000,000 Dallastown Area School District, PA, GO Bonds (Series 1998)
Weekly VRDNs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) 1,000,000
14,500,000 Dauphin County, PA General Authority, (Education and Health
Loan Program, Series 1997) Weekly VRDNs (AMBAC INS)/(Chase
Manhattan Bank N.A., New York LIQ) 14,500,000
15,500,000 Dauphin County, PA General Authority, (Series A of 1997)
Weekly VRDNs (Allhealth Pooled Financing Program)/(FSA INS)/
(Credit Suisse First Boston LIQ) 15,500,000
1,000,000 Delaware County Authority, PA, Hospital Revenue Bonds
(Series of 1996) Weekly VRDNs (Crozer-Chester Medical
Center)/(KBC Bank N.V., Brussels LOC) 1,000,000
10,000,000 Delaware County, PA PCR, (Series 1988A), 3.20% CP
(Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender 12/
9/1998 10,000,000
3,000,000 Downington Area School District, (Series of 1998/99), 4.04%
TRANs, 6/30/1999 3,002,662
12,500,000 Doylestown Hospital Authority, PA, Doylestown Hospital
Revenue Bonds Weekly VRDNs (AMBAC INS)/(PNC Bank, N.A. LIQ) 12,500,000
5,000,000 Doylestown Hospital Authority, PA, Hospital Revenue Bonds
(Series 1998C) Weekly VRDNs (Doylestown Hospital, PA)/(AMBAC
INS)/(PNC Bank, N.A. LIQ) 5,000,000
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
8,500,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly
VRDNs (Mennonite Home)/(Dauphin Deposit Bank and Trust LOC) 8,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 8,505,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs
(FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) $ 8,505,000
2,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's
Hospital Erie, PA)/
(PNC Bank, N.A. LOC) 2,800,000
125,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C
Value, Inc.)/
(PNC Bank, N.A. LOC) 125,000
300,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B.
Project)/(PNC Bank, N.A. LOC) 300,000
4,000,000 Erie County, PA, 4.375% TRANs (PNC Bank, N.A. LOC), 12/31/
1998 4,003,643
100,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land
Co.)/(National City Bank, Cleveland, OH LOC) 100,000
905,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care
Facility)/
(PNC Bank, N.A. LOC) 905,000
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
1,470,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited
Partnership)/
(PNC Bank, N.A. LOC) 1,470,000
2,400,000 Gettysburg Area Industrial Development Authority, (Series A
of 1998) Weekly VRDNs (Hanover Lantern, Inc.)/(First
National Bank of Maryland, Baltimore LOC) 2,400,000
4,495,000 Greater Johnstown, PA School District, PA-361 Weekly VRDNs
(MBIA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,495,000
11,000,000 Lancaster County, PA Hospital Authority, Health Center
Revenue Bonds (Series 1996) Weekly VRDNs (Masonic Homes) 11,000,000
3,385,000 Lancaster, PA IDA, (1988 Series C) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 3,385,000
2,295,000 Lancaster, PA IDA, (1998 Series A) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 2,295,000
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
290,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds
Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 290,000
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries,
Inc.)/(Sanwa Bank Ltd., Osaka LOC) 3,300,000
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton
Co.)/(First Union National Bank, Charlotte, N.C. 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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Montgomery County, PA IDA, (Series A) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) $ 1,000,000
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) 4,250,000
2,030,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs
(Palmer
International, Inc.)/(Mellon Bank N.A., Pittsburgh LOC) 2,030,000
4,775,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel
Associates)/(National City, Pennsylvania LOC) 4,775,000
3,310,000 Moon Township, PA IDA, Variable Rate Commercial Development
Revenue Bond
(Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National
City, Pennsylvania LOC) 3,310,000
3,000,000 North Penn Health, Hospital and Education Authority, PA,
Hospital Revenue Bonds
(Series 1998) Weekly VRDNs (North Penn Hospital, PA)/(First
Union National Bank,
Charlotte, N.C. LOC) 3,000,000
3,850,000 Northampton County, PA IDA, 3.40% CP (Citizens Utilities
Co.), Mandatory Tender 2/9/1999 3,850,000
9,000,000 Northampton County, PA IDA, 3.65% CP (Citizens Utilities
Co.), Mandatory Tender
1/13/1999 9,000,000
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
1,650,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank,
N.A. LOC) 1,650,000
2,500,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A., Pittsburgh LOC) 2,500,000
525,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank,
N.A. LOC) 525,000
450,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank,
N.A. LOC) 450,000
500,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing
Co.)/(PNC Bank, N.A. LOC) 500,000
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
10,000,000 Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series
1997B) Weekly VRDNs (National Gypsum Co.)/(Nationsbank,
N.A., Charlotte LOC) 10,000,000
625,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs
(Metamora Products)/(PNC Bank, N.A. LOC) 625,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/
(PNC Bank, N.A. LOC) 250,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest
Products)/
(PNC Bank, N.A. LOC) 250,000
13,665,000 2 Pennsylvania Housing Finance Authority, (Series 1997-58A),
PT-149, 3.75% TOBs (Commerzbank AG, Frankfurt LIQ), Optional
Tender 12/10/1998 13,665,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 14,430,000 Pennsylvania Housing Finance Authority, MERLOTs (Series K)
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ) $ 14,430,000
2,905,000 Pennsylvania Housing Finance Authority, PT-119B (Series
1997-56B) Weekly VRDNs (Credit Suisse First Boston, Inc.
LIQ) 2,905,000
915,000 Pennsylvania Housing Finance Authority, Section 8 Assisted
Residential Development Refunding Bonds (Series 1992A)
Weekly VRDNs (CGIC INS)/(Citibank N.A.,
New York LIQ) 915,000
10,000,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC) 10,000,000
6,000,000 Pennsylvania State Higher Education Facilities Authority,
(Series 1997 B8), 4.50% TOBs (Wilkes University)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
10,000,000 2 Philadelphia Authority for Industrial Development, Variable
Rate Certificates
(Series 1998P-1), 3.75% TOBs (Philadelphia Airport System)/
(FGIC INS)/
(Bank of America NT and SA, San Francisco LIQ), Optional
Tender 8/4/1999 10,000,000
1,760,000 Philadelphia, PA Airport System, 5.25% Bonds (FGIC INS), 6/
15/1999 1,775,878
12,900,000 Philadelphia, PA Gas Works, (Series C), 3.05% CP (Canadian
Imperial Bank of Commerce, Toronto LOC), Mandatory Tender 2/
17/1999 12,900,000
2,450,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991)
Weekly VRDNs (Tom
James Co.)/(SunTrust Bank, Nashville LOC) 2,450,000
7,600,000 Philadelphia, PA Redevelopment Authority, Multi-Family
Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town
Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 7,600,000
4,000,000 Philadelphia, PA School District, (Series B), 4.25% TRANs
(PNC Bank, N.A. LOC), 6/30/1999 4,015,801
3,230,000 Philadelphia, PA Water & Wastewater System, (CDC Series
1997Q) Weekly VRDNs
(MBIA INS)/(CDC Municipal Products, Inc. LIQ) 3,230,000
5,000,000 Philadelphia, PA Water & Wastewater System, (Series 1997A)
PT-1033 Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital
Services, Inc. LOC) 5,000,000
5,000,000 Philadelphia, PA, 4.25% TRANs, 6/30/1999 5,019,565
540,000 Pittsburgh, PA School District, (Series B), 4.10% Bonds
(FGIC INS), 9/1/1999 543,716
2,500,000 Red Lion, PA Area School District, 4.05% TRANs, 6/30/1999 2,502,367
1,700,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue
Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc.
Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
1,900,000 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) 1,900,000
2,000,000 Shaler Township, PA, 4.18% TANs, 12/31/1998 2,000,251
1,000,000 Southeastern, PA Transportation Authority, 6.00% Bonds
(Canadian Imperial Bank of Commerce, Toronto LOC), 6/1/1999 1,016,349
1,000,000 Springfield, PA School District, 3.90% TRANs, 12/31/1998 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 6,000,000 Temple University, Refunding Bonds (Series B), 4.50% Bonds,
5/14/1999 $ 6,023,024
4,245,000 Upper Darby School District, PA, (Drexel Hill), 3.94% TRANs,
6/30/1999 4,248,766
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993),
3.60% CP (Scrubgrass Power Corp.)/(National Westminster
Bank, PLC, London LOC), Mandatory Tender 11/12/1998 4,000,000
2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(First Union
National Bank, Charlotte, N.C. LOC) 2,700,000
1,900,000 Washington County, PA Hospital Authority Weekly VRDNs
(Keystone Diversified Management Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 1,900,000
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
950,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-
Cola Co.)/(Mellon
Bank N.A., Pittsburgh LOC) 950,000
835,000 West Cornwall Township, PA Municipal Authority, Revenue
Bonds (Series 1995)
Weekly VRDNs (Lebanon Valley Brethren Home Project (PA))/
(Corestates Bank N.A., Philadelphia, PA LOC) 835,000
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
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
2,125,000 York County, PA Solid Waste & Refuse Authority, 4.75% Bonds
(FGIC INS), 12/1/1998 2,126,559
Total Investments (at amortized cost) 3 $ 501,952,489
</TABLE>
At October 31, 1998, 40.4% of the total investments at market value were
subject to alternative minimum tax.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $23,665,000 which represents 4.7% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($504,601,894) at October 31, 1998.
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
FSA -Financial Security Assurance
GO -General Obligation
HAD -Hospital Development Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
TRANs -Tax and Revenue Anticipation Notes
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 501,952,489
Cash 261,601
Income receivable 3,252,953
Receivable for shares sold 107,408
Prepaid expenses 8,393
Total assets 505,582,844
LIABILITIES:
Payable for shares redeemed $ 11,122
Income distribution payable 829,501
Accrued expenses 140,327
Total liabilities 980,950
Net Assets for 504,601,894 shares outstanding $ 504,601,894
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$392,380,805 / 392,380,805 shares outstanding $1.00
CASH SERIES SHARES:
$47,940,017 / 47,940,017 shares outstanding $1.00
INSTITUTIONAL SHARES:
$64,281,072 / 64,281,072 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 15,641,600
EXPENSES:
Investment advisory fee $ 2,086,146
Administrative personnel and services fee 314,620
Custodian fees 8,789
Transfer and dividend disbursing agent fees and expenses 109,379
Directors'/Trustees' fees 3,323
Auditing fees 13,019
Legal fees 11,056
Portfolio accounting fees 108,083
Distribution services fee-Cash Series Shares 179,698
Shareholder services fee-Institutional Service Shares 793,433
Shareholder services fee-Cash Series Shares 112,311
Shareholder services fee-Institutional Shares 137,329
Share registration costs 69,634
Printing and postage 35,246
Insurance premiums 21,971
Miscellaneous 5,824
Total expenses 4,009,861
WAIVERS:
Waiver of investment advisory fee $ (891,201)
Waiver of distribution services fee-Cash Series Shares (22,462)
Waiver of shareholder services fee-Institutional Service
Shares (158,686)
Waiver of shareholder services fee-Institutional Shares (137,329)
Total waivers (1,209,678)
Net expenses 2,800,183
Net investment income $ 12,841,417
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<S> <C> <C>
YEAR ENDED OCTOBER 31 1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 12,841,417 $ 10,489,997
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (9,813,298) (8,169,653)
Cash Series Shares (1,215,221) (617,375)
Institutional Shares (1,812,898) (1,702,969)
Change in net assets resulting from distributions
to shareholders (12,841,417) (10,489,997)
SHARE TRANSACTION:
Proceeds from sale of shares 1,771,726,568 1,340,687,798
Net asset value of shares issued to shareholders in payment
of distributions declared 4,355,879 3,168,018
Cost of shares redeemed (1,623,039,093) (1,271,049,376)
Change in net assets resulting from share transactions 153,043,354 72,806,440
Change in net assets 153,043,354 72,806,440
NET ASSETS:
Beginning of period 351,558,540 278,752,100
End of period $ 504,601,894 $ 351,558,540
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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
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 ("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,
1998, is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Philadelphia Authority
for Industrial Development,
Variable Rate Certificates
(Series 1998P-1) 8/27/98 $10,000,000
Pennsylvania Housing
Finance Authority,
(Series 1997-58A) 9/2/98 13,665,000
</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, 1998, capital paid-in aggregated
$504,601,894.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
CASH SERIES SHARES
Shares sold 158,966,434 71,085,166
Shares issued to shareholders in payment of
distributions declared 1,162,158 559,551
Shares redeemed (135,965,506) (67,692,672)
Net change resulting from Cash Series
share transactions 24,163,086 3,952,045
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES
<S> <C> <C>
Shares sold 1,209,407,656 1,052,427,056
Shares issued to shareholders in payment of
distributions declared 3,071,889 2,495,116
Shares redeemed (1,084,732,294) (1,012,139,333)
Net change resulting from Institutional Service share
transactions 127,747,251 42,782,839
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES
<S> <C> <C>
Shares sold 403,352,478 217,175,576
Shares issued to shareholders in payment of
distributions declared 121,832 113,351
Shares redeemed (402,341,293) (191,217,371)
Net change resulting from Institutional
share transactions 1,133,017 26,071,556
Net change resulting from share transactions 153,043,354 72,806,440
</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, Inc.
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 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 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, 1998, 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 $800,160,971 and
$690,796,000, 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, 1998, 82.2% 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 8.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust
and Shareholders of 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the
Public Reference Room's operations and copying charges.
[Graphic]
Pennsylvania Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229881
9101005A-CS (12/98)
[Graphic]
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in
Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania consistent with stability of principal. While
there is not assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Pennsylvania
dividend and interest income tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] See Appendix C-12
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon the net
asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998 was 2.32%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 1.43% (quarter ended December 31,
1990). Its lowest quarterly return was 0.47% (quarter ended March 31,
1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.45%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.22%
5 Years 2.88%
Start of Performance 1 3.43%
1 The Fund's start of performance date was November 21, 1990.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
PENNSYLVANIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 0.91%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived certain amounts. These are shown below along with the net expenses
the fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.26%
Total Actual Annual Operating Expenses (after waivers) 0.65%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver)
was 0.29% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can be
terminated at any time. The shareholder services fee paid by the Fund (after the voluntary
reduction) was 0.20% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional
Service Shares' operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $93 $290 $504 $1,120
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Pennsylvania dividend and interest income
tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Pennsylvania. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies in
similar businesses or with other similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash Series Shares each representing interests in a
single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Pennsylvania taxpayers
because it invests in Pennsylvania tax-exempt securities. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner
of Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives
your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Pennsylvania state personal income tax
to the extent they are derived from interest on obligations exempt from
Pennsylvania personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.15% 3.18% 3.16% 3.44% 2.25%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.65% 0.65% 0.65% 0.65% 0.64%
Net investment income 3.09% 3.14% 3.12% 3.38% 2.19%
Expense waiver/reimbursement 2 0.26% 0.27% 0.27% 0.27% 0.02%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $392,381 $264,634 $221,851 $276,407 $229,160
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.5% 1
PENNSYLVANIA-99.5%
$ 4,000,000 Allegheny County, PA HDA, Variable Rate Demand Hospital
Revenue Bonds (Series B of 1998), 4.25% TOBs (South Hills
Health System)/(PNC Bank, N.A. LOC), Mandatory Tender
3/31/1999 $ 4,007,940
1,010,000 Allegheny County, PA Housing Development Authority, 6.40%
Bonds (Children's Hospital of Pittsburgh)/(MBIA INS),
7/1/1999 1,029,663
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
4,560,000 Allegheny County, PA IDA, Commercial Development Revenue
Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center
Associates)/(Mellon Bank N.A., Pittsburgh LOC) 4,560,000
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.05% TOBs
(Duquesne Light Power Co.)/(Canadian Imperial Bank of
Commerce, Toronto LOC), Mandatory Tender 1/28/1999 5,000,000
3,040,000 Allegheny County, PA IDA, Variable Rate Demand Revenue Bonds
(Series A of 1997) Weekly VRDNs (Jewish Community Center)/
(National City, Pennsylvania LOC) 3,040,000
1,795,000 Altoona, PA City Authority, Water Revenue Refunding Bonds
(Series 1997) PA-321 Weekly VRDNs (Blair County, PA)/(FGIC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 1,795,000
5,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E),
3.80% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC),
Mandatory Tender 12/1/1998 5,000,000
5,000,000 Bensalem Township School District, PA, 3.97% TRANs,
6/30/1999 5,000,927
1,055,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,055,000
575,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/
(Corestates Bank N.A., Philadelphia, PA LOC) 575,000
520,000 Berks County, PA IDA, (1996 Series A) Weekly VRDNs (Lebanon
Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 520,000
1,500,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow
Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA
LOC) 1,500,000
6,000,000 Berks County, PA IDA, (Series 1998) Weekly VRDNs (Eastern
Industries, Inc.)/(Dauphin Deposit Bank and Trust LOC) 6,000,000
3,330,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1996) Weekly VRDNs (Ram Industries, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,330,000
1,585,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1995) Weekly VRDNs (Grafika Commercial Printing,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,585,000
235,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 235,000
910,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 910,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Bethlehem, PA Area School District, UT GO Bonds, 6.35% Bonds
(AMBAC INS), 9/1/1999 $ 1,024,085
2,375,000 Boyertown, PA Area School District, (Series of 1998/99),
4.00% TRANs, 6/30/1999 2,377,272
1,855,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,855,000
2,560,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/
(Corestates Bank N.A., Philadelphia, PA LOC) 2,560,000
2,865,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot
Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,865,000
3,205,000 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) 3,205,000
4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd., Osaka LOC) 4,000,000
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
1,200,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco,
Inc.)/(Chase Manhattan Bank N.A., New York LOC) 1,200,000
2,125,000 Butler County, PA IDA, (Series 1998) Weekly VRDNs (Allegheny
Metalworking Corp.)/(National City, Pennsylvania LOC) 2,125,000
2,270,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-
Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 2,270,000
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
6,000,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds
(Series 1996A), 3.80% TOBs (Lutheran Welfare)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
6,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/
(ABN AMRO Bank N.V., Amsterdam LOC) 6,400,000
1,300,000 Carbon County, PA IDA Weekly VRDNs (Summit Management &
Utilities, Inc.)/(PNC Bank, N.A. LOC) 1,300,000
5,000,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.60% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/12/1998 5,000,000
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/16/1998 1,290,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Bonds,
4.15% RANs (Horsehead Resource Development, Inc.)/(Chase
Manhattan Bank N.A., New York LOC), 12/3/1998 $ 5,000,000
3,060,000 Chartiers Valley Industrial & Commercial Development
Authority, Nursing home Revenue Refunding Bonds (Series
1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) 3,060,000
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/
(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000
2,500,000 Coatsville, PA School District, 4.05% TRANs, 6/30/1999 2,502,367
1,000,000 Commonwealth of Pennsylvania, GO UT Refunding Bonds (First
Series A), 6.60% Bonds, 6/1/1999 1,019,654
4,000,000 Commonwealth of Pennsylvania, PA-274 (1st Series of 1997)
Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 4,000,000
25,000,000 Commonwealth of Pennsylvania, Trust Receipts (Series 1998
FR/RI-A9) Weekly VRDNs (MBIA INS)/(Bayerische Hypotheken-Und
Wechsel-Bank AG LIQ) 25,000,000
1,100,000 Cumberland County, PA IDA, Industrial Development Bonds
(Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,100,000
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
1,000,000 Dallastown Area School District, PA, GO Bonds (Series 1998)
Weekly VRDNs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) 1,000,000
14,500,000 Dauphin County, PA General Authority, (Education and Health
Loan Program, Series 1997) Weekly VRDNs (AMBAC INS)/(Chase
Manhattan Bank N.A., New York LIQ) 14,500,000
15,500,000 Dauphin County, PA General Authority, (Series A of 1997)
Weekly VRDNs (Allhealth Pooled Financing Program)/(FSA INS)/
(Credit Suisse First Boston LIQ) 15,500,000
1,000,000 Delaware County Authority, PA, Hospital Revenue Bonds
(Series of 1996) Weekly VRDNs (Crozer-Chester Medical
Center)/(KBC Bank N.V., Brussels LOC) 1,000,000
10,000,000 Delaware County, PA PCR, (Series 1988A), 3.20% CP
(Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender
12/9/1998 10,000,000
3,000,000 Downington Area School District, (Series of 1998/99), 4.04%
TRANs, 6/30/1999 3,002,662
12,500,000 Doylestown Hospital Authority, PA, Doylestown Hospital
Revenue Bonds Weekly VRDNs (AMBAC INS)/(PNC Bank, N.A. LIQ) 12,500,000
5,000,000 Doylestown Hospital Authority, PA, Hospital Revenue Bonds
(Series 1998C) Weekly VRDNs (Doylestown Hospital, PA)/(AMBAC
INS)/(PNC Bank, N.A. LIQ) 5,000,000
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
8,500,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly
VRDNs (Mennonite Home)/(Dauphin Deposit Bank and Trust LOC) 8,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 8,505,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs
(FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) $ 8,505,000
2,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's
Hospital Erie, PA)/(PNC Bank, N.A. LOC) 2,800,000
125,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C
Value, Inc.)/(PNC Bank, N.A. LOC) 125,000
300,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B.
Project)/(PNC Bank, N.A. LOC) 300,000
4,000,000 Erie County, PA, 4.375% TRANs (PNC Bank, N.A. LOC),
12/31/1998 4,003,643
100,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land
Co.)/(National City Bank, Cleveland, OH LOC) 100,000
905,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care
Facility)/(PNC Bank, N.A. LOC) 905,000
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
1,470,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited
Partnership)/(PNC Bank, N.A. LOC) 1,470,000
2,400,000 Gettysburg Area Industrial Development Authority, (Series A
of 1998) Weekly VRDNs (Hanover Lantern, Inc.)/(First
National Bank of Maryland, Baltimore LOC) 2,400,000
4,495,000 Greater Johnstown, PA School District, PA-361 Weekly VRDNs
(MBIA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,495,000
11,000,000 Lancaster County, PA Hospital Authority, Health Center
Revenue Bonds (Series 1996) Weekly VRDNs (Masonic Homes) 11,000,000
3,385,000 Lancaster, PA IDA, (1988 Series C) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 3,385,000
2,295,000 Lancaster, PA IDA, (1998 Series A) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 2,295,000
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
290,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds
Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 290,000
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries,
Inc.)/(Sanwa Bank Ltd., Osaka LOC) 3,300,000
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton
Co.)/(First Union National Bank, Charlotte, N.C. 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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Montgomery County, PA IDA, (Series A) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) $ 1,000,000
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) 4,250,000
2,030,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs
(Palmer International, Inc.)/(Mellon Bank N.A., Pittsburgh LOC) 2,030,000
4,775,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel
Associates)/(National City, Pennsylvania LOC) 4,775,000
3,310,000 Moon Township, PA IDA, Variable Rate Commercial Development
Revenue Bond (Series 1995A) Weekly VRDNs (One Thorn Run
Center)/(National City, Pennsylvania LOC) 3,310,000
3,000,000 North Penn Health, Hospital and Education Authority, PA,
Hospital Revenue Bonds (Series 1998) Weekly VRDNs (North
Penn Hospital, PA)/(First Union National Bank, Charlotte,
N.C. LOC) 3,000,000
3,850,000 Northampton County, PA IDA, 3.40% CP (Citizens Utilities
Co.), Mandatory Tender 2/9/1999 3,850,000
9,000,000 Northampton County, PA IDA, 3.65% CP (Citizens Utilities
Co.), Mandatory Tender 1/13/1999 9,000,000
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
1,650,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank,
N.A. LOC) 1,650,000
2,500,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A., Pittsburgh LOC) 2,500,000
525,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank,
N.A. LOC) 525,000
450,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank,
N.A. LOC) 450,000
500,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing
Co.)/(PNC Bank, N.A. LOC) 500,000
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
10,000,000 Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series
1997B) Weekly VRDNs (National Gypsum Co.)/(Nationsbank,
N.A., Charlotte LOC) 10,000,000
625,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs
(Metamora Products)/(PNC Bank, N.A. LOC) 625,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) 250,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest
Products)/(PNC Bank, N.A. LOC) 250,000
13,665,000 2 Pennsylvania Housing Finance Authority, (Series 1997-58A),
PT-149, 3.75% TOBs (Commerzbank AG, Frankfurt LIQ), Optional
Tender 12/10/1998 13,665,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 14,430,000 Pennsylvania Housing Finance Authority, MERLOTs (Series K)
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ) $ 14,430,000
2,905,000 Pennsylvania Housing Finance Authority, PT-119B (Series
1997-56B) Weekly VRDNs (Credit Suisse First Boston, Inc.
LIQ) 2,905,000
915,000 Pennsylvania Housing Finance Authority, Section 8 Assisted
Residential Development Refunding Bonds (Series 1992A)
Weekly VRDNs (CGIC INS)/(Citibank N.A., New York LIQ) 915,000
10,000,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC) 10,000,000
6,000,000 Pennsylvania State Higher Education Facilities Authority,
(Series 1997 B8), 4.50% TOBs (Wilkes University)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
10,000,000 2 Philadelphia Authority for Industrial Development, Variable
Rate Certificates (Series 1998P-1), 3.75% TOBs (Philadelphia
Airport System)/(FGIC INS)/(Bank of America NT and SA,
San Francisco LIQ), Optional Tender 8/4/1999 10,000,000
1,760,000 Philadelphia, PA Airport System, 5.25% Bonds (FGIC INS),
6/15/1999 1,775,878
12,900,000 Philadelphia, PA Gas Works, (Series C), 3.05% CP (Canadian
Imperial Bank of Commerce, Toronto LOC), Mandatory Tender
2/17/1999 12,900,000
2,450,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991)
Weekly VRDNs (Tom James Co.)/(SunTrust Bank, Nashville LOC) 2,450,000
7,600,000 Philadelphia, PA Redevelopment Authority, Multi-Family
Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town
Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 7,600,000
4,000,000 Philadelphia, PA School District, (Series B), 4.25% TRANs
(PNC Bank, N.A. LOC), 6/30/1999 4,015,801
3,230,000 Philadelphia, PA Water & Wastewater System, (CDC Series
1997Q) Weekly VRDNs (MBIA INS)/(CDC Municipal Products,
Inc. LIQ) 3,230,000
5,000,000 Philadelphia, PA Water & Wastewater System, (Series 1997A)
PT-1033 Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital
Services, Inc. LOC) 5,000,000
5,000,000 Philadelphia, PA, 4.25% TRANs, 6/30/1999 5,019,565
540,000 Pittsburgh, PA School District, (Series B), 4.10% Bonds
(FGIC INS), 9/1/1999 543,716
2,500,000 Red Lion, PA Area School District, 4.05% TRANs, 6/30/1999 2,502,367
1,700,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue
Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc.
Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
1,900,000 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) 1,900,000
2,000,000 Shaler Township, PA, 4.18% TANs, 12/31/1998 2,000,251
1,000,000 Southeastern, PA Transportation Authority, 6.00% Bonds
(Canadian Imperial Bank of Commerce, Toronto LOC), 6/1/1999 1,016,349
1,000,000 Springfield, PA School District, 3.90% TRANs, 12/31/1998 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 6,000,000 Temple University, Refunding Bonds (Series B), 4.50% Bonds,
5/14/1999 $ 6,023,024
4,245,000 Upper Darby School District, PA, (Drexel Hill), 3.94% TRANs,
6/30/1999 4,248,766
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993),
3.60% CP (Scrubgrass Power Corp.)/(National Westminster
Bank, PLC, London LOC), Mandatory Tender 11/12/1998 4,000,000
2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(First Union
National Bank, Charlotte, N.C. LOC) 2,700,000
1,900,000 Washington County, PA Hospital Authority Weekly VRDNs
(Keystone Diversified Management Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 1,900,000
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
950,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-
Cola Co.)/(Mellon Bank N.A., Pittsburgh LOC) 950,000
835,000 West Cornwall Township, PA Municipal Authority, Revenue
Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethren
Home Project (PA))/(Corestates Bank N.A., Philadelphia,
PA LOC) 835,000
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
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
2,125,000 York County, PA Solid Waste & Refuse Authority, 4.75% Bonds
(FGIC INS), 12/1/1998 2,126,559
Total Investments (at amortized cost) 3 $ 501,952,489
</TABLE>
At October 31, 1998, 40.4% of the total investments at market value were
subject to alternative minimum tax.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $23,665,000 which represents 4.7% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($504,601,894) at October 31, 1998.
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
FSA -Financial Security Assurance
GO -General Obligation
HDA -Hospital Development Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender
Series
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
TRANs -Tax and Revenue Anticipation Notes
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 501,952,489
Cash 261,601
Income receivable 3,252,953
Receivable for shares sold 107,408
Prepaid expenses 8,393
Total assets 505,582,844
LIABILITIES:
Payable for shares redeemed $ 11,122
Income distribution payable 829,501
Accrued expenses 140,327
Total liabilities 980,950
Net Assets for 504,601,894 shares outstanding $ 504,601,894
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$392,380,805 / 392,380,805 shares outstanding $1.00
CASH SERIES SHARES:
$47,940,017 / 47,940,017 shares outstanding $1.00
INSTITUTIONAL SHARES:
$64,281,072 / 64,281,072 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 15,641,600
EXPENSES:
Investment advisory fee $ 2,086,146
Administrative personnel and services fee 314,620
Custodian fees 8,789
Transfer and dividend disbursing agent fees and expenses 109,379
Directors'/Trustees' fees 3,323
Auditing fees 13,019
Legal fees 11,056
Portfolio accounting fees 108,083
Distribution services fee-Cash Series Shares 179,698
Shareholder services fee-Institutional Service Shares 793,433
Shareholder services fee-Cash Series Shares 112,311
Shareholder services fee-Institutional Shares 137,329
Share registration costs 69,634
Printing and postage 35,246
Insurance premiums 21,971
Miscellaneous 5,824
Total expenses 4,009,861
WAIVERS:
Waiver of investment advisory fee $ (891,201)
Waiver of distribution services fee-Cash Series Shares (22,462)
Waiver of shareholder services fee-Institutional Service
Shares (158,686)
Waiver of shareholder services fee-Institutional Shares (137,329)
Total waivers (1,209,678)
Net expenses 2,800,183
Net investment income $ 12,841,417
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 12,841,417 $ 10,489,997
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (9,813,298) (8,169,653)
Cash Series Shares (1,215,221) (617,375)
Institutional Shares (1,812,898) (1,702,969)
Change in net assets resulting from distributions
to shareholders (12,841,417) (10,489,997)
SHARE TRANSACTION:
Proceeds from sale of shares 1,771,726,568 1,340,687,798
Net asset value of shares issued to shareholders in payment
of distributions declared 4,355,879 3,168,018
Cost of shares redeemed (1,623,039,093) (1,271,049,376)
Change in net assets resulting from share transactions 153,043,354 72,806,440
Change in net assets 153,043,354 72,806,440
NET ASSETS:
Beginning of period 351,558,540 278,752,100
End of period $ 504,601,894 $ 351,558,540
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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
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 ("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,
1998, is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Philadelphia Authority
for Industrial Development,
Variable Rate Certificates
(Series 1998P-1) 8/27/98 $10,000,000
Pennsylvania Housing
Finance Authority,
(Series 1997-58A) 9/2/98 13,665,000
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. At October 31, 1998, capital paid-in aggregated
$504,601,894.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES
<S> <C> <C>
Shares sold 1,209,407,656 1,052,427,056
Shares issued to shareholders in payment of distributions
declared 3,071,889 2,495,116
Shares redeemed (1,084,732,294) (1,012,139,333)
Net change resulting from Institutional Service
share transactions 127,747,251 42,782,839
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
CASH SERIES SHARES
<S> <C> <C>
Shares sold 158,966,434 71,085,166
Shares issued to shareholders in payment of distributions
declared 1,162,158 559,551
Shares redeemed (135,965,506) (67,692,672)
Net change resulting from Cash Series share transactions 24,163,086 3,952,045
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES
<S> <C> <C>
Shares sold 403,352,478 217,175,576
Shares issued to shareholders in payment of distributions
declared 121,832 113,351
Shares redeemed (402,341,293) (191,217,371)
Net change resulting from Institutional share transactions 1,133,017 26,071,556
Net change resulting from share transactions 153,043,354 72,806,440
</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, Inc.
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 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 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, 1998, 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 $800,160,971 and
$690,796,000, 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, 1998, 82.2% 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 8.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust and
and Shareholders of 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
Pennsylvania Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229204
9101005A-SS (12/98)
[Graphic]
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in
Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Independent Public Accountants 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income tax imposed by the
Commonwealth of Pennsylvania consistent with stability of principal. While
there is not assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Pennsylvania
dividend and interest income tax. Interest from the Fund's investments may
be subject to the federal alternative minimum tax for individuals and
corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-13
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon the net
asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998 was 2.32%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 1.43% (quarter ended December 31,
1990). Its lowest quarterly return was 0.47% (quarter ended March 31,
1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.45%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.22%
5 Years 2.88%
Start of Performance 1 3.43%
1 The Fund's start of performance date was November 21, 1990.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
PENNSYLVANIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 0.91%
1 Although not contractually obligated to do so, the adviser and shareholder services provider
waived certain amounts. These are shown below along with the net expenses
the fund actually paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.26%
Total Actual Annual Operating Expenses (after waivers) 0.65%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver)
was 0.29% for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can be
terminated at any time. The shareholder services fee paid by the Fund (after the voluntary
reduction) was 0.20% for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional
Service Shares' operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $93 $290 $504 $1,120
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Pennsylvania dividend and interest income
tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Pennsylvania. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies in
similar businesses or with other similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional
Service Shares and Cash Series Shares each representing interests in a
single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Pennsylvania taxpayers
because it invests in Pennsylvania tax-exempt securities. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner
of Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives
your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect
cash payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Pennsylvania state personal income tax
to the extent they are derived from interest on obligations exempt from
Pennsylvania personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.15% 3.18% 3.16% 3.44% 2.25%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.65% 0.65% 0.65% 0.65% 0.64%
Net investment income 3.09% 3.14% 3.12% 3.38% 2.19%
Expense waiver/reimbursement 2 0.26% 0.27% 0.27% 0.27% 0.02%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $392,381 $264,634 $221,851 $276,407 $229,160
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.5% 1
PENNSYLVANIA-99.5%
$ 4,000,000 Allegheny County, PA HDA, Variable Rate Demand Hospital
Revenue Bonds (Series B of 1998), 4.25% TOBs (South Hills
Health System)/(PNC Bank, N.A. LOC), Mandatory Tender
3/31/1999 $ 4,007,940
1,010,000 Allegheny County, PA Housing Development Authority, 6.40%
Bonds (Children's Hospital of Pittsburgh)/(MBIA INS),
7/1/1999 1,029,663
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
4,560,000 Allegheny County, PA IDA, Commercial Development Revenue
Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center
Associates)/(Mellon Bank N.A., Pittsburgh LOC) 4,560,000
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.05% TOBs
(Duquesne Light Power Co.)/(Canadian Imperial Bank of
Commerce, Toronto LOC), Mandatory Tender 1/28/1999 5,000,000
3,040,000 Allegheny County, PA IDA, Variable Rate Demand Revenue Bonds
(Series A of 1997) Weekly VRDNs (Jewish Community Center)/
(National City, Pennsylvania LOC) 3,040,000
1,795,000 Altoona, PA City Authority, Water Revenue Refunding Bonds
(Series 1997) PA-321 Weekly VRDNs (Blair County, PA)/(FGIC
INS)/(Merrill Lynch Capital Services, Inc. LIQ) 1,795,000
5,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E),
3.80% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC),
Mandatory Tender 12/1/1998 5,000,000
5,000,000 Bensalem Township School District, PA, 3.97% TRANs,
6/30/1999 5,000,927
1,055,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,055,000
575,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/
(Corestates Bank N.A., Philadelphia, PA LOC) 575,000
520,000 Berks County, PA IDA, (1996 Series A) Weekly VRDNs (Lebanon
Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 520,000
1,500,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow
Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA
LOC) 1,500,000
6,000,000 Berks County, PA IDA, (Series 1998) Weekly VRDNs (Eastern
Industries, Inc.)/(Dauphin Deposit Bank and Trust LOC) 6,000,000
3,330,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1996) Weekly VRDNs (Ram Industries, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,330,000
1,585,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds
(Series 1995) Weekly VRDNs (Grafika Commercial Printing,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,585,000
235,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 235,000
910,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries
B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 910,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Bethlehem, PA Area School District, UT GO Bonds, 6.35% Bonds
(AMBAC INS), 9/1/1999 $ 1,024,085
2,375,000 Boyertown, PA Area School District, (Series of 1998/99),
4.00% TRANs, 6/30/1999 2,377,272
1,855,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,855,000
2,560,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/
(Corestates Bank N.A., Philadelphia, PA LOC) 2,560,000
2,865,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot
Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,865,000
3,205,000 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) 3,205,000
4,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd., Osaka LOC) 4,000,000
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine
Safety Appliances Co.)/(Sanwa Bank Ltd., Osaka LOC) 1,000,000
1,200,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco,
Inc.)/(Chase Manhattan Bank N.A., New York LOC) 1,200,000
2,125,000 Butler County, PA IDA, (Series 1998) Weekly VRDNs (Allegheny
Metalworking Corp.)/(National City, Pennsylvania LOC) 2,125,000
2,270,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-
Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 2,270,000
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
6,000,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds
(Series 1996A), 3.80% TOBs (Lutheran Welfare)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
6,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/
(ABN AMRO Bank N.V., Amsterdam LOC) 6,400,000
1,300,000 Carbon County, PA IDA Weekly VRDNs (Summit Management &
Utilities, Inc.)/(PNC Bank, N.A. LOC) 1,300,000
5,000,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.60% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/12/1998 5,000,000
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B),
3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 11/16/1998 1,290,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Bonds,
4.15% RANs (Horsehead Resource Development, Inc.)/(Chase
Manhattan Bank N.A., New York LOC), 12/3/1998 $ 5,000,000
3,060,000 Chartiers Valley Industrial & Commercial Development
Authority, Nursing home Revenue Refunding Bonds (Series
1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) 3,060,000
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/
(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000
2,500,000 Coatsville, PA School District, 4.05% TRANs, 6/30/1999 2,502,367
1,000,000 Commonwealth of Pennsylvania, GO UT Refunding Bonds (First
Series A), 6.60% Bonds, 6/1/1999 1,019,654
4,000,000 Commonwealth of Pennsylvania, PA-274 (1st Series of 1997)
Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital Services,
Inc. LIQ) 4,000,000
25,000,000 Commonwealth of Pennsylvania, Trust Receipts (Series 1998
FR/RI-A9) Weekly VRDNs (MBIA INS)/(Bayerische Hypotheken-Und
Wechsel-Bank AG LIQ) 25,000,000
1,100,000 Cumberland County, PA IDA, Industrial Development Bonds
(Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,100,000
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
1,000,000 Dallastown Area School District, PA, GO Bonds (Series 1998)
Weekly VRDNs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) 1,000,000
14,500,000 Dauphin County, PA General Authority, (Education and Health
Loan Program, Series 1997) Weekly VRDNs (AMBAC INS)/(Chase
Manhattan Bank N.A., New York LIQ) 14,500,000
15,500,000 Dauphin County, PA General Authority, (Series A of 1997)
Weekly VRDNs (Allhealth Pooled Financing Program)/(FSA INS)/
(Credit Suisse First Boston LIQ) 15,500,000
1,000,000 Delaware County Authority, PA, Hospital Revenue Bonds
(Series of 1996) Weekly VRDNs (Crozer-Chester Medical
Center)/(KBC Bank N.V., Brussels LOC) 1,000,000
10,000,000 Delaware County, PA PCR, (Series 1988A), 3.20% CP
(Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender
12/9/1998 10,000,000
3,000,000 Downington Area School District, (Series of 1998/99), 4.04%
TRANs, 6/30/1999 3,002,662
12,500,000 Doylestown Hospital Authority, PA, Doylestown Hospital
Revenue Bonds Weekly VRDNs (AMBAC INS)/(PNC Bank, N.A. LIQ) 12,500,000
5,000,000 Doylestown Hospital Authority, PA, Hospital Revenue Bonds
(Series 1998C) Weekly VRDNs (Doylestown Hospital, PA)/(AMBAC
INS)/(PNC Bank, N.A. LIQ) 5,000,000
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
8,500,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly
VRDNs (Mennonite Home)/(Dauphin Deposit Bank and Trust LOC) 8,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 8,505,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs
(FGIC INS)/(FGIC Securities Purchase, Inc. LIQ) $ 8,505,000
2,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's
Hospital Erie, PA)/(PNC Bank, N.A. LOC) 2,800,000
125,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C
Value, Inc.)/(PNC Bank, N.A. LOC) 125,000
300,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B.
Project)/(PNC Bank, N.A. LOC) 300,000
4,000,000 Erie County, PA, 4.375% TRANs (PNC Bank, N.A. LOC),
12/31/1998 4,003,643
100,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land
Co.)/(National City Bank, Cleveland, OH LOC) 100,000
905,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care
Facility)/(PNC Bank, N.A. LOC) 905,000
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
1,470,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited
Partnership)/(PNC Bank, N.A. LOC) 1,470,000
2,400,000 Gettysburg Area Industrial Development Authority, (Series A
of 1998) Weekly VRDNs (Hanover Lantern, Inc.)/(First
National Bank of Maryland, Baltimore LOC) 2,400,000
4,495,000 Greater Johnstown, PA School District, PA-361 Weekly VRDNs
(MBIA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,495,000
11,000,000 Lancaster County, PA Hospital Authority, Health Center
Revenue Bonds (Series 1996) Weekly VRDNs (Masonic Homes) 11,000,000
3,385,000 Lancaster, PA IDA, (1988 Series C) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 3,385,000
2,295,000 Lancaster, PA IDA, (1998 Series A) Weekly VRDNs (Henry
Molded Products, Inc.)/(Dauphin Deposit Bank and Trust LOC) 2,295,000
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
290,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds
Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 290,000
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries,
Inc.)/(Sanwa Bank Ltd., Osaka LOC) 3,300,000
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton
Co.)/(First Union National Bank, Charlotte, N.C. 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
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 1,000,000 Montgomery County, PA IDA, (Series A) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) $ 1,000,000
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari
Corp.)/(Dauphin Deposit Bank and Trust LOC) 4,250,000
2,030,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs
(Palmer International, Inc.)/(Mellon Bank N.A., Pittsburgh LOC) 2,030,000
4,775,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel
Associates)/(National City, Pennsylvania LOC) 4,775,000
3,310,000 Moon Township, PA IDA, Variable Rate Commercial Development
Revenue Bond (Series 1995A) Weekly VRDNs (One Thorn Run
Center)/(National City, Pennsylvania LOC) 3,310,000
3,000,000 North Penn Health, Hospital and Education Authority, PA,
Hospital Revenue Bonds (Series 1998) Weekly VRDNs (North
Penn Hospital, PA)/(First Union National Bank, Charlotte,
N.C. LOC) 3,000,000
3,850,000 Northampton County, PA IDA, 3.40% CP (Citizens Utilities
Co.), Mandatory Tender 2/9/1999 3,850,000
9,000,000 Northampton County, PA IDA, 3.65% CP (Citizens Utilities
Co.), Mandatory Tender 1/13/1999 9,000,000
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
1,650,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank,
N.A. LOC) 1,650,000
2,500,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A., Pittsburgh LOC) 2,500,000
525,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank,
N.A. LOC) 525,000
450,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank,
N.A. LOC) 450,000
500,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing
Co.)/(PNC Bank, N.A. LOC) 500,000
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
10,000,000 Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series
1997B) Weekly VRDNs (National Gypsum Co.)/(Nationsbank,
N.A., Charlotte LOC) 10,000,000
625,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs
(Metamora Products)/(PNC Bank, N.A. LOC) 625,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) 250,000
250,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest
Products)/(PNC Bank, N.A. LOC) 250,000
13,665,000 2 Pennsylvania Housing Finance Authority, (Series 1997-58A),
PT-149, 3.75% TOBs (Commerzbank AG, Frankfurt LIQ), Optional
Tender 12/10/1998 13,665,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 14,430,000 Pennsylvania Housing Finance Authority, MERLOTs (Series K)
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ) $ 14,430,000
2,905,000 Pennsylvania Housing Finance Authority, PT-119B (Series
1997-56B) Weekly VRDNs (Credit Suisse First Boston, Inc.
LIQ) 2,905,000
915,000 Pennsylvania Housing Finance Authority, Section 8 Assisted
Residential Development Refunding Bonds (Series 1992A)
Weekly VRDNs (CGIC INS)/(Citibank N.A., New York LIQ) 915,000
10,000,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC) 10,000,000
6,000,000 Pennsylvania State Higher Education Facilities Authority,
(Series 1997 B8), 4.50% TOBs (Wilkes University)/(PNC Bank,
N.A. LOC), Mandatory Tender 11/1/1998 6,000,000
10,000,000 2 Philadelphia Authority for Industrial Development, Variable
Rate Certificates (Series 1998P-1), 3.75% TOBs (Philadelphia
Airport System)/(FGIC INS)/(Bank of America NT and SA,
San Francisco LIQ), Optional Tender 8/4/1999 10,000,000
1,760,000 Philadelphia, PA Airport System, 5.25% Bonds (FGIC INS),
6/15/1999 1,775,878
12,900,000 Philadelphia, PA Gas Works, (Series C), 3.05% CP (Canadian
Imperial Bank of Commerce, Toronto LOC), Mandatory Tender
2/17/1999 12,900,000
2,450,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991)
Weekly VRDNs (Tom James Co.)/(SunTrust Bank, Nashville LOC) 2,450,000
7,600,000 Philadelphia, PA Redevelopment Authority, Multi-Family
Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town
Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 7,600,000
4,000,000 Philadelphia, PA School District, (Series B), 4.25% TRANs
(PNC Bank, N.A. LOC), 6/30/1999 4,015,801
3,230,000 Philadelphia, PA Water & Wastewater System, (CDC Series
1997Q) Weekly VRDNs (MBIA INS)/(CDC Municipal Products,
Inc. LIQ) 3,230,000
5,000,000 Philadelphia, PA Water & Wastewater System, (Series 1997A)
PT-1033 Weekly VRDNs (AMBAC INS)/(Merrill Lynch Capital
Services, Inc. LOC) 5,000,000
5,000,000 Philadelphia, PA, 4.25% TRANs, 6/30/1999 5,019,565
540,000 Pittsburgh, PA School District, (Series B), 4.10% Bonds
(FGIC INS), 9/1/1999 543,716
2,500,000 Red Lion, PA Area School District, 4.05% TRANs, 6/30/1999 2,502,367
1,700,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue
Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc.
Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
1,900,000 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) 1,900,000
2,000,000 Shaler Township, PA, 4.18% TANs, 12/31/1998 2,000,251
1,000,000 Southeastern, PA Transportation Authority, 6.00% Bonds
(Canadian Imperial Bank of Commerce, Toronto LOC), 6/1/1999 1,016,349
1,000,000 Springfield, PA School District, 3.90% TRANs, 12/31/1998 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-CONTINUED
$ 6,000,000 Temple University, Refunding Bonds (Series B), 4.50% Bonds,
5/14/1999 $ 6,023,024
4,245,000 Upper Darby School District, PA, (Drexel Hill), 3.94% TRANs,
6/30/1999 4,248,766
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993),
3.60% CP (Scrubgrass Power Corp.)/(National Westminster
Bank, PLC, London LOC), Mandatory Tender 11/12/1998 4,000,000
2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(First Union
National Bank, Charlotte, N.C. LOC) 2,700,000
1,900,000 Washington County, PA Hospital Authority Weekly VRDNs
(Keystone Diversified Management Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 1,900,000
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
950,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-
Cola Co.)/(Mellon Bank N.A., Pittsburgh LOC) 950,000
835,000 West Cornwall Township, PA Municipal Authority, Revenue
Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethren
Home Project (PA))/(Corestates Bank N.A., Philadelphia,
PA LOC) 835,000
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
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
2,125,000 York County, PA Solid Waste & Refuse Authority, 4.75% Bonds
(FGIC INS), 12/1/1998 2,126,559
Total Investments (at amortized cost) 3 $ 501,952,489
</TABLE>
At October 31, 1998, 40.4% of the total investments at market value were
subject to alternative minimum tax.
1 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, MIG-
1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by
Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $23,665,000 which represents 4.7% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($504,601,894) at October 31, 1998.
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
FSA -Financial Security Assurance
GO -General Obligation
HDA -Hospital Development Authority
IDA -Industrial Development Authority
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender
Series
PCR -Pollution Control Revenue
PLC -Public Limited Company
RANs -Revenue Anticipation Notes
SA -Support Agreement
TANs -Tax Anticipation Notes
TOBs -Tender Option Bonds
TRANs -Tax and Revenue Anticipation Notes
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 501,952,489
Cash 261,601
Income receivable 3,252,953
Receivable for shares sold 107,408
Prepaid expenses 8,393
Total assets 505,582,844
LIABILITIES:
Payable for shares redeemed $ 11,122
Income distribution payable 829,501
Accrued expenses 140,327
Total liabilities 980,950
Net Assets for 504,601,894 shares outstanding $ 504,601,894
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$392,380,805 / 392,380,805 shares outstanding $1.00
CASH SERIES SHARES:
$47,940,017 / 47,940,017 shares outstanding $1.00
INSTITUTIONAL SHARES:
$64,281,072 / 64,281,072 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 15,641,600
EXPENSES:
Investment advisory fee $ 2,086,146
Administrative personnel and services fee 314,620
Custodian fees 8,789
Transfer and dividend disbursing agent fees and expenses 109,379
Directors'/Trustees' fees 3,323
Auditing fees 13,019
Legal fees 11,056
Portfolio accounting fees 108,083
Distribution services fee-Cash Series Shares 179,698
Shareholder services fee-Institutional Service Shares 793,433
Shareholder services fee-Cash Series Shares 112,311
Shareholder services fee-Institutional Shares 137,329
Share registration costs 69,634
Printing and postage 35,246
Insurance premiums 21,971
Miscellaneous 5,824
Total expenses 4,009,861
WAIVERS:
Waiver of investment advisory fee $ (891,201)
Waiver of distribution services fee-Cash Series Shares (22,462)
Waiver of shareholder services fee-Institutional Service
Shares (158,686)
Waiver of shareholder services fee-Institutional Shares (137,329)
Total waivers (1,209,678)
Net expenses 2,800,183
Net investment income $ 12,841,417
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 12,841,417 $ 10,489,997
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Service Shares (9,813,298) (8,169,653)
Cash Series Shares (1,215,221) (617,375)
Institutional Shares (1,812,898) (1,702,969)
Change in net assets resulting from distributions
to shareholders (12,841,417) (10,489,997)
SHARE TRANSACTION:
Proceeds from sale of shares 1,771,726,568 1,340,687,798
Net asset value of shares issued to shareholders in payment
of distributions declared 4,355,879 3,168,018
Cost of shares redeemed (1,623,039,093) (1,271,049,376)
Change in net assets resulting from share transactions 153,043,354 72,806,440
Change in net assets 153,043,354 72,806,440
NET ASSETS:
Beginning of period 351,558,540 278,752,100
End of period $ 504,601,894 $ 351,558,540
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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
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 ("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,
1998, is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Philadelphia Authority
for Industrial Development,
Variable Rate Certificates
(Series 1998P-1) 8/27/98 $10,000,000
Pennsylvania Housing
Finance Authority,
(Series 1997-58A) 9/2/98 13,665,000
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. At October 31, 1998, capital paid-in aggregated
$504,601,894.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES
<S> <C> <C>
Shares sold 1,209,407,656 1,052,427,056
Shares issued to shareholders in payment of distributions
declared 3,071,889 2,495,116
Shares redeemed (1,084,732,294) (1,012,139,333)
Net change resulting from Institutional Service
share transactions 127,747,251 42,782,839
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
CASH SERIES SHARES
<S> <C> <C>
Shares sold 158,966,434 71,085,166
Shares issued to shareholders in payment of distributions
declared 1,162,158 559,551
Shares redeemed (135,965,506) (67,692,672)
Net change resulting from Cash Series share transactions 24,163,086 3,952,045
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES
<S> <C> <C>
Shares sold 403,352,478 217,175,576
Shares issued to shareholders in payment of distributions
declared 121,832 113,351
Shares redeemed (402,341,293) (191,217,371)
Net change resulting from Institutional share transactions 1,133,017 26,071,556
Net change resulting from share transactions 153,043,354 72,806,440
</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, Inc.
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 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 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, 1998, 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 $800,160,971 and
$690,796,000, 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, 1998, 82.2% 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 8.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
To the Board of Trustees of Federated Municipal Trust and
and Shareholders of 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
Pennsylvania Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229204
9101005A-SS (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Pennsylvania Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
CASH SERIES SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Pennsylvania Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling 1-
800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229717
Cusip 314229204
Cusip 314229881
9101005B (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares and Cash
Series Shares (Shares). This SAI relates to all of the classes of the above-
mentioned Shares.
Securities in Which the Fund Invests
Securities Descriptions and Techniques
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"), MIG-1 or
MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by
Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
Investment Risks
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and
Pennsylvania dividend and interest income tax. This policy is fundamental and
cannot be changed without shareholder approval.
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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire publicly or
nonpublicly issued Pennsylvania tax-exempt 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.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Investing in Restricted and Illiquid Securities
The Fund 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 Board, 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 for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (CASH SERIES SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other
special events at recreational-type facilities, or items of material value.
These payments will be based upon the amount of Shares the investment
professional sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Univest & Company, Union National Bank & Trust, Souderton, Pennsylvania, owned
approximately 11,619,575 shares (14.61%); Holiday Company, Hollidaysburg Trust
Company, Hollidaysburg, Pennsylvania, owned approximately 10,111,503 shares
(12.71%); Thomas Heasley & Company, Southwest National Bank of PA, Greensburg,
Pennsylvania, owned approximately 7,346,057 shares (9.24%); Jasco & Company, S&T
Bank, Indiana, Pennsylvania, owned approximately 5,554,779 shares (6.98%); Key
Premier Bank of New York, New York, New York, owned approximately 4,665,193
shares (5.87%); and Rayweb, Erie, Pennsylvania, owned approximately 4,266,760
shares (5.36%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Mellon Bank Capital Markets (omnibus accounts), Pittsburgh,
Pennsylvania, owned approximately 101,068,088 shares (26.66%); First Union
National Bank (trust accounts), Charlotte, North Carolina, owned approximately
76,629,568 shares (20.22%); Plitt & Company, Baltimore, Maryland, owned
approximately 70,741,214 shares (18.66%) and Keystone Financial, Inc., Altoona,
Pennsylvania, owned approximately 27,495,503 shares (7.25%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash Series Shares:
Parker/Hunter, Inc., Pittsburgh, Pennsylvania, owned approximately 22,405,604
shares (44.88%) and BHC Securities, Inc., Philadelphia, Pennsylvania, owned
approximately 4,099,510 shares (8.21%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing 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.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -------------------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- -----------------------------------------------------------------
Advisory Fee Earned $2,086,146 $1,666,725 $1,470,813
- -----------------------------------------------------------------
Advisory Fee Reduction $891,201 $737,288 $647,993
- -----------------------------------------------------------------
Brokerage Commissions $0 $0 $0
- -----------------------------------------------------------------
Administrative Fee $314,620 $251,689 $222,042
- -----------------------------------------------------------------
12b-1 Fee
- -----------------------------------------------------------------
Cash Series Shares $157,236 --- ---
- -----------------------------------------------------------------
Shareholder Services Fee
- -----------------------------------------------------------------
Institutional Shares $0 --- ---
--------------------------------------------------------------
Institutional Service $634,747 --- ---
Shares
--------------------------------------------------------------
Cash Series Shares $56,705 --- ---
--------------------------------------------------------------
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the Seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on August 23, 1995
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.36% -- 3.39%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.96% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 3.00% -- -- --
Tax-Equivalent Yield 5.21% -- -- --
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on November 21, 1989
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.15% 3.03% 3.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.76% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 2.79% -- -- --
Tax-Equivalent Yield 4.84% -- -- --
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on January 25, 1991
Cash Series Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 2.74% 2.62% 2.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Yield 2.36% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Effective Yield 2.38% -- -- --
Tax-Equivalent Yield 4.13% -- -- --
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998 STATE OF PENNSYLVANIA
Combined Federal and
State Income Tax Bracket: 17.80% 30.80% 33.80% 38.80% 42.40%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joint Return $1-42,350 $42,351-102,300 $102,301-155,950 $155,951-278,450 OVER $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Single Return $1-25,350 $25,351-61,400 $61,401-128,100 $128,101-278,450 OVER $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers And Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
PENNSYLVANIA MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Cash Series Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Tennessee Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
State of Tennessee.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the
Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 9
Report of Independent Public Accountants 20
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income taxes imposed by
the State of Tennessee consistent with stability of principal and
liquidity. While there is no assurance that the Fund will achieve its
investment objective, its endeavors to do so by following the strategies
and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the personal
income taxes imposed by the State of Tennessee. Interest from the Fund's
investments may be subject to the federal alternative minimum tax for
individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-5
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Shares Class on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net
asset value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998 was 2.53%.
Within the period shown in the Chart, the Fund's Institutional Shares
highest quarterly return was 0.91% (quarter ended June 30, 1997). Its
lowest quarterly return was 0.80% (quarter ended March 31, 1997).
The Fund's Institutional Shares Seven-Day Net Yield as of 12/31/97 was
3.83%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.50%
Start of Performance 1 3.53%
1 The Fund's Shares start of performance date was May 22, 1996.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
What are the Fund's Fees and Expenses?
TENNESSEE MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay when you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursements) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 4 0.58%
Total Annual Fund Operating Expense 1.33%
1 Although not contractually obligated to do so, the adviser waived and
reimbursed and the shareholder services provider waived certain amounts.
These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.98%
Total Actual Annual Operating Expenses after waivers and reimbursements) 0.35%
2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. There was no management fee paid by the Fund
(after the voluntary waiver) for the year ended October 31, 1998.
3 The shareholder services fee has been voluntarily waived. This voluntary waiver
can be terminated at any time. There was no shareholder services fee paid by the
Fund (after the voluntary waiver) for the fiscal year ended October 31, 1998.
4 The adviser voluntarily reimbursed certain operating expenses of the Fund.
The adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 0.35% for the
year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Tennessee Municipal Cash Trust's
Institutional Shares' operating expenses are BEFORE WAIVERS as shown above
and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses
assuming
no redemption $135 $421 $729 $1,601
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income tax imposed by the State
of Tennessee. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects before to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Tennessee. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject
to a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Shares. Each
share class has different expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more
information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Tennessee taxpayers
because it invests in Tennessee tax-exempt securities. The Distributor and
its affiliates may pay out of their assets other amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number
Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed. Send requests by
mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your investment
professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition,
you will receive periodic statements reporting all account activity,
including dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Tennessee state personal income tax to
the extent they are derived from interest on obligations exempt from
Tennessee personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Shares
(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 1998 1997 1996 1
<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 2 3.42% 3.47% 1.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.35% 0.35% 0.10% 4
Net investment income 3.35% 3.40% 3.57% 4
Expense waiver/reimbursement 3 0.98% 1.11% 1.62% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $39,193 $23,048 $17,824
</TABLE>
1 Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-100.0% 1
TENNESSEE-100.0%
$ 2,710,000 Benton County TN IDB, (Series 1996) Weekly VRDNs (Jones
Plastic and Engineering Corp.)/(National City Bank, Kentucky
LOC) $ 2,710,000
7,000,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/
(Nationsbank of Tennessee LOC) 7,000,000
1,900,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs
(Tennessee Bun Company, LLC Project)/(PNC Bank, N.A. LOC) 1,900,000
2,700,000 Franklin County, TN IDB, IDRB (Series 1997) Weekly VRDNs
(Hi-Tech)/(Regions Bank, Alabama LOC) 2,700,000
1,430,000 Greenfield, TN IDB, (Series 1995) Weekly VRDNs (Plastic
Products Co. Project)/(Norwest Bank Minnesota, N.A. LOC) 1,430,000
1,500,000 Hamilton County, TN IDB, (Series 1987) Weekly VRDNs
(Seaboard Farms Project)/(SunTrust Bank, Atlanta LOC) 1,500,000
1,500,000 Hamilton County, TN, 5.00% Bonds, 5/1/1999 1,509,384
4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui
Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd.
LOC) 4,200,000
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty
Machine Co. Project)/(First Union National Bank, Charlotte,
NC LOC) 2,900,000
1,300,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995)
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC) 1,300,000
3,500,000 Johnson City, TN Health & Education Facilities Board,
Adjustable Tender Acquisition Bonds (Series 1998A) Weekly
VRDNs (Johnson City Medical Center Hospital)/(MBIA INS)/
(Credit Suisse First Boston LIQ) 3,500,000
800,000 Knox County, TN, 4.30% Bonds, 3/1/1999 801,397
2,000,000 Knox County, TN, GO Refunding Bonds (Series 1998), 3.65%
Bonds, 3/1/1999 2,000,000
2,000,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern
Healthcare Systems, Inc.)/(Bank One, Texas N.A. LOC) 2,000,000
1,979,000 McMinn County, TN IDB, Industrial Development Bonds (Series
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC) 1,979,000
5,000,000 Memphis, TN Center City Revenue Finance Corp., (Series
1996A) Weekly VRDNs (South Bluffs)/(National Bank of
Commerce, Memphis, TN LOC) 5,000,000
1,000,000 Memphis, TN, General Improvement Refunding Bonds, (Series
1995A) Weekly VRDNs (Westdeutsche Landesbank Girozentrale
LOC) 1,000,000
2,000,000 Metropolitan Government Nashville & Davidson County, TN
HEFA, Revenue Bonds
(Series 1985A), 3.75% TOBs (Vanderbilt University), Optional
Tender 1/15/1999 2,000,000
1,500,000 Metropolitan Government Nashville & Davidson County, TN,
Series B, 3.60% Bonds
(FGIC INS), 1/1/1999 1,500,000
2,000,000 Montgomery Co., TN Public Building Authority, Pooled
Financing Revenue Bonds
(Series 1996) Weekly VRDNs (Montgomery County Loan)/
(Nationsbank, N.A.,
Charlotte LOC) 2,000,000
3,800,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996)
Weekly VRDNs
(M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 3,800,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-100.0% 1
TENNESSEE-CONTINUED
$ 6,200,000 Roane, TN IDB, (Series 1982) Monthly VRDNs (Fortafil Fibers,
Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 6,200,000
2,000,000 Sevier County, TN Public Building Authority, Local
Government Improvement Bonds,
(Series II-G-2) Weekly VRDNs (Knoxville, TN)/(AMBAC INS)/
(KBC Bank N.V., Brussels LIQ) 2,000,000
1,200,000 Sevier County, TN Public Building Authority, Local
Government Public Improvement Bonds, (Series II-G-3) Weekly
VRDNs (Maryville, TN)/(AMBAC INS)/(KBC Bank N.V., Brussels
LIQ) 1,200,000
2,600,000 Shelby County, TN Health Education & Housing Facilities
Board, Multifamily Housing Revenue Bonds (Series 1988)
Weekly VRDNs (Arbor Lake Project)/(PNC Bank, N.A. LOC) 2,600,000
1,165,000 Shelby County, TN, (Series A), 4.25% Bonds, 8/1/1999 1,171,783
1,300,000 Sumner County, TN IDB, (Series 1998-0), 4.05% BANs, 6/15/
1999 1,302,013
2,100,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,100,000
2,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper
Container Corporation Project)/(SunTrust Bank, Nashville
LOC) 2,500,000
Total Investments (at amortized cost) 2 $ 71,803,577
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 48.5% of
the portfolio as calculated based upon total market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($71,785,507) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
FGIC -Financial Guaranty Insurance Company
GO -General Obligation
HEFA -Health and Education Facilities Authority
IDB -Industrial Development Bond
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 71,803,577
Cash 245,819
Income receivable 340,683
Receivable for shares sold 43,304
Prepaid expenses 1,218
Deferred organizational costs 15,512
Total assets 72,450,113
LIABILITIES:
Payable for shares redeemed $ 561,964
Income distribution payable 78,854
Accrued expenses 23,788
Total liabilities 664,606
Net Assets for 71,785,507 shares outstanding $ 71,785,507
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$39,192,552 / 39,192,552 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$32,592,955 / 32,592,955 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,034,356
EXPENSES:
Investment advisory fee $ 274,883
Administrative personnel and services fee 155,001
Custodian fees 2,212
Transfer and dividend disbursing agent fees and expenses 42,633
Directors'/Trustees' fees 1,088
Auditing fees 10,817
Legal fees 15,849
Portfolio accounting fees 53,913
Shareholder services fee-Institutional Shares 66,700
Shareholder services fee-Institutional Service Shares 70,754
Share registration costs 21,853
Printing and postage 7,838
Insurance premiums 6,183
Miscellaneous 6,849
Total expenses 736,573
WAIVERS AND REIMBURSEMENTS:
Waiver of investment advisory fee $ (274,883)
Waiver of shareholder services fee-Institutional Shares (66,700)
Reimbursement of other operating expenses (129,398)
Total waivers and reimbursements (470,981)
Net expenses 265,592
Net investment income $ 1,768,764
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 1,768,764 $ 1,437,481
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (895,346) (613,693)
Institutional Service Shares (873,418) (823,788)
Change in net assets resulting from distributions to
shareholders (1,768,764) (1,437,481)
SHARE TRANSACTIONS:
Proceeds from sale of shares 236,176,586 172,127,656
Net asset value of shares issued to shareholders in payment
of distributions declared 704,085 603,094
Cost of shares redeemed (212,767,088) (172,706,532)
Change in net assets resulting from share transactions 24,113,583 24,218
Change in net assets 24,113,583 24,218
NET ASSETS:
Beginning of period 47,671,924 47,647,706
End of period $ 71,785,507 $ 47,671,924
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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, 1998, capital paid-in aggregated
$71,785,507.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES:
Shares sold 141,723,370 87,914,045
Shares issued to shareholders in payment of distributions
declared 31,344 6,745
Shares redeemed (125,610,011) (82,696,744)
Net change resulting from Institutional Share transactions 16,144,703 5,224,046
<CAPTION>
PERIOD ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES:
Shares sold 94,453,216 84,213,611
Shares issued to shareholders in payment of distributions
declared 672,741 596,349
Shares redeemed (87,157,077) (90,009,788)
Net change resulting from Institutional Service Share
transactions 7,968,880 (5,199,828)
Net change resulting from share transactions 24,113,583 24,218
</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 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, 1998, 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 $129,215,000 and
$115,090,000, respectively.
ORGANIZATIONAL EXPENSES
Organizational expenses of $24,645 were borne initially by the Adviser. The
Fund has reimbursed the Adviser for these expenses. These expense have been
deferred and are being amortized over the five-year period following the
Fund's effective date.
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, 1998, 87.8% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 14.3% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF TENNESSEE MUNICIAPL 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Tennessee Municipal
Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and
other information without charge call your investment professional or the
Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by
visiting or writing the Public Reference Room of the Securities and
Exchange Commission in Washington, DC 20549-6009 or from the Commission's
Internet site at http://www.sec.gov. You can call 1-800-SEC-0330 for
information on the Public Reference Room's operations and copying charges.
[Graphic]
Tennessee Municipal
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229642
G01682-01 (12/98)
[Graphic]
PROSPECTUS
Tennessee Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
State of Tennessee.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a criminal
offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the
Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 4
How is the Fund Sold? 5
How to Purchase Shares 5
<How to Redeem Shares 6
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 21
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the personal income taxes imposed by
the State of Tennessee consistent with stability of principal
and liquidity. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN
INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and the personal
income taxes imposed by the State of Tennessee. Interest from the Fund's
investments may be subject to the federal alternative minimum tax for
individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix A-6
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares Class on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). Hence, the total returns displayed above are based upon
the net asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998, was 2.34%.
Within the period shown in the Chart, the Fund's highest quarterly return
was 0.84% (quarter ended June 30, 1997). Its lowest quarterly return was
0.74% (quarter ended March 31, 1997).
The Fund's Institutional Service Shares Seven-Day Net Yield as of 12/31/97
was 3.58%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total return through 12/31/97.
CALENDAR PERIOD FUND
1 Year 3.24%
Start of Performance 1 3.27%
1 The Fund's Institutional Service Shares start of performance date was May
22, 1996.
Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-
Day Net Yield.
While past performance does not necessarily predict future performance,
this information provides you with historical performance information so
that you can analyze whether the Fund's investment risks are balanced by
its potential rewards.
What are the Fund's Fees and Expenses?
TENNESSEE MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay when you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
Annual Fund Operating Expenses (Before Waivers and
<S> <C>
Reimbursements) 2
Expenses That Are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses3 0.58%
Total Annual Fund Operating Expenses 1.33%
1 Although not contractually obligated to do so, the adviser
waived and reimbursed certain amounts. These are shown below
along with the net expenses the Fund actually paid for the
fiscal year ended October 31, 1998.
Waiver of Fund Expenses 0.73%
Total Actual Annual Operating Expenses (after waivers and reimbursements) 0.60%
2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. There was no management fee paid by the Fund
(after the voluntary waiver) for the year ended October 31, 1998.
3 The adviser voluntarily reimbursed certain operating expenses of the Fund.
Total other expenes paid by the Fund (after voluntary reimbursement) was 0.60%
for the year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund's Institutional Service Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional
Service Shares' operating expenses are BEFORE WAIVERS as estimated above
and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming no redemption $135 $421 $729 $1,601
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and the personal income tax imposed by the State
of Tennessee. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also
may cause the Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the
Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Tennessee. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV). The
Fund does not charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $10,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject
to a smaller minimum investment amount. Keep in mind that investment
professionals may charge you fees for their services in connection with
your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Service Shares.
Each share class has different expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more
information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Tennessee taxpayers
because it invests in Tennessee tax-exempt securities. The Distributor and
its affiliates may pay out of their assets other amounts (including items
of material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.You will
become the owner of Shares on the day the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Fund or its transfer agent
incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number
Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired
to you the same day. You will not receive that day's dividends.
If you call after 12:00 noon (Eastern time), your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. Your
redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.Call your
investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature guarantee from a bank or trust company, savings
association, credit union, or broker, dealer, or securities exchange
member. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or
an Account Service Options Form or contact your investment professional or
the Fund. Your account value must meet the minimum initial investment
amount at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield
or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares being
redeemed until a check is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares.
There is an annual fee for this service that the Fund will automatically
deduct from your account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic
transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Tennessee state personal income tax to
the extent they are derived from interest on obligations exempt from
Tennessee personal income taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 21.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997 1996 1
<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 2 3.17% 3.21% 1.48%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.60% 0.39% 4
Net investment income 3.09% 3.13% 3.26% 4
Expense waiver/reimbursement 3 0.73% 0.86% 1.33% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $32,593 $24,624 $29,824
</TABLE>
1 Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM MUNICIPALS-100.0% 1
TENNESSEE-100.0%
<C> <S> <C>
$ 2,710,000 Benton County TN IDB, (Series 1996) Weekly VRDNs (Jones
Plastic and Engineering Corp.)/(National City Bank, Kentucky
LOC) $ 2,710,000
7,000,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/
(Nationsbank of Tennessee LOC) 7,000,000
1,900,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs
(Tennessee Bun Company, LLC Project)/(PNC Bank, N.A. LOC) 1,900,000
2,700,000 Franklin County, TN IDB, IDRB (Series 1997) Weekly VRDNs
(Hi-Tech)/(Regions Bank, Alabama LOC) 2,700,000
1,430,000 Greenfield, TN IDB, (Series 1995) Weekly VRDNs (Plastic
Products Co. Project)/(Norwest Bank Minnesota, N.A. LOC) 1,430,000
1,500,000 Hamilton County, TN IDB, (Series 1987) Weekly VRDNs
(Seaboard Farms Project)/(SunTrust Bank, Atlanta LOC) 1,500,000
1,500,000 Hamilton County, TN, 5.00% Bonds, 5/1/1999 1,509,384
4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui
Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd.
LOC) 4,200,000
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty
Machine Co. Project)/(First Union National Bank, Charlotte,
NC LOC) 2,900,000
1,300,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995)
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC) 1,300,000
3,500,000 Johnson City, TN Health & Education Facilities Board,
Adjustable Tender Acquisition Bonds (Series 1998A) Weekly
VRDNs (Johnson City Medical Center Hospital)/(MBIA INS)/
(Credit Suisse First Boston LIQ) 3,500,000
800,000 Knox County, TN, 4.30% Bonds, 3/1/1999 801,397
2,000,000 Knox County, TN, GO Refunding Bonds (Series 1998), 3.65%
Bonds, 3/1/1999 2,000,000
2,000,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern
Healthcare Systems, Inc.)/(Bank One, Texas N.A. LOC) 2,000,000
1,979,000 McMinn County, TN IDB, Industrial Development Bonds (Series
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC) 1,979,000
5,000,000 Memphis, TN Center City Revenue Finance Corp., (Series
1996A) Weekly VRDNs (South Bluffs)/(National Bank of
Commerce, Memphis, TN LOC) 5,000,000
1,000,000 Memphis, TN, General Improvement Refunding Bonds, (Series
1995A) Weekly VRDNs (Westdeutsche Landesbank Girozentrale
LOC) 1,000,000
2,000,000 Metropolitan Government Nashville & Davidson County, TN
HEFA, Revenue Bonds
(Series 1985A), 3.75% TOBs (Vanderbilt University), Optional
Tender 1/15/1999 2,000,000
1,500,000 Metropolitan Government Nashville & Davidson County, TN,
Series B, 3.60% Bonds
(FGIC INS), 1/1/1999 1,500,000
2,000,000 Montgomery Co., TN Public Building Authority, Pooled
Financing Revenue Bonds
(Series 1996) Weekly VRDNs (Montgomery County Loan)/
(Nationsbank, N.A.,
Charlotte LOC) 2,000,000
3,800,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996)
Weekly VRDNs
(M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 3,800,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM MUNICIPALS-100.0% 1
TENNESSEE-CONTINUED
<C> <S> <C>
$ 6,200,000 Roane, TN IDB, (Series 1982) Monthly VRDNs (Fortafil Fibers,
Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 6,200,000
2,000,000 Sevier County, TN Public Building Authority, Local
Government Improvement Bonds,
(Series II-G-2) Weekly VRDNs (Knoxville, TN)/(AMBAC INS)/
(KBC Bank N.V., Brussels LIQ) 2,000,000
1,200,000 Sevier County, TN Public Building Authority, Local
Government Public Improvement Bonds, (Series II-G-3) Weekly
VRDNs (Maryville, TN)/(AMBAC INS)/(KBC Bank N.V., Brussels
LIQ) 1,200,000
2,600,000 Shelby County, TN Health Education & Housing Facilities
Board, Multifamily Housing Revenue Bonds (Series 1988)
Weekly VRDNs (Arbor Lake Project)/(PNC Bank, N.A. LOC) 2,600,000
1,165,000 Shelby County, TN, (Series A), 4.25% Bonds, 8/1/1999 1,171,783
1,300,000 Sumner County, TN IDB, (Series 1998-0), 4.05% BANs, 6/15/
1999 1,302,013
2,100,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) 2,100,000
2,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper
Container Corporation Project)/(SunTrust Bank, Nashville
LOC) 2,500,000
Total Investments (at amortized cost) 2 $ 71,803,577
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 48.5% of
the portfolio as calculated based upon total market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
First Tier Second Tier
100.00% 0.00%
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($71,785,507) at October 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
BANs -Bond Anticipation Notes
FGIC -Financial Guaranty Insurance Company
GO -General Obligation
HEFA -Health and Education Facilities Authority
IDB -Industrial Development Bond
IDRB -Industrial Development Revenue Bond
INS -Insured
LIQ -Liquidity Agreement
LLC -Limited Liability Corporation
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
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 71,803,577
Cash 245,819
Income receivable 340,683
Receivable for shares sold 43,304
Prepaid expenses 1,218
Deferred organizational costs 15,512
Total assets 72,450,113
LIABILITIES:
Payable for shares redeemed $ 561,964
Income distribution payable 78,854
Accrued expenses 23,788
Total liabilities 664,606
Net Assets for 71,785,507 shares outstanding $ 71,785,507
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$39,192,552 / 39,192,552 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$32,592,955 / 32,592,955 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,034,356
EXPENSES:
Investment advisory fee $ 274,883
Administrative personnel and services fee 155,001
Custodian fees 2,212
Transfer and dividend disbursing agent fees and expenses 42,633
Directors'/Trustees' fees 1,088
Auditing fees 10,817
Legal fees 15,849
Portfolio accounting fees 53,913
Shareholder services fee-Institutional Shares 66,700
Shareholder services fee-Institutional Service Shares 70,754
Share registration costs 21,853
Printing and postage 7,838
Insurance premiums 6,183
Miscellaneous 6,849
Total expenses 736,573
WAIVERS AND REIMBURSEMENTS:
Waiver of investment advisory fee $ (274,883)
Waiver of shareholder services fee-Institutional Shares (66,700)
Reimbursement of other operating expenses (129,398)
Total waivers and reimbursements (470,981)
Net expenses 265,592
Net investment income $ 1,768,764
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 1,768,764 $ 1,437,481
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (895,346) (613,693)
Institutional Service Shares (873,418) (823,788)
Change in net assets resulting from distributions to
shareholders (1,768,764) (1,437,481)
SHARE TRANSACTIONS:
Proceeds from sale of shares 236,176,586 172,127,656
Net asset value of shares issued to shareholders in payment
of distributions declared 704,085 603,094
Cost of shares redeemed (212,767,088) (172,706,532)
Change in net assets resulting from share transactions 24,113,583 24,218
Change in net assets 24,113,583 24,218
NET ASSETS:
Beginning of period 47,671,924 47,647,706
End of period $ 71,785,507 $ 47,671,924
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 17 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, 1998, capital paid-in aggregated
$71,785,507.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SERVICE SHARES:
<S> <C> <C>
Shares sold 94,453,216 84,213,611
Shares issued to shareholders in payment of distributions
declared 672,741 596,349
Shares redeemed (87,157,077) (90,009,788)
Net change resulting from Institutional Service Share
transactions 7,968,880 (5,199,828)
<CAPTION>
PERIOD ENDED OCTOBER 31 1998 1997
INSTITUTIONAL SHARES:
<S> <C> <C>
Shares sold 141,723,370 87,914,045
Shares issued to shareholders in payment of distributions
declared 31,344 6,745
Shares redeemed (125,610,011) (82,696,744)
Net change resulting from Institutional Share transactions 16,144,703 5,224,046
Net change resulting from share transactions 24,113,583 24,218
</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 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, 1998, 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 $129,215,000 and
$115,090,000, respectively.
ORGANIZATIONAL EXPENSES
Organizational expenses of $24,645 were borne initially by the Adviser. The
Fund has reimbursed the Adviser for these expenses. These expense have been
deferred and are being amortized over the five-year period following the
Fund's effective date.
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, 1998, 87.8% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 14.3% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF TENNESSEE MUNICIAPL 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
Tennessee Municipal
Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
DECEMBER 31, 1998
Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by
visiting or writing the Public Reference Room of the Securities
and Exchange Commission in Washington, DC 20549-6009 or from the
Commission's Internet site at http://www.sec.gov. You can call 1-800-SEC-
0330 for information on the Public Reference Room's operations and
copying charges.
[Graphic]
Tennessee Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229634
G01682-02 (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Tennessee Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Tennessee Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229634
Cusip 314229642
G01682-03 (12/98)
How is the Fund Organized?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
Securities in Which the Fund Invests
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls would result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized rating service
or be of comparable quality to securities having such ratings. A rating
service's two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by
Standard & Poor's (S&P), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
(Moody's), or F-1+, F-1, or F-2 by Fitch IBCA, Inc. (Fitch) are all considered
rated in one of the two highest short-term rating categories. The Fund will
follow applicable regulations in determining whether a security rated by more
than one rating service can be treated as being in one of the two highest short-
term rating categories; currently, such securities must be rated by two rating
services in one of their two highest-rating categories. See "Regulatory
Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax and the
personal income tax imposed by the State of Tennessee. This policy is
fundamental and cannot be changed without shareholder approval.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental, except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, or assets exempted by the
SEC) in an open-end investment company with substantially the same investment
objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued Tennessee tax-exempt securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, and limitations or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933, except for certain
restricted securities which meet the criteria for liquidity as established by
the Board.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval except that no investment limitation of
the Fund shall prevent the Fund from investing substantially all of its assets
(except for assets which are not considered "investment securities" under the
Investment Company Act of 1940, or assets exempted by the SEC) in an open-end
investment company with substantially the same investment objectives.
Shareholders will be notified before any material change in these limitations
becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized statistical rating organizations,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: First
Union Brokerage Services, Brentwood, Tennessee, owned approximately 2,726,316
Shares (6.40%); Chase Manhattan Bank, Brooklyn, New York, owned approximately
2,899,263 Shares (6.80%); Sharp Market & Company, Home Federal Bank FSB,
Knoxville, Tennessee, owned approximately 3,713,475 Shares (8.71%); Reep & CO.,
Pioneer Bank, Chattanooga, Tennessee, owned approximately 8,455,631 Shares
(19.84%); Trust Co. of Knoxville, Knoxville, Tennessee, owned approximately
8,275,614 Shares (19.42%); and James A. Massey, Collierville, Tennessee, owned
approximately 11,199,616 Shares (26.28%).
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Clarence S. Thomas, Jr. MD, Nashville, Tennessee, owned approximately
1,744,476 Shares (5.37%); Coca Cola Bottling Works of Tullahoma, Inc.,
Tullahoma, Tennessee, owned approximately 1,739,149 Shares (5.36%); Sam A.
Brooks, Jr., Nashville, Tennessee, owned approximately 2,133,704 Shares (6.57%);
Derril and Margaret Reeves, Brentwood, Tennessee, owned approximately 2,821,430
Shares (8.69%); Dent Thompson, Nashville, Tennessee, owned approximately
2,909,173 Shares (8.96%); and BHC Securities, Inc., Philadelphia, Pennsylvania,
owned approximately 4,731,714 Shares (14.58%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Tennessee law, distributions made by the Fund will not be subject
to Tennessee personal income taxes to the extent that such distributions qualify
as "exempt-interest dividends" under the Internal Revenue Code, and represent
(i) interest on obligations of the state of Tennessee or its political
subdivisions; or (ii) interest on certain obligations of the United States, or
any agency or instrumentality thereof. To the extent that distributions by the
Fund are derived from distributions on other types of obligations, such
distributions will be subject to Tennessee personal income taxes.
Distributions made by the Fund will be subject to the excise taxes imposed on
corporations.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser. As of December 8, 1998, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation From
Address Principal Occupations Compensation Trust and Fund
Position With Trust for Past 5 Years From Trust Complex
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat 'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and
Federated Investors Tower of the Funds in the Federated Fund Complex; President 18 other
1001 Liberty Avenue and Director, Federated Investors, Inc.; President investment
Pittsburgh, PA and Trustee, Federated Advisers, Federated companies in the
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and Fund Complex
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 56 other
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, investment
Pittsburgh, PA and Federated Research; Director, Federated Research companies in the
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director, Fund Complex
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 56 other
1001 Liberty Avenue management positions within Funds Financial Services investment
Pittsburgh, PA Division of Federated Investors, Inc. companies in the
TREASURER Fund Complex
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 6 other investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and
Federated Investors Tower Vice President, Federated Investment Counseling, 41 other
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, investment
Pittsburgh, PA Federated Management, Federated Research, and companies in the
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative, Fund Complex
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the Trust
Birthdate: September 12, investment companies in the Federated Fund Complex; and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies
1001 Liberty Avenue Research Corp., Federated Management, Federated in the Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the Trust
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies
Pittsburgh, PA Federated Management, Federated Research, Federated in the Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -----------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996*
- ---------------------------------------------------------------
Advisory Fee Earned $274,883 $221,951 $71,830
- ---------------------------------------------------------------
Advisory Fee Reduction 274,883 221,951 71,830
- ---------------------------------------------------------------
Brokerage Commissions 0 0 0
- ---------------------------------------------------------------
Administrative Fee 155,001 154,970 71,571
- ---------------------------------------------------------------
Shareholder Services Fee
- ---------------------------------------------------------------
Institutional Shares 0 --- ---
------------------------------------------------------------
Institutional
------------------------------------------------------------
Service Shares --- 70,754 --- ---
------------------------------------------------------------
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
* For the period May 22, 1996 (date of initial public investment) through
October 31, 1996.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year and since inception periods ended October
31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 7-day period ended
October 31, 1998.
<TABLE>
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception on May 22, 1996
- -------------------------------------------------------------------------------------------------------------
Institutional Shares
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.42% 3.47%
- -------------------------------------------------------------------------------------------------------------
Yield 3.07% -- --
Effective Yield 3.12% -- --
Tax-Equivalent Yield 5.74% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Share Class 7-Day Period 1 Year Since Inception on May 22, 1996
- -------------------------------------------------------------------------------------------------------------
Institutional Service Shares
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return -- 3.17% 3.21%
- -------------------------------------------------------------------------------------------------------------
Yield 2.82% -- --
Effective Yield 2.86% -- --
Tax-Equivalent Yield 5.26% -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF TENNESSEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 21.00% 34.00% 37.00% 42.00% 45.60%
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------------------------------------------------
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds;
. and information about the mutual fund industry from sources such as
the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTOR SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
TENNESSEE MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
PROSPECTUS
Virginia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the Commonwealth
of Virginia.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 23
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the income tax imposed by the
Commonwealth of Virginia consistent with stability of principal. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Virginia
state income tax. Interest from the Fund's investments may be subject to
the federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-14
Historically, the Fund has maintained a constant $1.00 net asset value per
Share. The bar chart shows the variability of the Fund's Institutional
Shares total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset
value.
The Fund's Institutional Shares year-to-date total return as of the most
recent calendar quarter of September 30, 1998, was 2.40%.
Within the period shown in the Chart, the Fund's Institutional Shares
highest quarterly return was 0.93% (quarter ended June 30, 1995). its
lowest quarterly return was 0.57% (quarter ended March 31, 1994).
The Fund's Institutional Shares Seven-Day Net Yield as of
12/31/1997 was 3.60%.
The following table represents the Fund's Institutional Shares Average
Annual Total Return through 12/31/1997.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 3.36%
Start of Performance 1 3.17%
</TABLE>
1 The Fund's Institutional Shares start of performance date was September
16, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the
Seven-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
VIRGINIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
<S> <C>
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.20%
Total Annual Fund Operating Expenses (before waivers) 0.85%
1 Although not contractually obligated to do so, the adviser and shareholder services provider waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal
year ended October 31, 1998.
Waiver of Fund Expenses 0.36%
Total Actual Annual Fund Operating Expenses (after waivers) 0.49%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.29% for the year
ended October 31, 1998.
3 The shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any
time. There was no shareholder services fee paid by the Fund (after the voluntary waiver) for the year
ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Virginia Municipal Cash Trust's Institutional Shares with the cost
of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has
a 5% return each year and that the Virginia Municipal Cash Trust
Institutional Shares' operating expenses are BEFORE WAIVERS as shown above
and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $87 $271 $471 $1,049
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Virginia state income tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its
credit enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Virginia. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE)
is open. When the Fund receives your transaction request in proper form, it
is processed at the next determined net asset value (NAV). The Fund does not
charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Virginia taxpayers
because it invests in Virginia tax-exempt securities. The Distributor and
its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly
from the Fund. The Fund reserves the right to reject any request to
purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption request and providing proper written redemption instructions as
outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired
to you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature from a bank or trust company, savings association,
credit union, or broker, dealer, or securities exchange member. A NOTARY
PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including dividends and capital
gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Virginia state personal income tax to
the extent they are derived from interest on obligations exempt from
Virginia personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-
3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated
was established in 1955 and is one of the largest mutual fund investment
managers in the United States with more than 2,000 employees. Over 4,000
investment professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors
or disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in
this prospectus.
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 1998 1997 1996 1995 1994
<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 0.04 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.26% 3.31% 3.24% 3.56% 2.57%
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.49% 0.49% 0.49% 0.49% 0.33%
Net investment income 3.23% 3.26% 3.19% 3.50% 2.56%
Expense waiver/reimbursement 2 0.36% 0.36% 0.40% 0.42% 0.37%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $24,559 $24,382 $26,302 $22,642 $20,360
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.7% 1
VIRGINIA-95.8%
$ 3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series
1996B Weekly VRDNs (Buckingham Village Apartments)/(First
Union National Bank, Charlotte, NC LOC) $ 3,500,000
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers
Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000
1,900,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/
(Citibank N.A., New York LOC) 1,900,000
10,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(SunTrust
Bank, Atlanta LOC) 10,000,000
1,100,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Kentucky Derby Hosiery Co., Inc. Project)/(Bank One,
Kentucky LOC) 1,100,000
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility
Revenue Bonds (Series 1996) Weekly VRDNs (Chambers
Development of Virginia, Inc. Project)/(Morgan Guaranty
Trust Co., New York LOC) 1,000,000
1,540,000 Charlottesville, VA IDA, IDR Refunding Bonds, 3.80%TOBs
(Safeway, Inc.)/(Bankers Trust Co., New York LOC), Mandatory
Tender 12/1/1998 1,540,000
2,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo AB)/
(UBS AG LOC) 2,900,000
5,995,000 Chesapeake, VA IDA, Trust Receipts (Series 1998 FR/RI-C10)
Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/
(Bank of America NT and SA, San Francisco SWP) 5,995,000
2,000,000 Chesterfield County, VA IDA, (Series 1998) Weekly VRDNs
(Lumberg, Inc.)/
(Nationsbank, N.A., Charlotte LOC) 2,000,000
5,100,000 Chesterfield County, VA IDA, 3.70% CP (Virginia Electric
Power Co.), Mandatory Tender
11/12/1998 5,100,000
5,800,000 Danville, VA IDA, (Series 1997) Weekly VRDNs (Diebold,
Inc.)/(Bank One, Ohio, N.A. LOC) 5,800,000
453,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs
(Tindall Concrete VA, Inc.)/(First Union National Bank,
Charlotte, NC LOC) 453,000
5,298,975 Equity Trust III, (1996 Series) Weekly VRDNs (Bayerische
Hypotheken-Und
Wechsel-Bank AG LOC) 5,298,975
5,000,000 Fairfax County, VA IDA, 1998 Trust Receipts FR/RI-A35 Weekly
VRDNs (Fairfax Hospital System)/(National Westminster Bank,
PLC, London LIQ)/(United States Treasury PRF) 5,000,000
2,020,000 Fairfax County, VA, (Series A), 6.25% Bonds (United States
Treasury PRF), 4/1/1999 (@102) 2,080,514
10,700,000 Falls Church, VA IDA, (Series 1985), 3.95% TOBs (Kaiser
Permanente Medical Care Program), Optional Tender 11/1/1998 10,700,000
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly
VRDNs (Warrenton Development Co.)/(Nationsbank, N.A.,
Charlotte LOC) 600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs
(Thomasville Furniture Industries)/(UBS AG LOC) $ 7,113,000
6,170,000 Frederick County, VA IDA, (Series 1997) Weekly VRDNs (Jouan,
Inc.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 6,170,000
1,875,000 Halifax County, VA IDA, (Series 1998) Weekly VRDNs (Annin &
Co., Inc.)/(Chase Manhattan Bank N.A., New York LOC) 1,875,000
11,500,000 Halifax, VA IDA, MMMs, PCR, 3.40% CP (Virginia Electric
Power Co.), Mandatory Tender
2/12/1999 11,500,000
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.70% CP (Virginia Electric
Power Co.), Mandatory Tender 11/12/1998 3,000,000
1,500,000 Hampton, VA Redevelopment & Housing Authority, (Series 1998)
Weekly VRDNs (Township Apartments)/(Amsouth Bank N.A.,
Birmingham LOC) 1,500,000
1,000,000 Hampton, VA, 7.625% Bonds, 1/15/1999 1,008,012
1,600,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc.
Project)/(Nationsbank, N.A., Charlotte LOC) 1,600,000
4,000,000 Henrico County, VA IDA, (Series 1998) Weekly VRDNs (The
Hermitage at Cedarfield)/(Nationsbank, N.A., Charlotte LOC) 4,000,000
3,250,000 Loudoun County, VA, (Series 1998), 3.90% TOBs (Signature
Flight Support Corp.)/(Bayerische Landesbank Girozentrale
LOC), Optional Tender 12/1/1998 3,250,000
3,200,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Harden
Manufacturing Corp.)/(Columbus Bank and Trust Co., GA LOC) 3,200,000
3,000,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Smith Land
Holdings, L.L.C.)/(Columbus Bank and Trust Co., GA LOC) 3,000,000
7,500,000 Metropolitan Washington, DC Airports Authority, 3.50% CP
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender 12/29/
1998 7,500,000
7,500,000 Metropolitan Washington, DC Airports Authority, 3.60% CP
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender 11/17/
1998 7,500,000
2,600,000 Newport News, VA EDA, (Series 1998) Weekly VRDNs (Jefferson
Point Development)/(Credit Suisse First Boston LOC) 2,600,000
4,095,000 Newport News, VA IDA, (Series 1997) Weekly VRDNs (Iceland
Seafood Corp.)/(Crestar Bank of Virginia, Richmond LOC) 4,095,000
6,660,000 Newport News, VA Redevelopment & Housing Authority, (PA-152)
Weekly VRDNs (Indian Lakes Apartments)/(Merrill Lynch
Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services,
Inc. LOC) 6,660,000
1,740,000 Newport News, VA, 5.90% Bonds, 1/1/1999 1,746,470
5,000,000 Norfolk, VA IDA, 3.50% CP (Sentara Health Systems Obligation
Group), Mandatory Tender 12/17/1998 5,000,000
9,900,000 Portsmouth, VA, 3.78% BANs, 8/15/1999 9,902,702
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 1,145,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh
Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank
One, Ohio, N.A. LOC) $ 1,145,000
945,000 Richmond, VA IDA, (Series 1997) Weekly VRDNs (PM Beef)/
(U.S. Bank, N.A., Minneapolis LOC) 945,000
10,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 10,500,000
6,900,000 Richmond, VA Redevelopment & Housing Authority, (Series B-
10) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 6,900,000
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-2)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 6,000,000
1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 1,500,000
3,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 3,160,000
3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 3,555,000
7,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 7,000,000
5,795,000 Richmond, VA Redevelopment & Housing Authority, Multi-Family
Refunding Revenue Bonds (Series 1997) Weekly VRDNs (Newport
Manor)/(Columbus Bank and Trust Co., GA LOC) 5,795,000
290,000 South Hill, VA IDA, (Series 1997) Weekly VRDNs
(International Veneer Co., Inc.)/(Bank One, Indiana, N.A.
LOC) 290,000
2,500,000 Staunton, VA IDA, (Series 1997) Weekly VRDNs (Diebold,
Inc.)/(Bank One, Ohio, N.A. LOC) 2,500,000
2,100,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville
Properties Bluefield)/(Huntington National Bank, Columbus,
OH LOC) 2,100,000
1,950,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean
Ranch Motel Corp.)/(Nationsbank, N.A., Charlotte LOC) 1,950,000
7,835,000 Virginia Peninsula Port Authority, Coal Terminal Revenue
Refunding Bonds (Series 1987A), 3.00% CP (Dominion Terminal
Associates)/(Barclays Bank PLC, London LOC), Mandatory
Tender 2/12/1999 7,835,000
3,150,000 Virginia Peninsula Port Authority, Facility Revenue
Refunding Bonds (Series 1992), 3.15% CP (CSX Corp.)/(Bank of
Nova Scotia, Toronto LOC), Mandatory Tender 1/19/1999 3,150,000
5,000,000 Virginia Peninsula Port Authority, Facility Revenue
Refunding Bonds (Series 1992), 3.45% CP (CSX Corp.)/(Bank of
Nova Scotia, Toronto LOC), Mandatory Tender 12/18/1998 5,000,000
9,920,000 Virginia Port Authority, MERLOTs (Series 1997M) Weekly VRDNs
(MBIA INS)/(Corestates Bank N.A., Philadelphia, PA LIQ) 9,920,000
3,000,000 Virginia Resources Authority, Water and Sewer (Series 1997)
Weekly VRDNs (Henrico County, VA)/(Crestar Bank of Virginia,
Richmond LIQ) 3,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 4,700,000 Virginia Small Business Financing Authority Weekly VRDNs
(Moses Lake Industries)/(KeyBank, N.A. LOC) $ 4,700,000
5,855,000 Virginia State Housing Development Authority, PT-1096 Weekly
VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 5,855,000
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
Williamsburg Foundation Museum)/(Nationsbank, N.A.,
Charlotte LOC) 1,507,000
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco
Filter Resources, Inc. Project)/(Harris Trust & Savings
Bank, Chicago LOC) 1,575,000
5,000,000 York County, VA IDA, (Series 1985), 3.70% CP (Virginia
Electric Power Co.), Mandatory Tender 11/12/1998 5,000,000
Total 260,269,673
PUERTO RICO-3.9%
5,000,000 Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank AG, Frankfurt LIQ),
Mandatory Tender 1/14/1999 5,000,000
2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 2,000,319
3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1983A), 3.60% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank
N.V., Amsterdam LOC), Optional Tender
9/1/1999 3,500,000
Total 10,500,319
Total Investments (at amortized cost) 2 $ 270,769,992
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 59.3% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
100% 0%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($271,707,056) at October 31, 1998.
The following acronyms are used throughout this portfolio:
<TABLE>
<CAPTION>
<S> <C>
ACES -Adjustable Convertible Extendable Securities
BANs -Bond Anticipation Notes
CP -Commercial Paper
EDA -Economic Development Authority
FSA -Financial Security Assurance
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
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender
Series
MMMs -Money Market Municipals
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PLC -Public Limited Company
PRF -Prerefunded
SA -Support Agreement
TOBs -Tender Option Bonds
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 270,769,992
Income receivable 1,498,816
Receivable for shares sold 1,168,575
Total assets 273,437,383
LIABILITIES:
Payable to Bank $ 240,093
Payable for shares redeemed 1,289,893
Income distribution payable 135,291
Accrued expenses 65,050
Total liabilities 1,730,327
Net Assets for 271,707,056 shares outstanding $ 271,707,056
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$24,558,505 / 24,558,505 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$247,148,551 / 247,148,551 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,563,067
EXPENSES:
Investment advisory fee $ 1,032,025
Administrative personnel and services fee 194,556
Custodian fees 4,396
Transfer and dividend disbursing agent fees and expenses 134,387
Directors'/Trustees' fees 2,471
Auditing fees 12,692
Legal fees 13,954
Portfolio accounting fees 74,567
Shareholder services fee-Institutional Shares 92,949
Shareholder services fee-Institutional Service Shares 552,066
Share registration costs 45,320
Printing and postage 16,374
Insurance premiums 16,421
Miscellaneous 13,216
Total expenses 2,205,394
WAIVERS:
Waiver of investment advisory fee $ (284,795)
Waiver of shareholder services fee-Institutional Shares (92,949)
Waiver of shareholder services fee-Institutional Service
Shares (220,827)
Total waivers (598,571)
Net expenses 1,606,823
Net investment income $ 7,956,244
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 7,956,244 $ 6,903,033
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (1,199,300) (732,930)
Institutional Service Shares (6,756,944) (6,170,103)
Change in net assets resulting from distributions
to shareholders (7,956,244) (6,903,033)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,342,458,938 1,311,030,791
Net asset value of shares issued to shareholders in payment
of distributions declared 5,993,310 4,912,775
Cost of shares redeemed (1,299,965,431) (1,296,599,777)
Change in net assets resulting from share transactions 48,486,817 19,343,789
Change in net assets 48,486,817 19,343,789
NET ASSETS:
Beginning of period 223,220,239 203,876,450
End of period $ 271,707,056 $ 223,220,239
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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.
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 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 140,689,593 75,151,387
Shares issued to shareholders in payment of distributions
declared 292,839 13,520
Shares redeemed (140,806,137) (77,084,630)
Net change resulting from Institutional Share transactions 176,295 (1,919,723)
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 1,201,769,345 1,235,879,404
Shares issued to shareholders in payment of distributions
declared 5,700,471 4,899,255
Shares redeemed (1,159,159,294) (1,219,515,147)
Net change resulting from Institutional Service
Share transactions 48,310,522 21,263,512
Net change resulting from share transactions 48,486,817 19,343,789
</TABLE>
At October 31, 1998, capital paid-in aggregated $271,707,056.
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 Inc. 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, 1998, 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 $441,610,000 and
$448,245,000, 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, 1998, 71.6% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 17.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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 (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Virginia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
Virginia Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229816
3080591A-IS (12/98)
[Graphic]
PROSPECTUS
Virginia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the Commonwealth
of Virginia.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of
this prospectus, and any representation to the contrary is a
criminal offense.
December 31, 1998
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Independent Public Accountants 23
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is current income exempt
from federal regular income tax and the income tax imposed by the
Commonwealth of Virginia consistent with stability of principal. While
there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in
this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual
interest income is exempt from federal regular income tax and Virginia
state income tax. Interest from the Fund's investments may be subject to
the federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Because the Fund may invest a significant portion of its assets in
securities of a single issuer, an investment in the Fund may involve
additional risks compared to a fully diversified money market fund.
Although the Fund seeks to maintain a stable net asset value, it is
possible to lose money investing in the Fund. The shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic] - See Appendix C-15
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales
charge (load). The total returns displayed above are based upon the net
asset value.
The Fund's Institutional Service Shares year-to-date total return as of the
most recent calendar quarter of September 30, 1998, was 2.29%.
Within the period shown in the Chart, the Fund's Institutional Service
Shares highest quarterly return was 0.90% (quarter ended June 30, 1995).
Its lowest quarterly return was 0.55% (quarter ended March 31, 1994).
The Fund's Institutional Service Shares Seven-Day Net Yield as of
12/31/1997 was 3.45%.
The following table represents the Fund's Institutional Service Shares
Average Annual Total Return through 12/31/1997.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 3.21%
Start of Performance 1 3.05%
</TABLE>
1 The Fund's Institutional Service Shares start of performance date was
September 16, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the Seven-Day Net
Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
What are the Fund's Fees and Expenses?
VIRGINIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy,
hold and redeem shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.20%
Total Annual Fund Operating Expenses 0.85%
1 Although not contractually obligated to do so, the adviser and the shareholder services provider waived
certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal
year ended October 31, 1998.
Waiver of Fund Expenses 0.21%
Total Actual Annual Fund Operating Expenses (after waivers) 0.64%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.29% for the year
ended October 31, 1998.
3 The shareholder services fee has been voluntarily reduced. This voluntary reduction can be terminated
at any time. The shareholder services fee paid by the Fund (after the voluntary reduction) was 0.15% for
the fiscal year ended October 31, 1998.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Virginia Municipal Cash Trust's Institutional Service Shares with
the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional
Service Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Virginia Municipal Cash
Trust Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming no redemption $87 $271 $471 $1,049
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an
approved list of issuers and securities that meet the Adviser's minimum
credit standards. The Adviser targets an average portfolio maturity based
upon its interest rate outlook and the tax-exempt securities available. The
Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of tax-exempt
securities, the Adviser generally shortens the portfolio's maturity when
it expects interest rates to rise and extends the maturity when it expects
interest rates to fall.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to
federal regular income tax and Virginia state income tax. Temporary
investments will be of comparable quality to other securities in which the
Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to
receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX-EXEMPT SECURITIES
Tax-exempt securities are fixed income securities that pay interest exempt
from regular federal income taxes. States, counties, cities and other
political subdivisions and authorities typically issue tax-exempt
securities. Tax-exempt securities are generally differentiated by their
source of repayment.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be fixed or adjusted periodically. The issuer
must also repay the principal amount of the security, normally within a
specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also bear interest
at a variable rate intended to cause the securities to trade at their face
value. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates
the credit risk of a fixed income security based solely upon its credit
enhancement.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may effect an investment in the Fund,
the principal risks of investing in a tax-exempt money market fund are
described below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will
default (fails to repay interest and principal when due). If an issuer or
credit enhancer defaults, the Fund will lose money. Money market funds try
to minimize this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's
assessment of the likelihood of default by the issuer. The lower the credit
rating, the greater the credit risk. If the security is unrated, greater
reliance is placed on the Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this
risk by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in
Virginia. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies
in similar businesses or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE)
is open. When the Fund receives your transaction request in proper form, it
is processed at the next determined net asset value (NAV). The Fund does not
charge a sales charge.
NAV is determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE
is open.
The required minimum initial investment for Fund Shares is $25,000. There
is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller
minimum investment amount. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Service Shares. Each share
class has different expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals. The Fund may not be a
suitable investment for retirement plans or for non-Virginia taxpayers
because it invests in Virginia tax-exempt securities. The Distributor and
its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing
Shares. The Distributor is a subsidiary of Federated Investors, Inc.
(Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from
the Fund. The Fund reserves the right to reject any request to purchase
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 1:00
p.m. (Eastern time). You will receive that day's dividend if the
investment professional forwards the order to the Fund and the Fund
receives payment by 3:00 p.m. (Eastern time). You will become the owner of
Shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled
and you could be liable for any losses or fees the Fund or its transfer
agent incurs.
An institution may establish an account and place an order by calling the
Fund and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on
the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE
that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds). Orders by mail are considered
received when payment by check is converted into federal funds (normally
the business day after the check is received) and Shares begin earning
dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
(SIP) section of the New Account Form or by contacting the Fund or your
investment professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end
of regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting
redemption requests and providing proper written redemption instructions
as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired
to you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired
to you the following business day. You will receive that day's dividend.
Under limited circumstances, arrangements may be made with the Distributor
for same-day payment of redemption proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the
day that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud.
Obtain a signature from a bank or trust company, savings association,
credit union, or broker, dealer, or securities exchange member. A NOTARY
PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record.
The following payment options are available if you complete the appropriate
section of the New Account Form or an Account Service Options Form. These
payment options require a signature guarantee if they were not established
when the account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to
seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund
if those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time
the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account
will continue to receive the daily dividend declared on the Shares to be
redeemed until the check is presented for payment. Checks may be made
payable only to third-parties and may not be used to redeem Shares or to
close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return
the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic
statements reporting all account activity, including dividends and capital
gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to
shareholders. If you purchase shares by wire, you begin earning dividends
on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your
check. In either case, you earn dividends through the day your redemption
request is received.
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 pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash
payments.
If you purchase Shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you
should consider the tax implications of purchasing Shares shortly before
the Fund declares a dividend or capital gain. Contact your investment
professional or the Fund for information concerning when dividends and
capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the
minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from
federal income tax, although a portion of the Fund's dividends may not be
exempt. Dividends may be subject to state and local taxes, although the
Fund's dividends will be exempt from Virginia state personal income tax to
the extent they are derived from interest on obligations exempt from
Virginia personal income taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal,
state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets,
including buying and selling portfolio securities. The Adviser's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997.
Federated was established in 1955 and is one of the largest mutual fund
investment managers in the United States with more than 2,000 employees.
Over 4,000 investment professionals make Federated Funds available to
their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors
or disruptions in Fund share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of
securities the Fund may purchase.
The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems
would not have a material adverse affect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's
financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on
a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Arthur Andersen LLP, whose report,
along with the Fund's audited financial statements, is included in
this prospectus.
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 1998 1997 1996 1995 1994
<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 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.11% 3.17% 3.14% 3.46% 2.44%
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.64% 0.63% 0.59% 0.59% 0.40%
Net investment income 3.06% 3.12% 3.10% 3.38% 2.42%
Expense waiver/reimbursement 2 0.21% 0.23% 0.30% 0.32% 0.37%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $247,149 $198,838 $177,575 $127,083 $100,084
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.7% 1
VIRGINIA-95.8%
$ 3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series
1996B Weekly VRDNs (Buckingham Village Apartments)/(First
Union National Bank, Charlotte, NC LOC) $ 3,500,000
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers
Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000
1,900,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/
(Citibank N.A., New York LOC) 1,900,000
10,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(SunTrust
Bank, Atlanta LOC) 10,000,000
1,100,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Kentucky Derby Hosiery Co., Inc. Project)/(Bank One,
Kentucky LOC) 1,100,000
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility
Revenue Bonds (Series 1996) Weekly VRDNs (Chambers
Development of Virginia, Inc. Project)/(Morgan Guaranty
Trust Co., New York LOC) 1,000,000
1,540,000 Charlottesville, VA IDA, IDR Refunding Bonds, 3.80%TOBs
(Safeway, Inc.)/(Bankers Trust Co., New York LOC), Mandatory
Tender 12/1/1998 1,540,000
2,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo AB)/
(UBS AG LOC) 2,900,000
5,995,000 Chesapeake, VA IDA, Trust Receipts (Series 1998 FR/RI-C10)
Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/
(Bank of America NT and SA, San Francisco SWP) 5,995,000
2,000,000 Chesterfield County, VA IDA, (Series 1998) Weekly VRDNs
(Lumberg, Inc.)/
(Nationsbank, N.A., Charlotte LOC) 2,000,000
5,100,000 Chesterfield County, VA IDA, 3.70% CP (Virginia Electric
Power Co.), Mandatory Tender
11/12/1998 5,100,000
5,800,000 Danville, VA IDA, (Series 1997) Weekly VRDNs (Diebold,
Inc.)/(Bank One, Ohio, N.A. LOC) 5,800,000
453,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs
(Tindall Concrete VA, Inc.)/(First Union National Bank,
Charlotte, NC LOC) 453,000
5,298,975 Equity Trust III, (1996 Series) Weekly VRDNs (Bayerische
Hypotheken-Und
Wechsel-Bank AG LOC) 5,298,975
5,000,000 Fairfax County, VA IDA, 1998 Trust Receipts FR/RI-A35 Weekly
VRDNs (Fairfax Hospital System)/(National Westminster Bank,
PLC, London LIQ)/(United States Treasury PRF) 5,000,000
2,020,000 Fairfax County, VA, (Series A), 6.25% Bonds (United States
Treasury PRF), 4/1/1999 (@102) 2,080,514
10,700,000 Falls Church, VA IDA, (Series 1985), 3.95% TOBs (Kaiser
Permanente Medical Care Program), Optional Tender 11/1/1998 10,700,000
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly
VRDNs (Warrenton Development Co.)/(Nationsbank, N.A.,
Charlotte LOC) 600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs
(Thomasville Furniture Industries)/(UBS AG LOC) $ 7,113,000
6,170,000 Frederick County, VA IDA, (Series 1997) Weekly VRDNs (Jouan,
Inc.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 6,170,000
1,875,000 Halifax County, VA IDA, (Series 1998) Weekly VRDNs (Annin &
Co., Inc.)/(Chase Manhattan Bank N.A., New York LOC) 1,875,000
11,500,000 Halifax, VA IDA, MMMs, PCR, 3.40% CP (Virginia Electric
Power Co.), Mandatory Tender
2/12/1999 11,500,000
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.70% CP (Virginia Electric
Power Co.), Mandatory Tender 11/12/1998 3,000,000
1,500,000 Hampton, VA Redevelopment & Housing Authority, (Series 1998)
Weekly VRDNs (Township Apartments)/(Amsouth Bank N.A.,
Birmingham LOC) 1,500,000
1,000,000 Hampton, VA, 7.625% Bonds, 1/15/1999 1,008,012
1,600,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc.
Project)/(Nationsbank, N.A., Charlotte LOC) 1,600,000
4,000,000 Henrico County, VA IDA, (Series 1998) Weekly VRDNs (The
Hermitage at Cedarfield)/(Nationsbank, N.A., Charlotte LOC) 4,000,000
3,250,000 Loudoun County, VA, (Series 1998), 3.90% TOBs (Signature
Flight Support Corp.)/(Bayerische Landesbank Girozentrale
LOC), Optional Tender 12/1/1998 3,250,000
3,200,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Harden
Manufacturing Corp.)/(Columbus Bank and Trust Co., GA LOC) 3,200,000
3,000,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Smith Land
Holdings, L.L.C.)/(Columbus Bank and Trust Co., GA LOC) 3,000,000
7,500,000 Metropolitan Washington, DC Airports Authority, 3.50% CP
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender 12/29/
1998 7,500,000
7,500,000 Metropolitan Washington, DC Airports Authority, 3.60% CP
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender 11/17/
1998 7,500,000
2,600,000 Newport News, VA EDA, (Series 1998) Weekly VRDNs (Jefferson
Point Development)/(Credit Suisse First Boston LOC) 2,600,000
4,095,000 Newport News, VA IDA, (Series 1997) Weekly VRDNs (Iceland
Seafood Corp.)/(Crestar Bank of Virginia, Richmond LOC) 4,095,000
6,660,000 Newport News, VA Redevelopment & Housing Authority, (PA-152)
Weekly VRDNs (Indian Lakes Apartments)/(Merrill Lynch
Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services,
Inc. LOC) 6,660,000
1,740,000 Newport News, VA, 5.90% Bonds, 1/1/1999 1,746,470
5,000,000 Norfolk, VA IDA, 3.50% CP (Sentara Health Systems Obligation
Group), Mandatory Tender 12/17/1998 5,000,000
9,900,000 Portsmouth, VA, 3.78% BANs, 8/15/1999 9,902,702
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 1,145,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh
Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank
One, Ohio, N.A. LOC) $ 1,145,000
945,000 Richmond, VA IDA, (Series 1997) Weekly VRDNs (PM Beef)/
(U.S. Bank, N.A., Minneapolis LOC) 945,000
10,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 10,500,000
6,900,000 Richmond, VA Redevelopment & Housing Authority, (Series B-
10) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 6,900,000
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-2)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 6,000,000
1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 1,500,000
3,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 3,160,000
3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 3,555,000
7,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC) 7,000,000
5,795,000 Richmond, VA Redevelopment & Housing Authority, Multi-Family
Refunding Revenue Bonds (Series 1997) Weekly VRDNs (Newport
Manor)/(Columbus Bank and Trust Co., GA LOC) 5,795,000
290,000 South Hill, VA IDA, (Series 1997) Weekly VRDNs
(International Veneer Co., Inc.)/(Bank One, Indiana, N.A.
LOC) 290,000
2,500,000 Staunton, VA IDA, (Series 1997) Weekly VRDNs (Diebold,
Inc.)/(Bank One, Ohio, N.A. LOC) 2,500,000
2,100,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville
Properties Bluefield)/(Huntington National Bank, Columbus,
OH LOC) 2,100,000
1,950,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean
Ranch Motel Corp.)/(Nationsbank, N.A., Charlotte LOC) 1,950,000
7,835,000 Virginia Peninsula Port Authority, Coal Terminal Revenue
Refunding Bonds (Series 1987A), 3.00% CP (Dominion Terminal
Associates)/(Barclays Bank PLC, London LOC), Mandatory
Tender 2/12/1999 7,835,000
3,150,000 Virginia Peninsula Port Authority, Facility Revenue
Refunding Bonds (Series 1992), 3.15% CP (CSX Corp.)/(Bank of
Nova Scotia, Toronto LOC), Mandatory Tender 1/19/1999 3,150,000
5,000,000 Virginia Peninsula Port Authority, Facility Revenue
Refunding Bonds (Series 1992), 3.45% CP (CSX Corp.)/(Bank of
Nova Scotia, Toronto LOC), Mandatory Tender 12/18/1998 5,000,000
9,920,000 Virginia Port Authority, MERLOTs (Series 1997M) Weekly VRDNs
(MBIA INS)/(Corestates Bank N.A., Philadelphia, PA LIQ) 9,920,000
3,000,000 Virginia Resources Authority, Water and Sewer (Series 1997)
Weekly VRDNs (Henrico County, VA)/(Crestar Bank of Virginia,
Richmond LIQ) 3,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
VIRGINIA-CONTINUED
$ 4,700,000 Virginia Small Business Financing Authority Weekly VRDNs
(Moses Lake Industries)/(KeyBank, N.A. LOC) $ 4,700,000
5,855,000 Virginia State Housing Development Authority, PT-1096 Weekly
VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 5,855,000
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
Williamsburg Foundation Museum)/(Nationsbank, N.A.,
Charlotte LOC) 1,507,000
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco
Filter Resources, Inc. Project)/(Harris Trust & Savings
Bank, Chicago LOC) 1,575,000
5,000,000 York County, VA IDA, (Series 1985), 3.70% CP (Virginia
Electric Power Co.), Mandatory Tender 11/12/1998 5,000,000
Total 260,269,673
PUERTO RICO-3.9%
5,000,000 Commonwealth of Puerto Rico, (Series 1992A) P-Floats PT-140,
3.65% TOBs (FSA INS)/(Commerzbank AG, Frankfurt LIQ),
Mandatory Tender 1/14/1999 5,000,000
2,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (1983
Series A), 4.00% TOBs (Merck & Co., Inc.), Optional Tender
12/1/1998 2,000,319
3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1983A), 3.60% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank
N.V., Amsterdam LOC), Optional Tender
9/1/1999 3,500,000
Total 10,500,319
Total Investments (at amortized cost) 2 $ 270,769,992
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 59.3% of
the portfolio as calculated based upon total portfolio market value.
1 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, MIG-1 or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, or F-2 by Fitch IBCA, 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, 1998, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
100% 0%
</TABLE>
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($271,707,056) at October 31, 1998.
The following acronyms are used throughout this portfolio:
<TABLE>
<CAPTION>
<S> <C>
ACES -Adjustable Convertible Extendable Securities
BANs -Bond Anticipation Notes
CP -Commercial Paper
EDA -Economic Development Authority
FSA -Financial Security Assurance
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
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender
Series
MMMs -Money Market Municipals
PCA -Pollution Control Authority
PCR -Pollution Control Revenue
PLC -Public Limited Company
PRF -Prerefunded
SA -Support Agreement
TOBs -Tender Option Bonds
VRDNs -Variable Rate Demand Notes
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 270,769,992
Income receivable 1,498,816
Receivable for shares sold 1,168,575
Total assets 273,437,383
LIABILITIES:
Payable to Bank $ 240,093
Payable for shares redeemed 1,289,893
Income distribution payable 135,291
Accrued expenses 65,050
Total liabilities 1,730,327
Net Assets for 271,707,056 shares outstanding $ 271,707,056
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$24,558,505 / 24,558,505 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$247,148,551 / 247,148,551 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,563,067
EXPENSES:
Investment advisory fee $ 1,032,025
Administrative personnel and services fee 194,556
Custodian fees 4,396
Transfer and dividend disbursing agent fees and expenses 134,387
Directors'/Trustees' fees 2,471
Auditing fees 12,692
Legal fees 13,954
Portfolio accounting fees 74,567
Shareholder services fee-Institutional Shares 92,949
Shareholder services fee-Institutional Service Shares 552,066
Share registration costs 45,320
Printing and postage 16,374
Insurance premiums 16,421
Miscellaneous 13,216
Total expenses 2,205,394
WAIVERS:
Waiver of investment advisory fee $ (284,795)
Waiver of shareholder services fee-Institutional Shares (92,949)
Waiver of shareholder services fee-Institutional Service
Shares (220,827)
Total waivers (598,571)
Net expenses 1,606,823
Net investment income $ 7,956,244
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 7,956,244 $ 6,903,033
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (1,199,300) (732,930)
Institutional Service Shares (6,756,944) (6,170,103)
Change in net assets resulting from distributions
to shareholders (7,956,244) (6,903,033)
SHARE TRANSACTIONS:
Proceeds from sale of shares 1,342,458,938 1,311,030,791
Net asset value of shares issued to shareholders in payment
of distributions declared 5,993,310 4,912,775
Cost of shares redeemed (1,299,965,431) (1,296,599,777)
Change in net assets resulting from share transactions 48,486,817 19,343,789
Change in net assets 48,486,817 19,343,789
NET ASSETS:
Beginning of period 223,220,239 203,876,450
End of period $ 271,707,056 $ 223,220,239
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
October 31, 1998
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 17 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.
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 1998 1997
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 1,201,769,345 1,235,879,404
Shares issued to shareholders in payment of distributions
declared 5,700,471 4,899,255
Shares redeemed (1,159,159,294) (1,219,515,147)
Net change resulting from Institutional Service
Share transactions 48,310,522 21,263,512
<CAPTION>
YEAR ENDED OCTOBER 31 1998 1997
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 140,689,593 75,151,387
Shares issued to shareholders in payment of distributions
declared 292,839 13,520
Shares redeemed (140,806,137) (77,084,630)
Net change resulting from Institutional Share transactions 176,295 (1,919,723)
Net change resulting from share transactions 48,486,817 19,343,789
</TABLE>
At October 31, 1998, capital paid-in aggregated $271,707,056.
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 Inc. 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, 1998, 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 $441,610,000 and
$448,245,000, 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, 1998, 71.6% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not
exceed 17.4% of total investments.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by each of the
Fund's other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact
to the Fund.
Report of Independent Public Accountants
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL TRUST
AND SHAREHOLDERS OF 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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights 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, 1998, 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 (an investment portfolio of Federated
Municipal Trust) as of October 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for the
periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1998
[Graphic]
PROSPECTUS
Virginia Municipal Cash Trust
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
December 31, 1998
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting
or writing the Public Reference Room of the Securities and Exchange
Commission in Washington, DC 20549-6009 or from the Commission's Internet
site at http://www.sec.gov. You can call 1-800-SEC-0330 for information on
the Public Reference Room's operations and copying charges.
[Graphic]
Virginia Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5911
Cusip 314229824
3080501A-SS (12/98)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Virginia Municipal Cash Trust dated
December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
Cusip 314229816
Cusip 314229824
3080501B (12/98)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Municipal Trust (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 1, 1989. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to all of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
SECURITIES DESCRIPTIONS AND TECHNIQUES
In pursuing its investment strategy, the Fund may invest in the following tax-
exempt securities for any purpose that is consistent with its investment
objective.
General Obligation Bonds
General obligation bonds are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls could result in a default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
Municipal Leases
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but the
Fund may lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to a security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
Investment Ratings
A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's ("S&P"), MIG-1 or
MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by
Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two highest
short-term rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. An additional risk factor is
outlined below.
Tax Risk
In order for the interest income from the securities to be exempt from federal
regular income tax ("tax-exempt"), tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
FUNDAMENTAL INVESTMENT POLICIES
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular and Virginia state income
tax or so that at least 80% of its net assets is invested in obligations, the
interest income from which is exempt from federal regular and Virginia state
income tax. This policy is fundamental and cannot be changed without shareholder
approval.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for the clearance of
transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
its total assets at the time of the pledge. Lending Cash or Securities The Fund
will not lend any of its assets, except that it may acquire publicly or
nonpublicly issued Virginia tax-exempt securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations and its Declaration of Trust.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items (the Fund considers cash items to be instruments issued by a U.S. branch
of a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment), securities issued
or guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following investment limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Board, and repurchase agreements
providing for settlement in more than seven days after notice.
Investing for Control
The Fund will not invest in securities of a company for the purpose of
exercising control or management. Investing in Options The Fund will not invest
in puts, calls, straddles, spreads, or any combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year. Regulatory Compliance The Fund may follow non-
fundamental operational policies that are more restrictive than its fundamental
investment limitations, as set forth in the prospectus and this Statement of
Additional Information, in order to comply with applicable laws and regulations,
including the provisions of and regulations under the Investment Company Act of
1940. In particular, the Fund will comply with the various requirements of Rule
2a-7, which regulates money market mutual funds. The Fund will determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by nationally
recognized rating services according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its ability to participate in volume transactions will be to the
benefit of the Fund.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Board must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Board will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Board will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professionals about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
EAMCO, Riggs Bank N.A., Washington, DC, owned approximately 5,985,835 shares
(22.08%); Comfort & Co., Old Point National Bank, Newport News, Virginia, owned
approximately 5,932,986 shares (21.88%); VATCO, The Trust Company of Virginia,
Richmond, Virginia, owned approximately 5,474,564 shares (20.19%); FUBS & CO
FBO, Charlotte, North Carolina, owned approximately 1,473,771 shares (5.44%);
and Chesnat, Kilmarnock, Virginia, owned approximately 1,365,505 shares (5.04%),
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Scott & Stringfellow, Inc., Richmond, Virginia, owned approximately
86,313,069 shares (33.50%) and First Union Capital Markets Corp., Charlotte,
North Carolina, owned approximately 16,303,157 shares (6.33%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these requirements
are not met, it will not receive the special tax treatment and will pay federal
income tax. The Fund will be treated as a single, separate entity for federal
income tax purposes so that income earned and capital gains and losses realized
by the Trust's other portfolios will be separate from those realized by the
Fund.
STATE TAXES
Under existing Virginia laws, distributions made by the Fund will not be subject
to Virginia income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest or gain from obligations issued by or on behalf of the Commonwealth of
Virginia or any political subdivision thereof; or (ii) interest or gain from
obligations issued by a territory or possession of the United States or any
political subdivision thereof which federal law exempts from state income taxes.
Conversely, to the extent that distributions made by the Fund are attributable
to other types of obligations, such distributions will be subject to Virginia
income taxes.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Trust is comprised of 17 Funds and the
Federated Fund Complex is comprised of 56 investment companies, whose investment
advisers are affiliated with the Fund's Adviser.
As of December 8, 1998 the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation
Address Principal Occupations Compensation From Trust and
Position With Trust for Past 5 Years From Trust Fund Complex
- ------------------------------ -------------------------------------------------------- ---------------- -------------------
<S> <C> <C> <C>
John F. Donahue##* Chief Executive Officer and Director or Trustee of $0 $0 for the Trust
Birthdate: July 28, 1924 the Federated Fund Complex. Chairman and Director, and 56 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies in the
Pittsburgh, PA Federated Research; Chairman and Director, Federated Fund Complex
CHAIRMAN and TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 56 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment
TRUSTEE Director, Member of Executive Committee, University companies in the
of Pittsburgh. Fund Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 56 other
John R. Wood and Realtors; Partner or Trustee in private real estate investment
Associates, Inc. Realtors ventures in Southwest Florida; formerly: President, companies in the
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Fund Complex
Naples, FL Village Development Corporation.
TRUSTEE
William J. Copeland Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Trust and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 56 other
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; investment
TRUSTEE Director, Ryan Homes, Inc. companies in the
Fund Complex
Retired: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Trust and
571 Hayward Mill Road Inc. 56 other
Concord, MA investment
TRUSTEE Retired: President, Boston Stock Exchange, Inc.; companies in the
Regional Administrator, United States Securities and Fund Complex
Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 56 other
Suite 1111 Center - Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, Presbyterian and Montefiore Hospitals; companies in the
TRUSTEE Member, National Board of Trustees, Leukemia Society Fund Complex
of America.
Edward L. Flaherty, Jr., Director or Trustee of the Federated Fund Complex; $4,484.62 $122,362 for the
Esq. # Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Trust and
Birthdate: June 18, 1924 Director, Eat'N Park Restaurants, Inc.; formerly: 56 other
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; investment
Kochuba Partner, Meyer and Flaherty. companies in the
205 Ross Street Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; President, State Street 56 other
100 Royal Palm Way Bank and Trust Company and State Street Corporation. investment
Palm Beach, FL companies in the
TRUSTEE Retired: Director, VISA USA and VISA International; Fund Complex
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. 56 other
President, Duquesne investment
University Retired: Dean and Professor of Law, University of companies in the
Pittsburgh, PA Pittsburgh School of Law; Dean and Professor of Law, Fund Complex
TRUSTEE Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: September 14, President, World Society of Ekistics, Athens; Trust and
1925 Professor, International Politics; Management 56 other
1202 Cathedral of Learning Consultant; Trustee, Carnegie Endowment for investment
University of Pittsburgh International Peace, RAND Corporation, Online companies in the
Pittsburgh, PA Computer Library Center, Inc., National Defense Fund Complex
TRUSTEE 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.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $4,076.31 $111,222 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 56 other
Pittsburgh, PA Retired: National Spokesperson, Aluminum Company of investment
TRUSTEE America; business owner. companies in the
Fund Complex
Glen R. Johnson* Trustee, Federated Investors, Inc.; staff member, $0 $0 for the Trust
Birthdate: May 2, 1929 Federated Securities Corp. and 8 other
Federated Investors Tower investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex
PRESIDENT and TRUSTEE
J. Christopher Donahue##* President or Executive Vice President of the $0 $0 for the Trust
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some and 18 other
Federated Investors Tower of the Funds in the Federated Fund Complex; President investment
1001 Liberty Avenue and Director, Federated Investors, Inc.; President companies in the
Pittsburgh, PA and Trustee, Federated Advisers, Federated Fund Complex
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0 $0 for the Trust
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice and 1 other
Federated Investors Tower President and Treasurer of some of the Funds in the investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies in the
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers, Fund Complex
EXECUTIVE VICE PRESIDENT 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.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Trust
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, and 56 other
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; investment
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, companies in the
Pittsburgh, PA and Federated Research; Director, Federated Research Fund Complex
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director,
and SECRETARY Federated Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birthdate: June 17, 1954 President - Funds Financial Services Division, and 56 other
Federated Investors Tower Federated Investors, Inc.; Formerly: various investment
1001 Liberty Avenue management positions within Funds Financial Services companies in the
Pittsburgh, PA Division of Federated Investors, Inc. Fund Complex
TREASURER
Richard B. Fisher* President or Vice President of some of the Funds in $0 $0 for the Trust
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of and 6 other
Federated Investors Tower some of the Funds in the Federated Fund Complex; investment
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; companies in the
Pittsburgh, PA Chairman and Director, Federated Securities Corp. Fund Complex
VICE PRESIDENT
William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive and 41 other
Federated Investors Tower Vice President, Federated Investment Counseling, investment
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, companies in the
Pittsburgh, PA Federated Management, Federated Research, and Fund Complex
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.
Mary Jo Ochson Senior Portfolio Manager and Vice President of eight $0 $0 for the
Birthdate: September 12, investment companies in the Federated Fund Complex; Trust and
1953 Senior Vice President, Federated Investment 7 other investment
Federated Investors Tower Counseling, Federated Advisers, Federated Global companies in the
1001 Liberty Avenue Research Corp., Federated Management, Federated Fund Complex
Pittsburgh, PA Research, Federated Research Corp. and Passport
SENIOR PORTFOLIO Research, Ltd.; Formerly: Vice President, Federated
MANAGER/VICE PRESIDENT Advisers, Federated Management, Federated Research,
Federated Research Corp. , Passport Research, Ltd.
and Federated Global Research Corp.
Jeff A. Kozemchak Senior Portfolio Manager and Vice President of four $0 $0 for the
Birthdate: January 15, 1960 investment companies in the Federated Fund Complex; Trust and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Advisers, Federated Global Research Corp., companies in the
Pittsburgh, PA Federated Management, Federated Research, Federated Fund Complex
SENIOR PORTFOLIO Research Corp. and Passport Research, Ltd.;
MANAGER/VICE PRESIDENT Formerly: Assistant Vice President and Investment
Analyst, Federated Research Corp. and Passport
Research, Ltd. ; Assistant Vice President, Federated
Advisers, Federated Management and Federated Research.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Federated Funds
- -------------------------------------------------------------
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
<TABLE>
<CAPTION>
FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31, 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $1,032,025 $881,787 $657,332
- -------------------------------------------------------------------
Advisory Fee Reduction $284,795 $246,296 $243,090
- -------------------------------------------------------------------
Brokerage Commissions $0 $0 $0
- -------------------------------------------------------------------
Administrative Fee $194,556 $166,299 $155,000
- -------------------------------------------------------------------
Shareholder Services Fee
- -------------------------------------------------------------------
Institutional Shares $0 --- ---
- -------------------------------------------------------------------
Institutional Service Shares $331,239 --- ---
- -------------------------------------------------------------------
</TABLE>
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing fees and shareholder services fees, which are borne only by
the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and since inception periods
ended October 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the Seven-day period
ended October 31, 1998.
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on September 16, 1993
Institutional Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.26% 3.19% 3.18%
Yield 2.91% -- -- --
Effective Yield 2.95% -- -- --
Tax-Equivalent Yield 5.40% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Share Class Seven-Day Period 1 Year 5 Years Since Inception on September 16, 1993
Institutional Service Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return -- 3.11% 3.06% 3.05%
Yield 2.76% -- -- --
Effective Yield 2.79% -- -- --
Tax-Equivalent Yield 5.11% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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 effective yield is calculated by compounding the unannualized base-
period return by: adding 1 to the base-period return, raising the sum to the
365/7th power; and subtracting 1 from the result. The tax-equivalent yield of
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF VIRGINIA
- -----------------------------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
20.75% 33.75% 36.75% 41.75% 45.35%
- -----------------------------------------------------------------------------------------------------------------------------------
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Yield Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------------------------------
1.50% 1.89% 2.26% 2.37% 2.58% 2.74%
2.00% 2.52% 3.02% 3.16% 3.43% 3.66%
2.50% 3.15% 3.77% 3.95% 4.29% 4.57%
3.00% 3.79% 4.53% 4.74% 5.15% 5.49%
3.50% 4.42% 5.28% 5.53% 6.01% 6.40%
4.00% 5.05% 6.04% 6.32% 6.87% 7.32%
4.50% 5.68% 6.79% 7.11% 7.73% 8.23%
5.00% 6.31% 7.55% 7.91% 8.58% 9.15%
5.50% 6.94% 8.30% 8.70% 9.44% 10.06%
6.00% 7.57% 9.06% 9.49% 10.30% 10.98%
</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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
. 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.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers And Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-1+, A/A-1. (The definitions for the long-
term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
ADDRESSES
VIRGINIA MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110-2812
APPENDIX A
A1.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash Series Shares of Minnesota Municipal Cash Trust as
of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 5.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash Series Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Cash Series Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1991 through 1997, the total return percentages were 2.24%, 2.51%, 1.98%,
2.37%, 3.45%, 2.88%, and 3.01%, respectively.
A2.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Minnesota Municipal Cash Trust
as of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 5.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1995 through 1997, the total return percentages were 4.57%,
2.92%, 2.39%, 2.78%, 3.87%, 3.40%, and 3.53%, respectively.
A3.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Michigan Municipal Cash Trust as
of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features one distinct vertical
bar, shaded in charcoal, and visually represents by height the total return
percentage for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for the calendar year 1997,
stated directly at the top of the vertical bar, was 3.47%.
A4.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Michigan Municipal Cash
Trust as of the calendar year-end for two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended December 31, 1997. The light gray shaded chart features two distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Institutional Service Shares for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1996 and 1997, the total return percentages were 3.18% and 3.31%,
respectively.
<PAGE>
A5.
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of Tennessee Municipal Cash Trust as
of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features one distinct vertical
bar, shaded in charcoal, and visually represents by height the total return
percentage for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for the calendar year 1997,
stated directly at the top of the bar, was 3.50%.
A6.
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Service Shares of Tennessee Municipal Cash
Trust as of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended December 31, 1997. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually represents by height the total
return percentage for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Service Shares for the
calendar year 1997, stated directly at the top of each respective bar, was
3.24%.
A7.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Boston 1784 Funds Shares as of the calendar year-end for
each of four years.
The `y' axis reflects the "% Total Return" beginning with 0.00% and increasing
in increments of 5.00% up to 10.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's Boston 1784 Funds Shares start of business through the calendar
year ended December 31, 1997. The light gray shaded chart features four distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund's Boston 1784 Funds Shares
for each calendar year is stated directly at the top of each respective bar, for
the calendar years 1993 through 1997, the total return percentages were: 2.26%,
3.36%, 2.98%, and 3.11%, respectively.
A8.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares as of the calendar year-end
for each of seven years.
The `y' axis reflects the "% Total Return" beginning with 0.00% and increasing
in increments of 1.00% up to 5.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's Institutional Service Shares start of business through the
calendar year ended December 31, 1997. The light gray shaded chart features
seven distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund's
Institutional Service Shares for each calendar year is stated directly at the
top of each respective bar, for the calendar years 1991 through 1997, the total
return percentages were: 4.32%, 2.60%, 1.92%, 2.34%, 3.40%, 3.00% and 3.13%,
respectively.
APPENDIX B
FEDERATED MUNICIPAL TRUST
B1 The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Alabama Municipal Cash Trust as of the calendar
year-ended 1994, 1995, 1996, and 1997. The `y' axis reflects the "% Total
Return" beginning with 0% and increasing in increments of 1% up to 4%. The `x'
axis represents calculation periods from the earliest calendar year end of the
Fund's start of business through the calendar year ended 1997. The light gray
shaded chart features four distinct vertical bars, each shaded in charcoal, and
each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year, stated directly at the top of
each respective bar, for the calendar years 1994 through 1997, are 2.71%, 3.67%,
3.16%, and 3.30%, respectively.
B2 The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Georgia Municipal Cash Trust as of the calendar
year-ended 1996 and 1997. The `y' axis reflects the "% Total Return" beginning
with 0% and increasing in increments of 1% up to 4%. The `x' axis represents
calculation periods from the earliest calendar year end of the Fund's start of
business through the calendar year ended 1997. The light gray shaded chart
features two distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year,
stated directly at its base. The calculated total return percentage for the Fund
for each calendar year stated directly at the top of each respective bar, for
the calendar years 1996 through 1997, are 3.27%, and 3.42%, respectively.
B3 The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Maryland Municipal Cash Trust as of the calendar
year-ended 1995, 1996 and 1997. The `y' axis reflects the "% Total Return"
beginning with 0% and increasing in increments of 1% up to 4%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended 1997. The light gray shaded
chart features three distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year, stated directly at its base. The calculated total return percentage for
the Fund for each calendar year is stated directly at the top of each respective
bar, for the calendar years 1995 through 1997, are 3.38%, 3.05%, and 3.13%,
respectively.
B4 The graphic presentation displayed here consists of a bar chart representing
the annual total returns of North Carolina Municipal Cash Trust as of the
calendar year ended 1994, 1995, 1996, and 1997. The `y' axis reflects the "%
Total Return" beginning with 0% and increasing in increments of 1% up to 4%. The
`x' axis represents calculation periods from the earliest calendar year end of
the Fund's start of business through the calendar year ended 1997. The light
gray shaded chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year, stated directly at its base. The calculated total return
percentage for the Fund for each calendar year, stated directly at the top of
each respective bar, for the calendar years 1994 through 1997, are 2.63%, 3.55%,
3.16%, and 3.27%, respectively.
B5 The graphic presentation displayed here consists of a bar chart representing
the annual total return of Institutional Shares of New Jersey Municipal Cash
Trust as of the calendar year-end for each of seven years from 1991 through
1997. The `y' axis reflects the "% Total Return" beginning with 0% and
increasing in increments of 1% up to 5%. The `x' axis represents calculation
periods from the earliest calendar year end of the Institutional Shares' start
of business through the calendar year ended 1997. The light gray shaded chart
features seven distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Institutional Shares for each calendar year, stated directly at the top of each
respective bar, for the calendar years 1991 through 1997, are 4.20%, 2.71%,
2.16%, 2.46%, 3.51%, 3.10%, and 3.23%, respectively.
B6 The graphic presentation displayed here consists of a bar chart representing
the annual total return of Institutional Service Shares of New Jersey Municipal
Cash Trust as of the calendar year-end for each of seven years from 1991 through
1997. The `y' axis reflects the "% Total Return" beginning with 0% and
increasing in increments of 1% up to 5%. The `x' axis represents calculation
periods from the earliest calendar year end of the Institutional Service Shares'
start of business through the calendar year ended 1997. The light gray shaded
chart features seven distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Institutional Service Shares for each calendar year, stated directly at the top
of each respective bar, for the calendar years 1991 through 1997, are 4.13%,
2.60%, 2.05%, 2.36%, 3.40%, 2.99%, and 3.12%, respectively.
Appendix C
C1.
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of California Municipal Cash Trust
as of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares start of business through the calendar year ended
1997. The chart features one distinct vertical bar, shaded in charcoal, and
visually representing by height the total return percentage for the calendar
year stated directly at its base. The calculated total return percentage for the
Institutional Shares for the calendar year is stated directly at the top of the
respective bar, for the calendar year 1997 was 3.47%.
C2.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of California Municipal
Cash Trust as of the calendar year-end for each of eight years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features eight distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1990 through
1997 are 5.31%, 3.92%, 2.47%, 1.94%, 2.35%, 3.41%, 3.17%, and 3.21%,
respectively.
C3.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Connecticut Municipal
Cash Trust as of the calendar year-end for each of eight years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features eight distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1990 through
1997 are 5.41%, 3.89%, 2.45%, 1.91%, 2.33%, 3.34%, 2.94%, and 3.05%
respectively.
C4.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash II Shares of Florida Municipal Cash Trust as of the
calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 3.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash II Shares start of business through the calendar year ended 1997.
The chart features two distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Cash II Shares for each calendar year is stated directly at the top of each
respective bar, for the calendar years 1996 through 1997 are 2.95% and 2.97%,
respectively.
C5.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Florida Municipal Cash Trust as
of the calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares start of business through the calendar year ended
1997. The chart features three distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1995 through
1997 are 3.59%, 3.13%, and 3.23%, respectively.
C6.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash II Shares of New York Municipal Cash Trust as of
the calendar year-end for each of six years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash II Shares start of business through the calendar year ended 1997.
The chart features six distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Cash II Shares for each calendar year is stated directly at the top of each
respective bar, for the calendar years 1992 through 1997 are 2.59%, 1.93%,
2.38%, 3.41%, 2.98%, and 3.12%, respectively.
C7.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of New York Municipal Cash
Trust as of the calendar year-end for each of ten years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features ten distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1988 through
1997 are 4.76%, 5.76%, 5.52%, 4.30%, 2.75%, 2.10%, 2.57%, 3.59%, 3.17%, and
3.30%, respectively.
C8.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash II Shares of Ohio Municipal Cash Trust as of the
calendar year-end for each of six years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash II Shares start of business through the calendar year ended 1997.
The chart features six distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Cash II Shares for each calendar year is stated directly at the top of each
respective bar, for the calendar years 1992 through 1997 are 2.64%, 1.97%,
2.30%, 3.35%, 2.88%, and 3.02%, respectively.
C9.
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of Ohio Municipal Cash Trust as of
the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares start of business through the calendar year ended
1997. The chart features one distinct vertical bar, shaded in charcoal, and
visually representing by height the total return percentage for the calendar
year stated directly at its base. The calculated total return percentage for the
Institutional Shares for the calendar year is stated directly at the top of the
respective bar, for the calendar year 1997 was 3.53%.
C10.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Ohio Municipal Cash
Trust as of the calendar year-end for each of six years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features six distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1992 through
1997 are 2.95%, 2.27%, 2.61%, 3.66%, 3.19%, and 3.33 respectively.
C11.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash Series Shares of Pennsylvania Municipal Cash Trust
as of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of1.00% up to 5.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash Series Shares start of business through the calendar year ended
1997. The chart features seven distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Cash Series Shares for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1991 through 1997 are
4.16%, 2.40%, 1.76%, 2.04%, 3.06%, 2.68%, and 2.81%, respectively.
C12.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Pennsylvania Municipal Cash
Trust as of the calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares start of business through the calendar year ended
1997. The chart features two distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1996 through
1997 are 3.30% and 3.42%, respectively.
C13.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Pennsylvania Municipal
Cash Trust as of the calendar year-end for each of eight years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features eight distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1990 through
1997 are 5.68%, 4.36%, 2.81%, 2.16%, 2.45%, 3.48%, 3.09%, and 3.22%
respectively.
C14.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Virginia Municipal Cash Trust as
of the calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.80% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares start of business through the calendar year ended
1997. The chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1994 through
1997 are 2.73%, 3.59%, 3.17%, and 3.36% respectively.
C15.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Virginia Municipal Cash
Trust as of the calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.80% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares start of business through the calendar year
ended 1997. The chart features four distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1994 through
1997 are 2.60%, 3.49%, 3.07%, and 3.21% respectively.
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) Conformed copy of Declaration of Trust of the Registrant
(i) Conformed copies of amendments to the Declaration of Trust:
Amendment No. 1 does not exist;(31)
Amendment No. 2 dated March 16, 1990; (31)
Amendment No. 3 dated August 1, 1990; (31)
Amendment No. 4 dated September 1, 1989; (7)
Amendment No. 5 dated December 12, 1990; (31)
Amendment No. 6 dated March 21, 1991; (31)
Amendment No. 7 dated August 26, 1991; (31)
Amendment No. 8 dated February 13, 1992; (31)
Amendment No. 9 dated November 9, 1992; (31)
Amendment No. 10 dated November 18, 1992; (12)
Amendment No. 11 dated May 24, 1993; (31)
Amendment No. 12 dated Nov. 22, 1993; (17)
Amendment No. 13 dated February 24, 1994; (17)
Amendment No. 14 dated August 25, 1994; (20)
Amendment No. 15 dated August 25, 1994; (31)
Amendment No. 16 dated May 18, 1995; (31)
Amendment No. 17 dated November 14, 1995; (28)
Amendment No. 18 dated February 29, 1996; (31)
Amendment No. 19 dated November 25, 1996; (34)
Amendment No. 20 dated April 7, 1997; (34)
Amendment No. 21 dated February 23, 1998; (34)
(b) Copy of By-Laws of the Registrant; (7)
(i) Copy of Amendment No. 1 to By-Laws dated November 18, 1997; (35)
(ii) Copy of Amendment No. 2 to By-Laws dated February 23, 1998; (35)
(iii) Copy of Amendment No. 3 to By-Laws dated February 27, 1998; (35)
(iv) Copy of Amendment No. 4 to By-Laws dated May 12, 1998; (35)
- -----------
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed on November 6, 1990 (File Nos. 33-31259
and 811-5911).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on December 23, 1992 (File Nos.
33-31259 and 811-5911).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on March 2, 1994 (File Nos. 33-31259
and 811-5911).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed on September 19, 1994 (File Nos.
33-31259 and 811-5911).
28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 39 on Form N-1A filed on December 22, 1995 (Filed Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre- Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
35. Response is incorporated by reference to Registrant's
Post- Effective Amendment No. 47 on Form N-1A filed on October 28, 1998
(File Nos. 33-31259 and 811-5911).
<PAGE>
(c) (i) Copy of Specimen Certificates for Shares of Beneficial
Interest of Alabama Municipal Cash Trust, Minnesota Municipal
Cash Trust (Cash Series Shares and Institutional Shares),
Pennsylvania Municipal Cash Trust (Cash Series Shares and
Institutional Service Shares), Virginia Municipal Cash Trust
(Institutional Service Shares and Institutional Shares),
North Carolina Municipal Cash Trust, Ohio Municipal Cash
Trust (Cash II Shares and Institutional Shares), Massachusetts
Municipal Cash Trust (Institutional Service Shares and
BayFunds Shares), and New Jersey Municipal Cash Trust
(Institutional Shares and Institutional Service Shares); (16)
(ii) Copy of Specimen Certificate for Maryland Municipal Cash
Trust; (17)
(iii) Copy of Specimen Certificate for Florida Municipal Cash
Trust; (20)
(iv) Copy of Specimen Certificate for Michigan Municipal Cash
Trust; (24)
(v) Copy of Specimen Certificate for Pennsylvania Municipal
Cash Trust
(Institutional Shares); (25)
(vi) Copy of Specimen Certificate for Georgia Municipal
Cash Trust; (26)
(vii) Copy of Specimen Certificates for Tennessee Municipal
Cash Trust (Institutional Shares and Institutional
Service Shares); (30)
(viii) Copy of Specimen Certificates for Pennsylvania Municipal Cash
Trust and Connecticut Municipal Cash Trust; (2)
(ix) Copy of Specimen Certificate for Ohio Municipal Cash Trust
(Institutional Service Shares); (9)
- ----------------
2. Response is incorporated by reference to Registrants Pre-Effective
Amendment No. 1 on Form N-1A filed on October 31, 1989 (File Nos. 33-31259
and 811-5911).
9. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 10 on Form N-1A filed on January 24, 1991 (File Nos. 33-31259
and 811-5911).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed on December 29, 1993 (File Nos.
33-31259 and 811-5911).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on March 2, 1994 (File Nos. 33-31251
and 811-5911).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed on September 19, 1994 (File Nos.
33-31251 and 811-5911).
24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed on April 13, 1995 (File Nos. 33-31251
and 811-5911).
25. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed on May 19, 1995 (File Nos. 33-31251 and
811-5911).
26. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 36 on Form N-1A filed on May 31, 1995 (File Nos. 33-31259 and
811-5911).
30. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 42 on Form N-1A filed on February 29, 1996 (File Nos.
33-31251 and 811-5911).
<PAGE>
(x) Copy of Speciman Certificates for California Municipal Cash
Trust (Institutional Shares and Institutional Service Shares),
Michigan Municipal Cash Trust (Institutional Shares and
Institutional Service Shares), and Ohio Municipal Cash Trust
(Institutional Shares and Institutional Service Shares); (33)
(xi) Copy of Specimen Certificate for Arizona Municipal Cash Trust
(Institutional Service Shares); (34)
(d) Conformed copy of Investment Advisory Contract of the Registrant; (7)
(i) Conformed copies of exhibits to Investment Advisory Contract:
Exhibit G for Virginia Municipal Cash Trust; (18)
Exhibit H for Alabama Municipal Cash Trust; (19)
Exhibit I for North Carolina Municipal Cash Trust; (19)
Exhibit J for Maryland Municipal Cash Trust; (19)
Exhibit K for New York Municipal Cash Trust; (22)
Exhibit L for California Municipal Cash Trust; (22)
Exhibit M for Florida Municipal Cash Trust; (31)
Exhibit N for Georgia Municipal Cash Trust; (27)
Exhibit O for Michigan Municipal Cash Trust; (27)
Exhibit P for Tennessee Municipal Cash Trust;(31)
Exhibit Q for Arizona Municipal Cash Trust; (34)
(e) Conformed copy of Distributor's Contract of the registrant;(7)
(i) Conformed copies of exhibits to the Distributor's Contract:
Exhibit A for Massachusetts Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit B for Pennsylvania Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit C for Connecticut Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit D for Minnesota Municipal Cash Trust
(Institutional Shares); (9)
Exhibit E for New Jersey Municipal Cash Trust
(Institutional Shares); (31)
- --------------
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed on November 6, 1990 (File Nos. 33-31259
and 811-5911).
9. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 10 on Form N-1A filed on January 24, 1991 (File Nos. 33-31259
and 811-5911).
18. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 26 on Form N-1A filed on June 1, 1994 (File Nos. 33-31259 and
811-5911).
19. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 28 on Form N-1A filed on June 28, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259
and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed November 29, 1996 (File Nos. 33-31259
and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 46 on Form N-1A filed March 16, 1998 (File Nos. 33-31259 and
811-5911).
<PAGE>
Exhibit F for New Jersey Municipal Cash Trust
(Institutional Service Shares; (31)
Exhibit G for Pennsylvania Municipal Cash Trust
(Cash Series Shares); (31)
Exhibit H does not exist;
Exhibit I for Minnesota Municipal Cash Trust
(Cash Series Shares); (31)
Exhibit J does not exist;
Exhibit K for Ohio Municipal Cash Trust
(Institutional Service Shares); (31)
Exhibit L for Ohio Municipal Cash Trust (Cash II Shares); (31)
Exhibit M; (22)
Exhibit N for Virginia Municipal Cash Trust; (19)
Exhibit O for Alabama Municipal Cash Trust; (19)
Exhibit P for North Carolina Municipal Cash Trust; (19)
Exhibit Q for Maryland Municipal Cash Trust; (19)
Exhibit R for New York Municipal Cash Trust
(Cash II Shares); (21)
Exhibit S for New York Municipal Cash Trust
(Institutional Service Shares); (21)
Exhibit T for California Municipal Cash Trust; (21)
Exhibit U for Florida Municipal Cash Trust; (22)
Exhibit W for Michigan Municipal Cash Trust; (27)
Exhibit X for Pennsylvania Municipal Cash Trust
(Institutional Shares); (27)
Exhibit Y for Florida Municipal Cash Trust
(Cash II Shares); (29)
Exhibit Z for California Municipal Cash Trust
(Institutional Shares); (31)
Exhibit AA for Michigan Municipal Cash Trust
(Institutional Shares); (31)
Exhibit BB for Ohio Municipal Cash Trust
(Institutional Shares); (31)
Exhibit CC for Tennessee Municipal Cash Trust
(Institutional Shares); (31)
- -------------------------------
19. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 28 on Form N-1A filed on June 28, 1994(File Nos. 33-31259 and
811-5911).
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed on October 24, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259
and 811-5911).
29 Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed on January 30, 1996. (File Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed November 29, 1996 (File Nos. 33-31259
and 811-5911).
<PAGE>
Exhibit DD for Tennessee Municipal Cash Trust
(Institutional Service Shares); (31)
Exhibit EE for Arizona Municipal Cash Trust
(Institutional Service Shares); (34)
(ii) The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement
and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)6 of the
Cash Trust Series II Registration Statement on Form N-1A, filed with the
Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269);
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the Registrant; (22)
(ii) Copy of Exhibit 1 to the Custodian Agreement; (27)
(iii) Conformed copy of Custodian Fee Schedule; (33)
(h) (i) Conformed copy of Amended and Restated Agreement for Fund
Accounting, Shareholder Recordkeeeping, and Custody Services
Procurement (including Exhibit 1); (+)
(ii) Conformed copy of Sub-Transfer Agency Agreement of the
Registrant (Massachusetts Municipal Cash Trust--1784 Fund
Shares only); (32)
(iii) Conformed copy of Shareholder Services Agreement of the
Registrant (Massachusetts Municipal Cash Trust--1784 Fund
Shares only); (15)
(iv) Conformed copy of Shareholder Services Agreement of the
Registrant; (22)
(v) Conformed copy of Amended and Restated Shareholder
Services Agreement; (33)
(vi) The response and exhibits described in Item 24(b)(6) are
hereby incorporated by reference;
(vii) Conformed copy of Administrative Services Agreement of
the Registrant; (22)
(viii) Form of Schwab Master Services Agreement (Ohio Municipal Cash
Trust-Cash II Shares only); (31)
(viv) Conformed copy of License Agreement (Massachusetts
Municipal Cash Trust-1784 Funds Shares only);(32)
- ---------
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on October 1, 1993 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259
and 811-5911).
31. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
(x) Conformed copy of Shareholder Services Agreement for
Massachusetts Municipal Cash Trust (Boston 1784 Funds Shares);(35)
(i) Conformed copy of Opinion and Consent of Counsel as to the legality of
shares being registered; (5)
(j) Conformed copy of Consent of Independent Public Accountants; (+)
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding; (2)
(m) (i) Copy of Rule 12b-1 Plan of the Registrant through and
including Exhibit F (7); Additional Exhibits to the Rule 12b-1
Plan have been executed to reflect the coverage of
subsequently created portfolios and/or classes under these documents.
Because these exhibits are substantially identical but differ only as
to the Fund name, dates, and any other Fund - specific information,
pursuant to Rule 8b- 31 of the Investment Company Act they need not be
filed.;
(ii) Conformed copies of exhibits to 12b-1 Plan of the Registrant:
Exhibit G for Ohio Municipal Cash Trust
(Cash II Shares); (31)
Exhibit H for New York Municipal Cash Trust
(Cash II Shares);(21)
Exhibit I for New York Municipal Cash Trust
(Institutional Service Shares); (21)
Exhibit J for Florida Municipal Cash Trust; (22)
Exhibit K for Florida Municipal Cash Trust
(Cash II Shares); (29)
- ----------------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on October 31, 1989 (File Nos. 33-31259
and 811-5911).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed August 3, 1990 (File Nos. 33-31259 and
811-5911).
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed on October 24, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
29. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed on January 30, 1996. (File Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
35. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 47 on Form N-1A filed October 28, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
(iii) The response and exhibits described in Item 24 (b) (6) are hereby
incorporated by reference.
(n) Copy of Financial Data Schedules; (+)
(o) The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the
Commission on January 26, 1996. (File Nos. 33-52149 and 811-07141);
(p) Conformed copy of Power of Attorney; (32)
(i) Amendment to Schedule 1 to Limited Power of Attorney dated
March 1, 1998 (34).
(ii) Conformed copy of Power of Attorney of Chief Investment Officer of
the Registrant; (+)
(iii) Conformed copy of Power of Attorney of Treasurer of the
Registrant; (+)
Item 24. Persons Controlled by or Under Common Control with the Fund:
None
Item 25. Indemnification: (3)
Item 26. Business and Other Connections of the Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Who Manages the Fund" in Part A. The affiliations with the
Registrant of three of the Trustees and two of the Officers of the investment
adviser are included in Part B of this Registration Statement under "Who Manages
and Provides Services to the Fund." The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107
W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
- ----------------------
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 1 on Form N-1A filed on March 22, 1990 (File Nos. 33-31259
and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre- Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Marian R. Marinack
Sandra L. McInerney
Robert J. Ostrowski
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Robert M. Marsh
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
<PAGE>
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779. These individuals are also officers of a majority of the investment
advisers to the investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Independence
One Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust
II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The
Planters Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual
Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
World Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree Funds; Star
Funds; Targeted Duration Trust; The Virtus Funds; Trust for Financial
Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable
<PAGE>
Item 28. Location of Accounts and Records:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the
Agent for Service at above
address.)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent ") Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Trustees and the calling of
special shareholder meetings by shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL TRUST,
cerifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 30th day of
December, 1998.
FEDERATED MUNICIPAL TRUST
BY: /s/ Anthony R. Bosch
Anthony R. Bosch, Assistant Secretary
Attorney in Fact for John F. Donahue
December 30, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Anthony R. Bosch
Anthony R. Bosch Attorney In Fact December 30, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
William D. Dawson, III* Chief Investment Officer
Glen R. Johnson* President and Trustee
John W. McGonigle* Executive Vice President
and Secretary
Richard J. Thomas* Treasurer (Principal Financial
and Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd, Esq.* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr., Esq.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr., J.D., S.J.D.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit h under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDED & RESTATED
AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, and amended and restated as of
September 1, 1997, by and between those investment companies listed on Exhibit 1
as may be amended from time to time, having their principal office and place of
business at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the
"Investment Company"), on behalf of the portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") of the Investment Company, and
FEDERATED SERVICES COMPANY, a Pennsylvania corporation, having its principal
office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 on behalf of itself and its subsidiaries (the
"Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the period
and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily, if
a designated pricing service does not provide a price for a security which
the Company believes should be available by market quotation, the Company
may obtain a price by calling brokers designated by the investment adviser
of the fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to find brokers
to price those securities; thirdly, for securities for which no market
price is available, the Pricing Committee of the Board will determine a
fair value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. TheCompany is not
the guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a Fund's
assets or calculating the net asset value per share of such Fund or Class
when the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser the
securities prices used in calculating the net asset value of the fund, for
its use in preparing exception reports for those prices on which the
adviser has comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues communication
regarding exception reports with the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class, at the
time and in the manner from time to time determined by the Board and as set
forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial records
of the Investment Company, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder in
connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees that
all such records it maintains for the Investment Company are the property
of the Investment Company and further agrees to surrender promptly to the
Investment Company such records upon the Investment Company's request;
G. At the request of the Investment Company, prepare various reports or other
financial documents in accordance with generally accepted accounting
principles as required by federal, state and other applicable laws and
regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the parties
hereto. Such fees do not include out-of-pocket disbursements of the Company for
which the Funds shall reimburse the Company. Out-of-pocket disbursements shall
include, but shall not be limited to, the items agreed upon between the parties
from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute or any
similar organization; transfer agency expenses; investment advisory expenses;
Prospectuses, reports and notices; administrative expenses; interest on borrowed
money; brokerage commissions; taxes and fees payable to federal, state and other
governmental agencies; fees of Trustees or Directors of the Investment Company;
independent auditors expenses; legal and audit department expenses billed to the
Company for work performed related to the Investment Company, the Funds, or the
Classes; law firm expenses; organizational expenses; or other expenses not
specified in this Article 3 which may be properly payable by the Funds and/or
Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less frequently
than monthly, and shall be paid daily upon request of the Company. The Company
will maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized officer of the
Investment Company and/or the Funds and a duly authorized officer of the
Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be prorated
according to the proportion that such period bears to the full month period.
Upon any termination of this Agreement before the end of any month, the fee for
such period shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees payable to the
Company, the value of the Fund's net assets shall be computed at the time and in
the manner specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the Company may
believe to be particularly suited to assist it in performing Fund Accounting
Services. Such person or persons may be affiliates of the Company, third-party
service providers, or they may be officers and employees who are employed by
both the Company and the Investment Company; provided, however, that the Company
shall be as fully responsible to each Fund for the acts and omissions of any
such subcontractor as it is for its own acts and omissions. The compensation of
such person or persons shall be paid by the Company and no obligation shall be
incurred on behalf of the Investment Company, the Funds, or the Classes in such
respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already been
prepared and filed), the By-laws and minutes of meetings of the Board and
Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for the
Investment Company and the Investment Company's shares and all amendments
thereto, reports to regulatory authorities and shareholders, prospectuses, proxy
statements, and such other documents all as may be necessary to enable the
Investment Company to make a continuous offering of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's investment
advisers and distributors, subject to any applicable restrictions of the Board
or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated prospectuses
and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who will be
responsible for the management of certain of the Investment Company's affairs as
determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)
However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Company in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Investment Company) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice. Any person, even though also an officer, director, trustee,
partner, employee or agent of the Company, who may be or become an officer,
director, trustee, partner, employee or agent of the Investment Company, shall
be deemed, when rendering services to the Investment Company or acting on any
business of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering such
services to or acting solely for the Investment Company and not as an officer,
director, trustee, partner, employee or agent or one under the control or
direction of the Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in performing the
Administrative Services in accordance with the above standards. In order that
the indemnification provisions contained in this Article 10 shall apply,
however, it is understood that if in any case the Investment Company may be
asked to indemnify or hold the Company harmless, the Investment Company shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Investment Company. The Investment Company
shall have the option to defend the Company against any claim which may be the
subject of this indemnification. In the event that the Investment Company so
elects, it will so notify the Company and thereupon the Investment Company shall
take over complete defense of the claim, and the Company shall in such situation
initiate no further legal or other expenses for which it shall seek
indemnification under this Article. The Company shall in no case confess any
claim or make any compromise in any case in which the Investment Company will be
asked to indemnify the Company except with the Investment Company's written
consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of shares
and promptly deliver payment and appropriate documentation therefore to the
custodian of the relevant Fund, (the "Custodian"). The Company shall notify the
Fund and the Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's current
Prospectus, the Company shall compute and issue the appropriate number of Shares
of each Fund and/or Class and hold such Shares in the appropriate Shareholder
accounts.
(3) In the event that any check or other order for the purchase of Shares
of the Fund and/or Class is returned unpaid for any reason, the Company shall
debit the Share account of the Shareholder by the number of Shares that had been
credited to its account upon receipt of the check or other order, promptly mail
a debit advice to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds proceeds of
the redemption of such Shares plus the amount of any dividends paid with respect
to such Shares, the Fund and/the Class or its distributor will reimburse the
Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any distribution
to Shareholders, the Company shall act as Dividend Disbursing Agent for the
Funds in accordance with the provisions of its governing document and the
then-current Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the estimated amount required to
pay any portion of said distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash amount to be paid out.
The Company shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is entitled to
receive additional Shares by virtue of any such distribution or dividend,
appropriate credits shall be made to the Shareholder's account; and
(2) The Company shall maintain records of account for each Fund and Class
and advise the Investment Company, each Fund and Class and its Shareholders as
to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption directions
and, if such redemption requests comply with the procedures as may be described
in the Fund Prospectus or set forth in Proper Instructions, deliver the
appropriate instructions therefor to the Custodian. The Company shall notify the
Funds on a daily basis of the total amount of redemption requests processed and
monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from the
Custodian with respect to any redemption, the Company shall pay or cause to be
paid the redemption proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-current Prospectus of
the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption approved by the
Fund, the Company shall promptly notify the Shareholder of such fact, together
with the reason therefor, and shall effect such redemption at the price
applicable to the date and time of receipt of documents complying with said
procedures.
(4) The Company shall effect transfers of Shares by the registered owners
thereof.
(5) The Company shall identify and process abandoned accounts and uncashed
checks for state escheat requirements on an annual basis and report such
actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund, and/or
Class, and maintain pursuant to applicable rules of the Securities and Exchange
Commission ("SEC") a record of the total number of Shares of the Fund and/or
Class which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares which are
authorized and issued and outstanding, but shall have no obligation when
recording the issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of any laws relating
to the issue or sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to applicable
rules of the SEC relating to the services to be performed hereunder in the form
and manner as agreed to by the Investment Company or the Fund to include a
record for each Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such number
has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including dividends paid
and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a foreign
account or an account for which withholding is required by the Internal Revenue
Code;
(f) Any dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder holding
certificates;
(h) Any information required in order for the Company to perform the
calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be maintained
pursuant to the rules of the SEC for the periods prescribed in said rules as
specifically noted below. Such record retention shall be at the expense of the
Company, and such records may be inspected by the Fund at reasonable times. The
Company may, at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's files,
records and documents created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in performance of its
services or for its protection. If not so turned over to the Fund, such records
and documents will be retained by the Company for six years from the year of
creation, during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records and documents
will either be turned over to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each state for
"blue sky" purposes as determined according to Proper Instructions delivered
from time to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution agreements,
allocations of sales loads, redemption fees, or other transaction- or
sales-related payments;
(f) Such other information as may be agreed upon from time to time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if required, mail
to Shareholders, such notices for reporting dividends and distributions paid as
are required to be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) Perform all of the customary services of a transfer agent, dividend
disbursing agent and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation any periodic
investment plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien accounts), preparing
and filing reports on U.S. Treasury Department Form 1099 and other appropriate
forms required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the total number
of Shares of each Fund (and/or Class) sold in each state ("blue sky reporting").
The Fund shall by Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the blue sky reporting for
each state and (ii) verify the classification of transactions for each state on
the system prior to activation and thereafter monitor the daily activity for
each state. The responsibility of the Company for each Fund's (and/or Class's)
state blue sky registration status is limited solely to the recording of the
initial classification of transactions or accounts with regard to blue sky
compliance and the reporting of such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating to
their Share accounts and such other correspondence as may from time to time be
addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy cards
and other material supplied to it by the Fund in connection with Shareholder
meetings of each Fund; receive, examine and tabulate returned proxies, and
certify the vote of the Shareholders;
(3) The Company shall establish and maintain faclities and procedures for
safekeeping of check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such forms and
devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of the Securities
Act of 1933, as amended (the "1933 Act"), the 1940 Act and any laws, rules and
regulations of government authorities having jurisdiction.
B. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this Agreement,
the Investment Company and/or the Fund agree to pay the Company an annual
maintenance fee for each Shareholder account as agreed upon between the parties
and as may be added to or amended from time to time. Such fees may be changed
from time to time subject to written agreement between the Investment Company
and the Company. Pursuant to information in the Fund Prospectus or other
information or instructions from the Fund, the Company may sub-divide any Fund
into Classes or other sub-components for recordkeeping purposes. The Company
will charge the Fund the same fees for each such Class or sub-component the same
as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment Company
and/or Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the parties,
as may be added to or amended from time to time. In addition, any other expenses
incurred by the Company at the request or with the consent of the Investment
Company and/or the Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and shall be
paid daily upon request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized officer of the
Investment Company and/or the Funds and a duly authorized officer of the
Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has been
approved by the Board as being eligible for selection by the Company as an
Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a party to
each such agreement. The Company may, as paying agent, be a party to any
agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature and amount
of disbursements made on account of the each Fund with respect to each custodial
agreement; and (iii) such other information as the Board shall reasonably
request to enable it to fulfill its duties and obligations under Sections 17(f)
and 36(b) of the 1940 Act and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being charged
to the
Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company pursuant
to Section Four of this Agreement, the Investment Company and/or the Fund agree
to compensate the Company in accordance with the fees agreed upon from time to
time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment Company
and/or Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the parties,
as may be added to or amended from time to time. In addition, any other expenses
incurred by the Company at the request or with the consent of the Investment
Company and/or the Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and shall be
paid daily upon request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized officer of the
Investment Company and/or the Funds and a duly authorized officer of the
Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the performance of
Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent pursuant to Section
17A(c)(1) of the Securities Exchange Act of 1934, as amended, or any succeeding
statute ("Section 17A(c)(1)"); or
(2) such other provider of services duly registered as a transfer agent
under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for the
acts and omissions of any subcontractor as it is for its own acts and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on the
part of the Investment Company subcontract for the performance of such services
with Federated Administrative Services, a wholly-owned subsidiary of the
Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an Agent
selected by the Investment Company, other than as described in B. and C. above;
provided, however, that the Company shall in no way be responsible to the
Investment Company for the acts and omissions of the Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Investment Company and all
amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Printed documentation from the recordkeeping system representing
outstanding Share certificates of the Investment Company or the Funds;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of Shares of any
Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and the
By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to give
Proper Instructions to the Custodian and agents for fund accountant, custody
services procurement, and shareholder recordkeeping or transfer agency services;
(5) Such other certifications, documents or opinions which the Company may,
in its discretion, deem necessary or appropriate in the proper performance of
its duties; and
(6) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good standing
under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and in the
Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize it to
enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement;
(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform its obligations under this Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its obligations under this
Agreement;
(4) The Investment Company is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of each Fund being offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this Contract. The
Company shall be entitled to rely on and may act upon advice of counsel (who may
be counsel for the Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable federal or state
laws or regulations, and is in good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or Fund
shall indemnify and hold the Company, including its officers, directors,
shareholders and their agents, employees and affiliates, harmless against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or other
party contracted by or approved by the Investment Company or Fund, (2) The
reliance on or use by the Company or its agents or subcontractors of
information, records and documents in proper form which
(a) are received by the Company or its agents or subcontractors and
furnished to it by or on behalf of the Fund, its Shareholders or investors
regarding the purchase, redemption or transfer of Shares and Shareholder account
information;
(b) are received by the Company from independent pricing services or
sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors from
Advisers, Sub-advisers or other third parties contracted by or approved by the
Investment Company of Fund for use in the performance of services under this
Agreement;
(d) have been prepared and/or maintained by the Fund or its affiliates or
any other person or firm on behalf of the Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents or
subcontractors of Proper Instructions of the Investment Company or the Fund.
(4) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this Article
23.B. from liability for any act or omission resulting from the Company's
willful misfeasance, bad faith, negligence or reckless disregard of its duties
or failure to meet the standard of care set forth in 23.A.
above.
C. Reliance
At any time the Company may apply to any officer of the Investment Company
or Fund for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Company
under this Agreement, and the Company and its agents or subcontractors shall not
be liable and shall be indemnified by the Investment Company or the appropriate
Fund for any action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action is not in
violation of applicable federal or state laws or regulations. The Company, its
agents and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Investment Company or the Fund, and
the proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article 23
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from September 1, 1997, and shall
continue until February 28, 2003 (`Term"). Thereafter, the Agreement will
continue for 18 month terms. The Agreement can be terminated by either party
upon 18 months notice to be effective as of the end of such 18 month period. In
the event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right to
terminate the Agreement upon 60 days written notice, if Company has not cured
such willful misfeasance, bad faith, negligence or reckless disregard of its
duties within 60 days. The termination date for all original or after-added
Investment companies which are, or become, a party to this Agreement. shall be
coterminous. Investment Companies that merge or dissolve during the Term, shall
cease to be a party on the effective date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at , , or
to the Company at Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779, or to such other address as the Investment Company or the Company
may hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original. ARTICLE 30. LIMITATIONS OF LIABILITY
OF TRUSTEES AND SHAREHOLDERS OF THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral
or written.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)
By: /S/ S. ELLIOTT COHAN
Name: S. Elliott Cohan
Title: Assistant Secretary
FEDERATED SERVICES COMPANY
By: /S/ THOMAS J. WARD
Name: Thomas J. Ward
Title: Secretary
<PAGE>
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
3/1/96 FEDERATED MUNICIPAL TRUST
3/1/96 Alabama Municipal Cash Trust
5/30/98 Arizona Municipal Cash Trust
5/30/98 Institutional Service Shares
3/1/96 California Municipal Cash Trust
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
3/1/96 Connecticut Municipal Cash Trust
3/1/96 Institutional Service Shares
3/1/96 Florida Municipal Cash Trust
3/1/96 Cash II Shares
3/1/96 Institutional Shares
3/1/96 Georgia Municipal Cash Trust
3/1/96 Maryland Municipal Cash Trust
3/1/96 Massachusetts Municipal Cash Trust
5/27/97 Boston 1784 Fund Shares
3/1/96 Institutional Service Shares
3/1/96 Michigan Municipal Cash Trust
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
3/1/96 Minnesota Municipal Cash Trust
3/1/96 Cash Series Shares
3/1/96 Institutional Shares
3/1/96 New Jersey Municipal Cash Trust
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
3/1/96 New York Municipal Cash Trust
3/1/96 Cash II Shares
3/1/96 Institutional Service Shares
3/1/96 North Carolina Municipal Cash Trust
3/1/96 Ohio Municipal Cash Trust
3/1/96 Cash II Shares
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
3/1/96 Pennsylvania Municipal Cash Trust
3/1/96 Cash Series Shares
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
5/14/96 Tennessee Municipal Cash Trust
5/14/96 Institutional Service Shares
5/14/96 Institutional Shares
3/1/96 Virginia Municipal Cash Trust
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
Exhibit j under N-1A
Exhibit 23 under Item 601
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 49 to Form N-1A Registration Statement of Federated
Municipal Trust of our reports dated December 23, 1998, on the financial
statements as of October 31, 1998, of Alabama Municipal Cash Trust, Arizona
Municipal Cash Trust, California Municipal Cash Trust, Connecticut Municipal
Cash Trust, Florida Municipal Cash Trust, Georgia Municipal Cash Trust, Maryland
Municipal Cash Trust, Massachusetts Municipal Cash Trust, Michigan Municipal
Cash Trust, Minnesota Municipal Cash Trust, New Jersey Municipal Cash Trust, New
York Municipal Cash Trust, North Carolina Municipal Cash Trust, Ohio Municipal
Cash Trust, Pennsylvania Municipal Cash Trust, Tennessee Municipal Cash Trust
and Virginia Municipal Cash Trust (the seventeen portfolios comprising Federated
Municipal Trust), included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 23, 1998
<PAGE>
Exhibit p(ii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED MUNICIPAL TRUST and each of
them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ William D. Dawson Chief Investment Officer December 15, 1998
William D. Dawson
Sworn to and subscribed before me this 15th day of December, 1998.
/s/ Cheri S. Good
Cheri S. Good
Notary Public
Exhibit p(iii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED MUNICIPAL TRUST and each of
them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ Richard J. Thomas Treasurer December 11, 1998
Richard J. Thomas (Principal Financial
and Accounting Officer)
Sworn to and subscribed before me this 11th day of December, 1998.
/s/ Cheri S. Good
Cheri S. Good
Notary Public
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> Alabama Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 188,770,229
<INVESTMENTS-AT-VALUE> 188,770,229
<RECEIVABLES> 1,290,706
<ASSETS-OTHER> 31,389
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190,092,324
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 267,715
<TOTAL-LIABILITIES> 267,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 189,824,609
<SHARES-COMMON-STOCK> 189,824,609
<SHARES-COMMON-PRIOR> 223,647,211
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 189,824,609
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,066,520
<OTHER-INCOME> 0
<EXPENSES-NET> (1,046,729)
<NET-INVESTMENT-INCOME> 6,019,791
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,019,791
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,019,791)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 436,920,174
<NUMBER-OF-SHARES-REDEEMED> (473,995,552)
<SHARES-REINVESTED> 3,252,776
<NET-CHANGE-IN-ASSETS> (33,822,602)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 944,018
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,752,348
<AVERAGE-NET-ASSETS> 188,821,147
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> Arizona Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 5-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 33,745,354
<INVESTMENTS-AT-VALUE> 33,745,354
<RECEIVABLES> 241,347
<ASSETS-OTHER> 772,895
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,759,596
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,850
<TOTAL-LIABILITIES> 31,850
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,727,746
<SHARES-COMMON-STOCK> 34,727,746
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,727,746
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 171,083
<OTHER-INCOME> 0
<EXPENSES-NET> (15,504)
<NET-INVESTMENT-INCOME> 155,579
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 155,579
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (155,579)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,101,572
<NUMBER-OF-SHARES-REDEEMED> (11,472,228)
<SHARES-REINVESTED> 98,402
<NET-CHANGE-IN-ASSETS> 34,727,746
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,043
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 121,687
<AVERAGE-NET-ASSETS> 12,273,513
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.010
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.010)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 122
<NAME> California Municipal Cash Trust Institutional Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 403,158,715
<INVESTMENTS-AT-VALUE> 403,158,715
<RECEIVABLES> 2,922,550
<ASSETS-OTHER> 273,872
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 406,355,137
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,578,755
<TOTAL-LIABILITIES> 1,578,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 41,574,195
<SHARES-COMMON-PRIOR> 41,955,794
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404,776,382
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,277,274
<OTHER-INCOME> 0
<EXPENSES-NET> (1,669,323)
<NET-INVESTMENT-INCOME> 10,607,951
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,607,951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,346,145)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 117,311,375
<NUMBER-OF-SHARES-REDEEMED> (117,704,612)
<SHARES-REINVESTED> 11,638
<NET-CHANGE-IN-ASSETS> 128,056,215
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,757,809
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,269,784
<AVERAGE-NET-ASSETS> 41,447,345
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> California Municipal Cash Trust Institutional Serv. Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 403,158,715
<INVESTMENTS-AT-VALUE> 403,158,715
<RECEIVABLES> 2,922,550
<ASSETS-OTHER> 273,872
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 406,355,137
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,578,755
<TOTAL-LIABILITIES> 1,578,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 363,202,187
<SHARES-COMMON-PRIOR> 234,764,373
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404,776,382
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,277,274
<OTHER-INCOME> 0
<EXPENSES-NET> (1,669,323)
<NET-INVESTMENT-INCOME> 10,607,951
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,607,951
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,261,806)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,284,549,045
<NUMBER-OF-SHARES-REDEEMED> (1,161,835,907)
<SHARES-REINVESTED> 5,730,676
<NET-CHANGE-IN-ASSETS> 128,056,215
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,757,809
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,269,784
<AVERAGE-NET-ASSETS> 310,194,310
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Connecticut Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 338,792,058
<INVESTMENTS-AT-VALUE> 338,792,058
<RECEIVABLES> 805,231
<ASSETS-OTHER> 595,526
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 340,192,815
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 620,170
<TOTAL-LIABILITIES> 620,170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 339,566,645
<SHARES-COMMON-PRIOR> 271,316,429
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 339,566,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,490,107
<OTHER-INCOME> 0
<EXPENSES-NET> (1,964,299)
<NET-INVESTMENT-INCOME> 9,525,808
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,525,808
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,525,808)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,057,554,443
<NUMBER-OF-SHARES-REDEEMED> (992,493,610)
<SHARES-REINVESTED> 3,189,470
<NET-CHANGE-IN-ASSETS> 68,250,303
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,625,027
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,917,217
<AVERAGE-NET-ASSETS> 324,101,467
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> Florida Municipal Cash Trust Cash II Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 227,807,956
<INVESTMENTS-AT-VALUE> 227,807,956
<RECEIVABLES> 1,298,157
<ASSETS-OTHER> 703,638
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 229,809,751
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 776,761
<TOTAL-LIABILITIES> 776,761
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,032,990
<SHARES-COMMON-STOCK> 71,839,407
<SHARES-COMMON-PRIOR> 62,755,913
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 229,032,990
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,486,082
<OTHER-INCOME> 0
<EXPENSES-NET> (3,328,574)
<NET-INVESTMENT-INCOME> 15,157,508
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,157,508
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,365,435)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 645,934,032
<NUMBER-OF-SHARES-REDEEMED> (636,998,304)
<SHARES-REINVESTED> 147,766
<NET-CHANGE-IN-ASSETS> (313,583,423)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,032,071
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,308,067
<AVERAGE-NET-ASSETS> 118,874,063
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> Florida Municipal Cash Trust Institutional Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 227,807,956
<INVESTMENTS-AT-VALUE> 227,807,956
<RECEIVABLES> 1,298,157
<ASSETS-OTHER> 703,638
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 229,809,751
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 776,761
<TOTAL-LIABILITIES> 776,761
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,032,990
<SHARES-COMMON-STOCK> 157,193,583
<SHARES-COMMON-PRIOR> 479,860,500
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 229,032,990
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,486,082
<OTHER-INCOME> 0
<EXPENSES-NET> (3,328,574)
<NET-INVESTMENT-INCOME> 15,157,508
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,157,508
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,792,073)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,551,253,164
<NUMBER-OF-SHARES-REDEEMED> (1,881,610,584)
<SHARES-REINVESTED> 7,690,503
<NET-CHANGE-IN-ASSETS> (313,583,423)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,032,071
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,308,067
<AVERAGE-NET-ASSETS> 398,469,482
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> Georgia Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 166,504,382
<INVESTMENTS-AT-VALUE> 166,504,382
<RECEIVABLES> 1,518,134
<ASSETS-OTHER> 294,519
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 168,317,035
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219,250
<TOTAL-LIABILITIES> 219,250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 168,097,785
<SHARES-COMMON-PRIOR> 121,858,203
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 168,097,785
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,464,815
<OTHER-INCOME> 0
<EXPENSES-NET> (839,694)
<NET-INVESTMENT-INCOME> 5,625,121
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,625,121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,625,121)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 632,771,755
<NUMBER-OF-SHARES-REDEEMED> (590,290,954)
<SHARES-REINVESTED> 3,758,781
<NET-CHANGE-IN-ASSETS> 46,239,582
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 856,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,591,555
<AVERAGE-NET-ASSETS> 57,438,572
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Massachusetts Municipal Cash Trust - Boston 1784 Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 415,491,295
<INVESTMENTS-AT-VALUE> 415,491,295
<RECEIVABLES> 3,420,690
<ASSETS-OTHER> 627,279
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 419,539,264
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 596,173
<TOTAL-LIABILITIES> 596,173
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 418,943,091
<SHARES-COMMON-STOCK> 162,557,451
<SHARES-COMMON-PRIOR> 73,837,285
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 418,943,091
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,817,374
<OTHER-INCOME> 0
<EXPENSES-NET> (2,029,169)
<NET-INVESTMENT-INCOME> 10,788,205
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,788,205
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,064,367)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 247,362,338
<NUMBER-OF-SHARES-REDEEMED> (162,709,764)
<SHARES-REINVESTED> 4,067,592
<NET-CHANGE-IN-ASSETS> 203,236,452
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,810,446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,331,465
<AVERAGE-NET-ASSETS> 136,702,067
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Massachusetts Municipal Cash Trust-ISS
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 415,491,295
<INVESTMENTS-AT-VALUE> 415,491,295
<RECEIVABLES> 3,420,690
<ASSETS-OTHER> 627,279
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 419,539,264
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<SHARES-COMMON-STOCK> 256,385,640
<SHARES-COMMON-PRIOR> 141,869,354
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 418,943,091
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,817,374
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<EXPENSES-NET> (2,029,169)
<NET-INVESTMENT-INCOME> 10,788,205
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 943,828,322
<NUMBER-OF-SHARES-REDEEMED> (830,885,045)
<SHARES-REINVESTED> 1,573,009
<NET-CHANGE-IN-ASSETS> 203,236,452
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 3,331,465
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<PER-SHARE-NAV-BEGIN> 1.000
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> Maryland Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 66,970,546
<INVESTMENTS-AT-VALUE> 66,970,546
<RECEIVABLES> 341,130
<ASSETS-OTHER> 222,565
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,534,241
<PAYABLE-FOR-SECURITIES> 1,348,764
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,157
<TOTAL-LIABILITIES> 1,397,921
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 66,136,320
<SHARES-COMMON-PRIOR> 45,574,763
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 66,136,320
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,129,415
<OTHER-INCOME> 0
<EXPENSES-NET> (404,488)
<NET-INVESTMENT-INCOME> 1,724,927
<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 1,724,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,724,927)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 162,453,813
<NUMBER-OF-SHARES-REDEEMED> (143,324,566)
<SHARES-REINVESTED> 1,432,310
<NET-CHANGE-IN-ASSETS> 20,561,557
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 287,116
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 697,346
<AVERAGE-NET-ASSETS> 57,438,572
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0.000
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 142
<NAME> Michigan Municipal Cash Trust - Institutional Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 204,693,197
<INVESTMENTS-AT-VALUE> 204,693,197
<RECEIVABLES> 1,624,736
<ASSETS-OTHER> 622,936
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 206,940,869
<PAYABLE-FOR-SECURITIES> 1,700,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 687,939
<TOTAL-LIABILITIES> 2,387,939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,552,930
<SHARES-COMMON-STOCK> 19,563,824
<SHARES-COMMON-PRIOR> 13,370,278
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 204,552,930
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,985,867
<OTHER-INCOME> 0
<EXPENSES-NET> (1,033,279)
<NET-INVESTMENT-INCOME> 5,952,588
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,952,588
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (539,765)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 78,879,030
<NUMBER-OF-SHARES-REDEEMED> (72,720,480)
<SHARES-REINVESTED> 34,996
<NET-CHANGE-IN-ASSETS> 44,077,305
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,574
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<GROSS-EXPENSE> 1,843,324
<AVERAGE-NET-ASSETS> 16,324,699
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 141
<NAME> Michigan Municipal Cash Trust - Institutional Service Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 204,693,197
<INVESTMENTS-AT-VALUE> 204,693,197
<RECEIVABLES> 1,624,736
<ASSETS-OTHER> 622,936
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 206,940,869
<PAYABLE-FOR-SECURITIES> 1,700,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 687,939
<TOTAL-LIABILITIES> 2,387,939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,552,930
<SHARES-COMMON-STOCK> 184,989,106
<SHARES-COMMON-PRIOR> 147,105,347
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 204,552,930
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,985,867
<OTHER-INCOME> 0
<EXPENSES-NET> (1,033,279)
<NET-INVESTMENT-INCOME> 5,952,588
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,952,588
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,412,823)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 767,269,962
<NUMBER-OF-SHARES-REDEEMED> (733,578,344)
<SHARES-REINVESTED> 4,192,141
<NET-CHANGE-IN-ASSETS> 44,077,305
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,574
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,843,324
<AVERAGE-NET-ASSETS> 171,374,133
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Minnesota Municipal Cash Trust - Cash Series Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 533,291,212
<INVESTMENTS-AT-VALUE> 533,291,212
<RECEIVABLES> 3,967,556
<ASSETS-OTHER> 13,090
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 537,271,858
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,165,646
<TOTAL-LIABILITIES> 1,165,646
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 536,106,212
<SHARES-COMMON-STOCK> 207,598,987
<SHARES-COMMON-PRIOR> 221,226,925
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 536,106,212
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,018,457
<OTHER-INCOME> 0
<EXPENSES-NET> (2,853,912)
<NET-INVESTMENT-INCOME> 17,164,545
<REALIZED-GAINS-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,009,332)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 648,659,025
<NUMBER-OF-SHARES-REDEEMED> (669,138,653)
<SHARES-REINVESTED> 6,851,690
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,168,395
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<GROSS-EXPENSE> 5,588,338
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Minnesota Municipal Cash Trust - Institutional Shares
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 533,291,212
<INVESTMENTS-AT-VALUE> 533,291,212
<RECEIVABLES> 3,967,556
<ASSETS-OTHER> 13,090
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 537,271,858
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<TOTAL-LIABILITIES> 1,165,646
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<PAID-IN-CAPITAL-COMMON> 536,106,212
<SHARES-COMMON-STOCK> 328,507,225
<SHARES-COMMON-PRIOR> 208,365,493
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 536,106,212
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,018,457
<OTHER-INCOME> 0
<EXPENSES-NET> (2,853,912)
<NET-INVESTMENT-INCOME> 17,164,545
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,164,545
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,155,213)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 743,424,803
<NUMBER-OF-SHARES-REDEEMED> (623,646,203)
<SHARES-REINVESTED> 363,132
<NET-CHANGE-IN-ASSETS> 106,513,794
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,168,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,588,338
<AVERAGE-NET-ASSETS> 299,873,928
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.30
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> North Carolina Municipal Cash Trust
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 210,574,434
<INVESTMENTS-AT-VALUE> 210,574,434
<RECEIVABLES> 1,356,394
<ASSETS-OTHER> 317,698
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212,248,526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 137,823
<TOTAL-LIABILITIES> 137,823
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212,110,703
<SHARES-COMMON-STOCK> 212,110,703
<SHARES-COMMON-PRIOR> 172,635,784
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 212,110,703
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,673,495
<OTHER-INCOME> 0
<EXPENSES-NET> (1,069,815)
<NET-INVESTMENT-INCOME> 5,603,680
<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 5,603,680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,603,680)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,078,743,485
<NUMBER-OF-SHARES-REDEEMED> (1,043,902,913)
<SHARES-REINVESTED> 4,634,347
<NET-CHANGE-IN-ASSETS> 39,474,919
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 899,911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,699,147
<AVERAGE-NET-ASSETS> 179,982,200
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-DIVIDEND> (0.030)
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> New Jersey Municipal Cash Trust Institutional Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 170,011,255
<INVESTMENTS-AT-VALUE> 170,011,255
<RECEIVABLES> 6,805,345
<ASSETS-OTHER> 236,760
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,053,360
<PAYABLE-FOR-SECURITIES> 5,387,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 393,468
<TOTAL-LIABILITIES> 5,780,475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 106,032,438
<SHARES-COMMON-PRIOR> 112,406,741
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 171,272,885
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,523,204
<OTHER-INCOME> 0
<EXPENSES-NET> (1,218,691)
<NET-INVESTMENT-INCOME> 6,304,513
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,304,513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,351,312)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 453,405,235
<NUMBER-OF-SHARES-REDEEMED> (459,822,649)
<SHARES-REINVESTED> 43,111
<NET-CHANGE-IN-ASSETS> 4,327,746
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 831,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,797,031
<AVERAGE-NET-ASSETS> 141,768,779
<PER-SHARE-NAV-BEGIN> 1.000
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<PER-SHARE-DIVIDEND> (0.030)
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> New Jersey Municipal Cash Trust Institutional Serv. Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<INVESTMENTS-AT-COST> 170,011,255
<INVESTMENTS-AT-VALUE> 170,011,255
<RECEIVABLES> 6,805,345
<ASSETS-OTHER> 236,760
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<PAYABLE-FOR-SECURITIES> 5,387,007
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 393,468
<TOTAL-LIABILITIES> 5,780,475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 65,240,447
<SHARES-COMMON-PRIOR> 54,538,398
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 171,272,885
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,523,204
<OTHER-INCOME> 0
<EXPENSES-NET> (1,218,691)
<NET-INVESTMENT-INCOME> 6,304,513
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,304,513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,953,201)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 217,162,372
<NUMBER-OF-SHARES-REDEEMED> (207,693,139)
<SHARES-REINVESTED> 1,232,816
<NET-CHANGE-IN-ASSETS> 4,327,746
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 831,577
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<GROSS-EXPENSE> 1,797,031
<AVERAGE-NET-ASSETS> 66,126,003
<PER-SHARE-NAV-BEGIN> 1.000
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<PER-SHARE-DIVIDEND> (0.030)
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</TABLE>
<TABLE> <S> <C>
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<NUMBER> 112
<NAME> New York Municipal Cash Trust - Cash II Shares
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 111
<NAME> New York Municipal Cash Trust - Institutional Service Shares
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 052
<NAME> Ohio Municipal Cash Trust Cash II Shares
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 053
<NAME> Ohio Municipal Cash Trust Institutional Shares
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 051
<NAME> Ohio Municipal Cash Trust Institutional Service Shares
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> Pennsylvania Municipal Cash Trust - Cash Series Shares
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 063
<NAME> Pennsylvania Municipal Cash Trust - Institutional Shares
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 061
<NAME> Pennsylvania Municipal Cash Trust-ISS
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 161
<NAME> Tennessee Municipal Cash Trust Institutional Shares
<S> <C>
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