FEDERATED TAX-FREE TRUST
PROSPECTUS
A no-load, open-end, diversified management investment company (a mutual fund)
providing dividend income exempt from federal income tax while seeking relative
stability of principal.
AN INVESTMENT IN FEDERATED TAX-FREE TRUST (THE "TRUST") IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE
ABLE TO DO SO.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated January 31,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Trust, contact the Trust at the address listed in the back
of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1994
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 3
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 4
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Municipal Securities 6
Investment Risks 6
Investment Limitations 6
Regulatory Compliance 7
TRUST INFORMATION 7
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Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Trust Shares 8
Administration of the Trust 8
Administrative Services 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Legal Counsel 8
Independent Auditors 8
Expenses of the Trust 8
NET ASSET VALUE 8
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INVESTING IN THE TRUST 9
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Share Purchases 9
By Wire 9
By Mail 9
Minimum Investment Required 9
Cash Sweep Program 9
Participating Depository Institutions 9
What Shares Cost 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING SHARES 11
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Telephone Redemption 11
Written Requests 11
Signatures 11
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Accounts with Low Balances 12
Redemption in Kind 12
SHAREHOLDER INFORMATION 12
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Voting Rights 12
Massachusetts Partnership Law 13
TAX INFORMATION 13
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Federal Income Tax 13
State and Local Taxes 14
Pennsylvania Corporate and
Personal Property Taxes 14
PERFORMANCE INFORMATION 15
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FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 43
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ADDRESSES Inside Back Cover
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds as applicable)................................ None
Redemption Fees (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee.......................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.37%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.09%
Total Trust Operating Expenses(2)................................................ 0.46%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of a portion of
the management fee. The maximum management fee is 0.40%.
(2) The total Trust operating expenses would have been 0.49% absent the waiver
of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE " TRUST INFORMATION." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment assuming (1) 5% annual return and (2) redemption
at the end of each time period. As noted in the table
above, the Trust charges no redemption fee............ $5 $15 $26 $ 58
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 43.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.02 0.03 0.04 0.06 0.06 0.05 0.04 0.04
- ---------------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.02) (0.03) (0.04) (0.06) (0.06) (0.05) (0.04) (0.04)
- --------------- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN* 2.18% 2.88% 4.49% 5.68% 6.03% 4.87% 4.11% 4.43%
- ---------------
RATIOS TO AVERAGE
NET ASSETS
- ---------------
Expenses 0.46% 0.46% 0.46% 0.45% 0.45% 0.45% 0.44% 0.45%
- ---------------
Net investment
income 2.16% 2.84% 4.40% 5.54% 5.86% 4.74% 4.01% 4.31%
- ---------------
Expense waiver/
reimbursement
(a) 0.03% -- -- -- -- -- 0.01% --
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SUPPLEMENTAL DATA
- ---------------
Net assets, end
of period (000
omitted) $1,346,791 $1,523,588 $1,720,730 $1,887,467 $2,140,368 $2,618,595 $2,997,042 $4,119,247
- ---------------
<CAPTION>
1985 1984
<S> <C> <C>
- --------------- ----- -----
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.05 0.05
- ---------------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.05) (0.05)
- --------------- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00
- --------------- ----- -----
TOTAL RETURN* 4.95% 5.63%
- ---------------
RATIOS TO AVERAGE
NET ASSETS
- ---------------
Expenses 0.45% 0.45%
- ---------------
Net investment
income 4.82% 5.50%
- ---------------
Expense waiver/
reimbursement
(a) -- --
- ---------------
SUPPLEMENTAL DATA
- ---------------
Net assets, end
of period (000
omitted) $3,533,028 $2,997,998
- ---------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 20, 1978. The Trust is designed for banks and other
institutions that hold assets for individuals, trusts, estates, or partnerships.
Trust shares may also be purchased directly by these investors. A minimum
initial investment of $25,000 over a 90-day period is required. The Trust may
not be a suitable investment for retirement plans since it invests in municipal
securities.
The Trust attempts to stabilize the value of a share at $1.00. Trust shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide dividend income exempt from
federal income tax while seeking relative stability of principal. Interest
income of the Trust that is exempt from federal income tax retains its tax-free
status when distributed to the Trust's shareholders. The Trust pursues this
investment objective by investing in a diversified portfolio of Municipal
Securities (as defined below) having a maturity of one year or less. The average
maturity of these securities, computed on a dollar weighted basis, will be 90
days or less. While there is no assurance that the Trust will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective and the policies and
limitations described below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Trust invests primarily in debt obligations issued
by or on behalf of states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal income tax ("Municipal Securities"). Examples
of Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
Municipal Securities that have variable or floating interest rates and
provide the Trust with the right to tender the
security for repurchase at its stated principal amount plus accrued
interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually),
and is normally based on a municipal interest rate index or another
published rate. Most variable rate demand notes allow the Trust to demand
the repurchase of the security on not more than seven days prior notice.
Other notes only permit the Trust to tender the security at the time of
each interest rate adjustment or at other fixed intervals. See "Demand
Features." The Trust treats variable rate demand notes as maturing on the
later of the date of the next interest adjustment or the date on which the
Trust may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Trust may purchase interests in Municipal
Securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests, or any other form of indirect ownership that
allows the Trust to treat the income from the investment as exempt from
federal income tax. The Trust invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation interest in any of the above.
RATINGS. The Municipal Securities in which the Trust invests must be rated in
the highest short-term rating category by one or more nationally recognized
statistical rating organizations ("NRSROs") or be of comparable quality to
securities having such ratings. A NRSRO's highest rating category is determined
without regard for sub-categories and gradations. For example, securities rated
SP-1+ or SP-1 by Standard & Poor's Corporation ("S&P"), MIG-1 by Moody's
Investors Service, Inc. ("Moody's"), or F-1+ or F-1 by Fitch Investors Service,
Inc. ("Fitch") are all considered rated in the highest short-term rating
category. The Trust will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in the highest
short-term rating category; currently, such securities must be rated by two
NRSROs in their highest rating category. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Trust's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Trust
typically evaluates the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes unless the Trust has invested more than
10% of its assets in securities issued, guaranteed or otherwise credit enhanced
by the credit enhancer, in which case the securities will be treated as having
been issued both by the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Trust may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Trust may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Trust. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Trust uses these arrangements to provide the Trust with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Trust may invest in restricted
securities. Restricted securities are any securities in which the Trust may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Board of Trustees, certain restricted securities are
considered liquid. To the extent that restricted securities are found to be
illiquid, the Trust will limit their purchase to 10% of its net assets. As a
matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 10% of its net assets in
securities which are illiquid, including restricted securities and municipal
leases found to be illiquid and repurchase agreements providing for settlement
in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase short-term
Municipal Securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The Trust engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Trust's investment objective and
policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Trust relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Trust to miss a price
or yield considered to be advantageous.
TEMPORARY INVESTMENTS. The Trust invests its assets so that at least 80% of its
annual interest income is exempt from federal income tax. However, from time to
time on a temporary basis, or when the investment adviser determines that market
conditions call for a temporary defensive posture, the Trust may invest in
short-term temporary investments. Interest income from temporary investments may
be taxable to shareholders as ordinary income. These temporary investments
include: obligations issued by or on behalf of municipal or corporate issuers
having the same quality characteristics as Municipal Securities purchased by the
Trust; marketable obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; instruments issued by banks or other deposit
institutions which have capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment and if their deposits are insured by The
Bank Insurance Fund and the Savings Association Insurance Fund; repurchase
agreements (arrangements in which the organization is selling the Trust a
temporary investment and agrees at the time of sale to repurchase it at a
mutually agreed upon time and price); prime commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch; and taxable variable rate demand notes.
Although the Trust is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to achieve
its investment objective also depends on the continuing ability of the issuers
of Municipal Securities and demand features, or the guarantors of either, to
meet their obligations for the payment of interest and principal when due.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money or pledge securities except, under certain circumstances,
the Trust may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings;
- invest more than 5% of its total assets in securities of one issuer
(except cash and cash items and U.S. government obligations);
- invest more than 5% of its total assets in securities of issuers (or in
the alternative, guarantors, where applicable) that have records of less
than three years of continuous operations; or
- invest more than 10% of its total assets in Municipal Securities subject
to restrictions on resale.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not:
- invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within
seven days and repurchase agreements maturing in more than seven days.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust 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 Trust
may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research, the Trust's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Trust and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. Under the
investment advisory contract, the adviser will reimburse the Trust the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its investment advisory fee
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws, expenses of withholding taxes, and extraordinary expenses exceed .45
of 1% of its average daily net assets. This does not include reimbursement
to the Trust of any expenses incurred by shareholders who use the transfer
agent's subaccounting facilities. The adviser has also undertaken to
reimburse the Trust for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Research, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary
of Federated Investors, provides the Trust with the administrative personnel and
services necessary to operate the Trust. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche, Boston.
EXPENSES OF THE TRUST
The Trust pays all of its own expenses.
NET ASSET VALUE
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The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE TRUST
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SHARE PURCHASES
Trust shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or mail.
To purchase shares of the Trust, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase shares of the Trust by Federal Reserve wire, call the Trust
before 3:00 p.m. (Boston time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Boston time) that same day. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated Tax-Free Trust, Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; ABA Number 011000028. Shares cannot be purchased by
Federal Reserve wire on Columbus Day, Veteran's Day, or Martin Luther King Day.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable to
Federated Tax-Free Trust to the Trust's transfer agent, State Street Bank and
Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail
are considered received after payment by check is converted by State Street Bank
into federal funds. This is normally the next business day after State Street
Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $25,000. However, 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 will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
CASH SWEEP PROGRAM
Cash accumulations in demand deposit accounts with depository institutions, such
as banks and savings and loan associations, may be automatically invested in
shares of the Trust on a day selected by the depository institution and its
customer, or when the demand deposit account reaches a predetermined dollar
amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS. Participating depository institutions are
responsible for prompt transmission of orders relating to the program. These
depository institutions are the record owners of the shares of the Trust.
Depository institutions participating in this program may charge their customers
for their services relating to the program. This prospectus should, therefore,
be read together with any agreement between the customer and the depository
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
WHAT SHARES COST
Trust shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust.
The net asset value is determined at 12:00 noon (Boston time), 3:00 p.m. (Boston
time), and 4:00 p.m. (Boston time) Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of the Trust's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; or (iii) days on which any federal holiday is observed. In
addition, the net asset value will not be calculated on Good Friday.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Trust 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 provided which
may be related to the ownership of Trust shares. This prospectus should,
therefore, be read together with any agreement between the customer and the
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Boston time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted by the
transfer agent into federal funds. Dividends are automatically reinvested on
payment dates in additional shares of the Trust unless cash payments are
requested by contacting the Trust.
CAPITAL GAINS
Since the Trust's policy is, under normal circumstances, to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect any capital gains or losses. If the Trust does experience gains,
however, it could result in an increase in dividends. Capital losses could
result in a decrease in dividends. If for some extraordinary reason the Trust
realizes net long-term capital gains, it will distribute them at least once
every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Trust redeems shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust before 12:00 noon
(Boston time). The proceeds will be wired the same day to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. If at any time, the Trust shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 12:00 noon (Boston time). However, the proceeds are not wired
until the following business day. Redemption requests received before 12:00 noon
(Boston time) will be paid the same day but will not be entitled to that day's
dividend.
An authorization form permitting the Trust to accept telephone redemption
requests must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Trust, it maybe liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
WRITTEN REQUESTS
Trust shares may also be redeemed by sending a written request to the Trust.
Call the Trust for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his name, the Trust name,
his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by The Bank
Insurance Fund ("BIF");
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"); or
- any other "eligible guarantor institution", as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, the proceeds from the redemption of those
shares are not available and the shares may not be exchanged until the Trust or
its agents is reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same way
as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds are included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the adjusted gross income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Trust may purchase all
types of municipal bonds, including "private activity" bonds. Thus, while the
Trust has no present intention of purchasing any private activity bonds that
would be treated as tax preference items, should it purchase any such bonds, a
portion of the Trust's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, all dividends of the Trust
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in
corporation's "adjusted current earnings." The corporate minimum tax treats 75%
of the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Trust dividend, and alternative minimum taxable income does not
include the portion of the Trust's dividend attributable to municipal bonds
which are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Trust representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES. In the opinion of Houston,
Houston & Donnelly, counsel to the Trust:
- the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its yield, effective yield, and
tax-equivalent yield.
The yield of the Trust represents the annualized rate of income earned on an
investment in the Trust over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Trust is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the Trust is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Trust would have had to earn to
equal its actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Trust after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Trust may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
FEDERATED TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--102.1%
- ---------------------------------------------------------------------
ALABAMA--2.0%
------------------------------------------------------
$ 5,100,000 Birmingham, AL, GO Weekly VRDNs (Series 1992A)/ (First
Alabama Bank LOC) A-1+ $ 5,100,000
------------------------------------------------------
4,510,000 Madison, AL, IDA Weekly VRDNs (Executive Inn)/
(AmSouth Bank N.A. LOC) A-1 4,510,000
------------------------------------------------------
4,000,000 Montgomery, AL, IDB, 2.30% CP Pollution Control &
Solid Waste Disposal (General Electric Company
Guaranty), Mandatory Tender 12/10/93 A-1+ 4,000,000
------------------------------------------------------
7,030,000 Montgomery, AL, IDB, 2.45% CP Pollution Control &
Solid Waste Disposal (General Electric Company
Guaranty), Mandatory Tender 12/14/93 A-1+ 7,030,000
------------------------------------------------------
6,000,000 Montgomery, AL, IDB, 2.60% CP Pollution Control &
Solid Waste Disposal (General Electric Company
Guaranty), Mandatory Tender 1/19/94 A-1+ 6,000,000
------------------------------------------------------ --------------
Total 26,640,000
------------------------------------------------------ --------------
ARIZONA--4.7%
------------------------------------------------------
9,000,000 Arizona Agricultural Improvement & Power District,
2.50% CP (Salt River Project Guaranty), Mandatory
Tender 1/31/94 A-1+ 9,000,000
------------------------------------------------------
11,765,000 Arizona Agricultural Improvement & Power District,
2.55% CP (Salt River Project Guaranty), Mandatory
Tender 2/18/94 A-1+ 11,765,000
------------------------------------------------------
12,200,000 Arizona Agricultural Improvement & Power District,
2.65% CP (Salt River Project Guaranty), Mandatory
Tender 1/24/94 A-1+ 12,200,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
ARIZONA--CONTINUED
------------------------------------------------------
$30,000,000 Pima County, AZ, IDA Weekly VRDNs (Tucson Electric
Power Co.)/(Barclays Bank, PLC LOC) VMIG1 $ 30,000,000
------------------------------------------------------ --------------
Total 62,965,000
------------------------------------------------------ --------------
ARKANSAS--0.5%
------------------------------------------------------
6,800,000 Arkansas Hospital, AR, Equipment Finance Authority
Weekly VRDNs (Series 85)/(Credit Suisse LOC) VMIG1 6,800,000
------------------------------------------------------ --------------
CALIFORNIA--6.1%
------------------------------------------------------
17,000,000 California School Cash Reserve Program Authority,
3.40% TANs (Series 1993A)/(California School Boards
Pooled Loan Program), 7/5/94 SP-1+ 17,048,794
------------------------------------------------------
10,000,000 California State, 3.90% GO Bonds, 4/1/94 NR(2) 10,038,939
------------------------------------------------------
10,000,000 California Student Loan Revenue Bonds, 2.70% Annual
TOBs (Student Loan Marketing Association LOC),
Mandatory Tender 7/1/94 VMIG1 10,000,000
------------------------------------------------------
5,000,000 Los Angeles County School and Community College
Districts, 3.25% TRANs (Series 1993-94B), 9/7/94 SP-1+ 5,013,038
------------------------------------------------------
10,000,000 Los Angeles County, CA, 3.00% TRANs, 6/30/94 SP-1+ 10,012,211
------------------------------------------------------
19,000,000 San Bernardino County, CA, 3.25% Multi-Term TOBs,
Optional Tender 6/8/94 VMIG1 19,052,710
------------------------------------------------------
7,000,000 San Francisco, CA, Unified School District, 3.50%
TRANs, 8/12/94 SP-1+ 7,021,248
------------------------------------------------------
4,000,000 Victor, CA, Elementary School District, 3.50% TRANs,
7/29/94 SP-1+ 4,010,229
------------------------------------------------------ --------------
Total 82,197,169
------------------------------------------------------ --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
COLORADO--2.3%
------------------------------------------------------
$10,000,000 Arapahoe County, CO, Capital Improvement Authority,
2.85% Semi-Annual TOBs (E-470)/(Society Generale LOC),
Optional Tender 2/28/94 SP-1+ $ 10,000,000
------------------------------------------------------
2,500,000 Loveland, CO, IDA, 2.62% Multi-Term TOBs (Series 93)/
(Safeway, Inc.)/(Bankers Trust Co. LOC), Mandatory
Tender 12/1/93 A-1+ 2,500,000
------------------------------------------------------
19,000,000 Moffat County, CO, PCR Weekly VRDNs (Series 1984)/
(Colorado UTE Electric Association)/(NRUCFC
Guaranty) P-1 19,000,000
------------------------------------------------------ --------------
Total 31,500,000
------------------------------------------------------ --------------
CONNECTICUT--0.4%
------------------------------------------------------
6,000,000 Connecticut State, HFA, 2.80% Annual TOBs
(Series 1993E-1), Mandatory Tender 11/15/94 A-1+ 6,000,000
------------------------------------------------------ --------------
DISTRICT OF COLUMBIA--0.9%
------------------------------------------------------
9,800,000 District of Columbia, Daily VRDNs (Series 1992A-2)/
(Sanwa Bank, Ltd. LOC) VMIG1 9,800,000
------------------------------------------------------
2,000,000 District of Columbia, Daily VRDNs (Series 1992A-6)/
(National Westminster Bank, PLC LOC) A-1+ 2,000,000
------------------------------------------------------ --------------
Total 11,800,000
------------------------------------------------------ --------------
FLORIDA--3.3%
------------------------------------------------------
11,500,000 Alachua County, FL, HFA Weekly VRDNs (North Florida
Retirement Village)/(Sumitomo Bank, Ltd. LOC) A-1+ 11,500,000
------------------------------------------------------
11,000,000 Florida State Board of Education Capital Outlay Bonds
Weekly VRDNs (P-Floats)/(Series 1992C) VMIG1 11,000,000
------------------------------------------------------
8,715,000 Fort Lauderdale, FL, Performing Arts Center Authority
Weekly VRDNs (Sun Bank, N.A. LOC) VMIG1 8,715,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
FLORIDA--CONTINUED
------------------------------------------------------
$12,000,000 Sunshine State Governmental Finance Commission, FL,
2.50% CP (Morgan Guaranty Trust Co., National West-
minster Bank, PLC and Union Bank of Switzerland LOCs),
Mandatory Tender 12/8/93 VMIG1 $ 12,000,000
------------------------------------------------------
1,720,000 University of Florida Athletic Association Weekly
VRDNs (University of Florida Stadium)/(Sun Bank, N.A.
LOC) VMIG1 1,720,000
------------------------------------------------------ --------------
Total 44,935,000
------------------------------------------------------ --------------
GEORGIA--4.4%
------------------------------------------------------
6,000,000 Burke County, GA, PCR Weekly VRDNs (Series 1992)/
(Georgia Power Co.)/(Trust Company Bank LOC) A-1+ 6,000,000
------------------------------------------------------
3,800,000 Coweta County, GA, IDA Daily VRDNs (Series 1986)/
(Jack Eckerd, Inc.)/(Westpac Banking Corp. LOC) A-1 3,800,000
------------------------------------------------------
11,935,000 Fulco, GA, Hospital Authority Weekly VRDNs (Piedmont
Hospital)/(Trust Company Bank LOC) A-1+ 11,935,000
------------------------------------------------------
900,000 Georgia State Residential FHA, 3.125% Semi-Annual
TOBs, Optional Tender 6/1/94 A-1 900,000
------------------------------------------------------
15,000,000 Municipal Electric Authority of Georgia, 2.625%
Revolving Credit Note Participations (Series 1993),
12/31/93 NR(2) 15,000,000
------------------------------------------------------
8,850,000 Municipal Electric Authority, GA, 2.55% CP
(Series 1985A)/(Morgan Guaranty Trust Co. BPA),
Mandatory Tender 12/8/93 A-1 8,850,000
------------------------------------------------------
5,000,000 Private Colleges & Universities Authority, GA, 2.50%
CP (Series 1993B)/(Emory University Guaranty),
Mandatory Tender 12/16/93 A-1+ 5,000,000
------------------------------------------------------
8,000,000 Rockdale County, GA, Hospital Authority Weekly VRDNs
(Trust Company Bank LOC) VMIG1 8,000,000
------------------------------------------------------ --------------
Total 59,485,000
------------------------------------------------------ --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
ILLINOIS--5.9%
------------------------------------------------------
$ 4,300,000 Illinois Development Authority Weekly VRDNs
(Series 1993A)/(Loyola Academy)/(Northern Trust Co.
LOC) A-1+ $ 4,300,000
------------------------------------------------------
19,500,000 Illinois Health Facilities Authority Weekly VRDNs
(Series 1989A)/(Methodist Health Services Corp.)/
(Fuji Bank, Ltd. LOC) A-1 19,500,000
------------------------------------------------------
34,000,000 Illinois Health Facilities Authority Weekly VRDNs
(Sisters of the Third Order of St. Francis)/(Swiss
Bank Corp. LOC) A-1+ 34,000,000
------------------------------------------------------
8,000,000 Illinois Health Facilities Authority, 2.65% Annual
TOBs (Highland Park Hospital)/(FGIC Insured), Optional
Tender 6/1/94 A-1+ 8,000,000
------------------------------------------------------
6,000,000 Illinois State Toll Highway Authority Weekly VRDNs
(Series 1993B)/(MBIA Insured) VMIG1 6,000,000
------------------------------------------------------
4,500,000 Kane County, IL, Revenue Bonds Weekly VRDNs (Series
1993)/(Glenwood School for Boys)/(Harris Trust &
Savings Bank LOC) A-1+ 4,500,000
------------------------------------------------------
2,935,000 Rockford, IL, EDA 3.25% Annual TOBs (Independence
Village of Rockford L.P.)/(Banque Paribas LOC)/(FGIC
Securities Purchase, Inc. BPA), Mandatory Tender
12/1/93 A-1 2,935,000
------------------------------------------------------ --------------
Total 79,235,000
------------------------------------------------------ --------------
INDIANA--2.6%
------------------------------------------------------
10,000,000 Gary, IN, Environmental Improvement Weekly VRDNs (USX
Project)/(Bank of Nova Scotia LOC) P-1 10,000,000
------------------------------------------------------
20,000,000 Indiana Bond Bank, 3.15% RANs (Series A2), 1/18/94 SP-1+ 20,010,235
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
INDIANA--CONTINUED
------------------------------------------------------
$ 5,000,000 Indianapolis, IN, Local Public Authority Improvement,
3.00% Bond Bank Notes (Indianapolis Bond Bank
Guaranty)/(Barclays Bank PLC LOC), 1/10/94 SP-1+ $ 5,002,692
------------------------------------------------------ --------------
Total 35,012,927
------------------------------------------------------ --------------
IOWA--0.7%
------------------------------------------------------
6,540,000 Indianola, IA, Weekly VRDNs Health Care Facility
Refunding Revenue Bonds (Series 1992)/(Norwest Bank
Minnesota LOC) A-1+ 6,540,000
------------------------------------------------------
2,600,000 Iowa Higher Education Loan Authority Revenue Bonds
Weekly VRDNs (MBIA Insured)/(Dai-Ichi Kangyo Bank,
Ltd. BPA) VMIG1 2,600,000
------------------------------------------------------ --------------
Total 9,140,000
------------------------------------------------------ --------------
KENTUCKY--0.3%
------------------------------------------------------
4,600,000 Kentucky Development Finance Authority Health Care
System Weekly VRDNs (Appalachian Regional Health Care,
Inc.)/(Societe Generale LOC) VMIG1 4,600,000
------------------------------------------------------ --------------
LOUISIANA--2.5%
------------------------------------------------------
29,800,000 East Baton Rouge Parish, LA, PCR Refunding Bonds
Weekly VRDNs (Series 1993)/(Exxon Corp. Guaranty) A-1+ 29,800,000
------------------------------------------------------
4,000,000 Hammond, LA, IDA Daily VRDNs (Jack Eckerd, Inc.)/
(Westpac Banking Corp. LOC) P-1 4,000,000
------------------------------------------------------ --------------
Total 33,800,000
------------------------------------------------------ --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MARYLAND--1.8%
------------------------------------------------------
$10,000,000 Maryland State Capital Improvement and Refunding
Bonds, 2.75% Multi-Term TOBs (Series 1993)/(Sumitomo
Bank BPA) Optional Tender 1/19/94 A-1+ $ 10,000,000
------------------------------------------------------
15,000,000 Montgomery County, MD, EDA Weekly VRDNs (Howard Hughes
Medical Institute Guaranty) VMIG1 15,000,000
------------------------------------------------------ --------------
Total 25,000,000
------------------------------------------------------ --------------
MASSACHUSETTS--0.9%
------------------------------------------------------
2,000,000 Commonwealth of Massachusetts Dedicated Income Tax
Daily VRDNs (Series B)/(National Westminster Bank PLC
LOC) A-1+ 2,000,000
------------------------------------------------------
3,025,000 Massachusetts HEFA Weekly VRDNs (Harvard University
Guaranty) A-1+ 3,025,000
------------------------------------------------------
7,500,000 Massachusetts HEFA Weekly VRDNs (Series D)/(Loan
Capital Asset Program)/(MBIA Insured) VMIG1 7,500,000
------------------------------------------------------ --------------
Total 12,525,000
------------------------------------------------------ --------------
MICHIGAN--1.1%
------------------------------------------------------
14,800,000 Michigan State Hospital Finance Authority Weekly VRDNs
(Series A)/(Sisters of the Third Order of St.
Francis)/(Swiss Bank Corp. LOC) P-1 14,800,000
------------------------------------------------------ --------------
MINNESOTA--8.4%
------------------------------------------------------
9,125,000 Minneapolis, MN, Hospital Revenue Daily VRDNs (Min-
neapolis Children's Medical Center)/(Morgan Guaranty
Trust Co. LOC) A-1+ 9,125,000
------------------------------------------------------
15,000,000 Minneapolis, MN, Special School District, 3.00% TANs
(Series 1993), 1/27/94 MIG1 15,010,606
------------------------------------------------------
2,650,000 Minnesota State Higher Education Coordinating Board
Weekly VRDNs (Mitsubishi Bank Ltd. LOC) MIG1 2,650,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MINNESOTA--CONTINUED
------------------------------------------------------
$ 5,540,000 Minnesota State Weekly VRDNs P-Floats/(Merrill Lynch
Company BPA) VMIG1 $ 5,540,000
------------------------------------------------------
5,340,000 Minnesota State Weekly VRDNs P-Floats/(Merrill Lynch
Company BPA) VMIG1 5,340,000
------------------------------------------------------
14,720,000 Olmsted County, OH, Building Authority Weekly VRDNs
(Human Services Infrastructure)/(Sanwa Bank Ltd. LOC) A-1+ 14,720,000
------------------------------------------------------
14,100,000 Rochester, MN, Health Care Facility Weekly VRDNs (Mayo
Clinic Foundation Guaranty) VMIG1 14,100,000
------------------------------------------------------
7,000,000 Rochester, MN, Health Care Facility, 2.60% CP
(Series C)/(Mayo Clinic Foundation Guaranty),
Mandatory Tender 1/21/94 A-1+ 7,000,000
------------------------------------------------------
11,000,000 Rochester, MN, Hospital Authority Weekly VRDNs (Mayo
Clinic Foundation Guaranty) A-1+ 11,000,000
------------------------------------------------------
26,950,000 Rosemount, MN, PCR Weekly VRDNs (Series 1984)/ (Koch
Refining Co. Guaranty) A-1+ 26,950,000
------------------------------------------------------
1,125,000 Saint Louis Park Hennepin County, MN, Weekly VRDNs A-1+ 1,125,000
------------------------------------------------------
1,150,000 Saint Louis Park Hennepin County, MN, Weekly VRDNs
(Series A) A-1+ 1,150,000
------------------------------------------------------ --------------
Total 113,710,606
------------------------------------------------------ --------------
MISSOURI--1.1%
------------------------------------------------------
6,000,000 Missouri HEFA Weekly VRDNs (Barnes Hospital)/
(Sumitomo Bank Ltd. LOC) VMIG1 6,000,000
------------------------------------------------------
5,000,000 Missouri State Environmental Improvement & Energy
Authority, 2.65% Annual TOBs (Union Electric Co.)/
(Union Bank of Switzerland LOC), Optional Tender
6/1/94 A-1+ 5,000,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MISSOURI--CONTINUED
------------------------------------------------------
$ 4,000,000 St. Louis, MO, IDA Weekly VRDNs (Wetterau, Inc.)/ (PNC
Bank N.A. LOC) VMIG1 $ 4,000,000
------------------------------------------------------ --------------
Total 15,000,000
------------------------------------------------------ --------------
MONTANA--1.1%
------------------------------------------------------
4,900,000 Forsyth, Rosebud County, MT, PCR, 2.55% CP
(Pacificorp, Inc.)/(Industrial Bank of Japan, Ltd.
LOC), Mandatory Tender 12/13/93 A-1+ 4,900,000
------------------------------------------------------
9,700,000 Forsyth, Rosebud County, MT, PCR, 2.65% CP
(Pacificorp, Inc.)/(Industrial Bank of Japan, Ltd.
LOC), Mandatory Tender 2/14/94 A-1+ 9,700,000
------------------------------------------------------ --------------
Total 14,600,000
------------------------------------------------------ --------------
NEW JERSEY--0.1%
------------------------------------------------------
1,800,000 Mercer County, NJ, Improvement Authority Weekly VRDNs
(Credit Suisse LOC) A-1+ 1,800,000
------------------------------------------------------ --------------
NEW MEXICO--0.9%
------------------------------------------------------
12,300,000 Albuquerque, NM, Municipal Gross Receipt Tax Revenue
Weekly VRDNs MIG1 12,300,000
------------------------------------------------------ --------------
NEW YORK--3.3%
------------------------------------------------------
7,000,000 New York City, NY, 3.50% RANs, 4/15/94 SP-1 7,017,795
------------------------------------------------------
14,200,000 New York City, NY, GO Bonds Daily VRDNs
Fiscal 1994 (Series B)/(Subseries B2)/(Dai-Ichi Kangyo
Bank Ltd. LOC) A-1+ 14,200,000
------------------------------------------------------
2,200,000 New York City, NY, GO Daily VRDNs
(Series 1992 C-4)/(Fuji Bank Ltd. LOC) VMIG1 2,200,000
------------------------------------------------------
1,500,000 New York City, NY, GO Daily VRDNs
(Series C-4)/(Fuji Bank Ltd. LOC) A-1 1,500,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NEW YORK--CONTINUED
------------------------------------------------------
$19,130,000 New York State, 2.75% TRANs, 12/31/93 SP-1+ $ 19,134,814
------------------------------------------------------ --------------
Total 44,052,609
------------------------------------------------------ --------------
NORTH CAROLINA--8.1%
------------------------------------------------------
7,377,877 Charlotte, NC, Weekly VRDNs (Series 1992)/(Credit
Suisse Financial Products BPA) NR(1) 7,377,877
------------------------------------------------------
20,000,000 Martin County, NC, IFA Weekly VRDNs (Series 1993)/
(Weyerhauser, Inc. Guaranty) A-1 20,000,000
------------------------------------------------------
56,800,000 NCNB Pooled Tax-Exempt Trust Weekly VRDNs
(Series 1990A)/(NationsBank of North Carolina N.A.
LOC) P-1 56,800,000
------------------------------------------------------
4,115,000 North Carolina Medical Care Commission Hospital Weekly
VRDNs (Series 1986AZ)/(Pooled Finance
Authority)/(MBIA Insured)/(Banque Paribas BPA) VMIG1 4,115,000
------------------------------------------------------
6,000,000 North Carolina Municipal Power Agency #1, 2.55% CP
(Catawba Electric Project), Mandatory Tender 1/19/94 A-1 6,000,000
------------------------------------------------------
10,000,000 University of North Carolina at Chapel Hill Utilities
System Revenue Bonds Weekly VRDNs P-Floats
(Series 1993)/(Merrill Lynch Company BPA) VMIG1 10,000,000
------------------------------------------------------
5,193,575 Wayne County, NC, Industrial Finance Authority Pollu-
tion Control Weekly VRDNs (Cooper Industries)/(Sanwa
Bank Ltd. LOC) A-1+ 5,193,575
------------------------------------------------------ --------------
Total 109,486,452
------------------------------------------------------ --------------
OHIO--4.0%
------------------------------------------------------
5,000,000 Cleveland-Cuyahoga County, OH, Port Authority Weekly
VRDNs (Series 1993)/(Rock and Roll Hall of Fame &
Museum)/(Credit Local De France LOC) A-1+ 5,000,000
------------------------------------------------------
7,890,000 Columbus, OH, Sewer System Revenue Bonds Weekly VRDNs
(Series B)/(Sanwa Bank Ltd. LOC) A-1+ 7,890,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
OHIO--CONTINUED
------------------------------------------------------
$ 4,000,000 Franklin County, OH, Healthcare Facilities Weekly
VRDNs (Series 1992)/(Wesley Glenn Inc.)/(Fifth Third
Bank LOC) VMIG1 $ 4,000,000
------------------------------------------------------
4,050,000 Hamilton County, OH, Health Care System Weekly VRDNs
(West Park Retirement Community, Inc.)/(Fifth Third
Bank LOC) VMIG1 4,050,000
------------------------------------------------------
8,500,000 Hamilton County, OH, Hospital Authority Revenue Bonds
Weekly VRDNs (Series 1986A)/(Good Samaritan
Hospital Guaranty)/(Fuji Bank BPA) A-1 8,500,000
------------------------------------------------------
4,450,000 Marion County, OH, Hospital Authority, 2.65%
Semi-Annual TOBs (Series 1991)/(Pooled Lease
Program)/(Bank One, Columbus N.A. LOC), Optional
Tender 5/2/94 A-1+ 4,450,000
------------------------------------------------------
8,000,000 Ohio State Multimodal Water Development Authority
Weekly VRDNs (Series 1993)/(Timkin Company)/
(Wachovia Bank of Georgia N.A. LOC) A-1+ 8,000,000
------------------------------------------------------
2,450,000 Ohio State Public Facilities Commission Weekly VRDNs
(Series 1993II)/(AMBAC Insured)/(Bankers Trust BPA) VMIG1 2,450,000
------------------------------------------------------
5,000,000 Ohio State Water Development Authority, 2.55% CP
(Series A)/(Cleveland Electric Illuminating Co.)/(FGIC
Insured), Mandatory Tender 2/8/94 A-1+ 5,000,000
------------------------------------------------------
4,000,000 University of Cincinnati, OH, 2.81% BANs, 3/23/94 MIG1 4,003,110
------------------------------------------------------ --------------
Total 53,343,110
------------------------------------------------------ --------------
OKLAHOMA--0.7%
------------------------------------------------------
2,900,000 Muskogee, OK, Industrial Trust Weekly VRDNs
(Series 1985)/(Muskogee Mall Limited Partnership)/
(Boatmens National Bank LOC) VMIG1 2,900,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
OKLAHOMA--CONTINUED
------------------------------------------------------
$ 3,700,000 Muskogee, OK, Industrial Trust Weekly VRDNs
(Series 1985)/(Warmack-Muskogee Limited Partnership)/
(Boatmens National Bank LOC) VMIG1 $ 3,700,000
------------------------------------------------------
3,000,000 Tulsa County, OK, IDA, 2.40% Semi-Annual TOBs
(Laureate Psychiatric Clinic & Hospital)/(Escrowed),
Mandatory Tender 12/15/93 A-1+ 3,000,000
------------------------------------------------------ --------------
Total 9,600,000
------------------------------------------------------ --------------
OREGON--0.4%
------------------------------------------------------
5,000,000 Multnomah County, OR, School District, 2.70% TANs
(Series 1993), 3/31/94 A-1+ 4,998,150
------------------------------------------------------ --------------
PENNSYLVANIA--10.9%
------------------------------------------------------
7,800,000 Allegheny County, PA, Weekly VRDNs A-1+ 7,800,000
------------------------------------------------------
3,130,000 Allegheny County, PA, Weekly VRDNs (University of
Pittsburgh)/(Fuji Bank Ltd. LOC) VMIG1 3,130,000
------------------------------------------------------
15,000,000 Authority for Improvements in Municipalities, PA,
Weekly VRDNs (Pooled Hospital & Equipment Leasing Pro-
gram)/(MBIA Insured) VMIG1 15,000,000
------------------------------------------------------
9,400,000 Commonwealth of Pennsylvania, 3.25% TANs, 6/30/94 SP-1+ 9,430,743
------------------------------------------------------
7,100,000 Dauphin County, PA, General Authority Hospital Reve-
nue Bonds Weekly VRDNs (Jamison Memorial Hospital)/
(Toronto-Dominion Bank LOC) A-1+ 7,100,000
------------------------------------------------------
3,400,000 Dauphin County, PA, Hospital Authority Weekly VRDNs
(Hapsco Group)/(Toronto-Dominion Bank LOC) A-1+ 3,400,000
------------------------------------------------------
11,000,000 Delaware County, PA, IDA PCR Weekly VRDNs
(Series 1993A)/(Philadelphia Electric Co.)/(Toronto-
Dominion Bank LOC) A-1+ 11,000,000
------------------------------------------------------
10,000,000 Delaware County, PA, PCA, 2.75% CP (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 3/10/94 A-1+ 10,000,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
------------------------------------------------------
$ 6,000,000 Delaware County, PA, PCA, 2.80% CP (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 3/23/94 A-1+ $ 6,000,000
------------------------------------------------------
31,900,000 Erie County, PA, Hospital Authority Weekly VRDNs (St.
Vincent Health System)/(Fuji Bank, Ltd. LOC) A-1 $ 31,900,000
------------------------------------------------------
4,200,000 Geisinger Authority, Pennsylvania Health System Daily
VRDNs (Series 1992B)/(Geisinger Guaranty) A-1+ 4,200,000
------------------------------------------------------
2,600,000 Montgomery County, PA, IDA Weekly VRDNs
(Series 1984)/(General Signal Corp.)/(Morgan Guaranty
Trust Co. LOC) P-1 2,600,000
------------------------------------------------------
9,000,000 Pennsylvania State University, 3.00% BANs
(Series 1993B), 12/5/94 SP-1+ 9,023,580
------------------------------------------------------
13,500,000 Philadelphia, PA, 3.25% TANs (Series A)/(Canadian
Imperial Bank of Commerce LOC), 6/15/94 A-1+ 13,533,261
------------------------------------------------------
6,700,000 Philadelphia, PA, HEFA Weekly VRDNs (Pennsylvania
Hospital)/(PNC Bank N.A. LOC) VMIG1 6,700,000
------------------------------------------------------
5,900,000 Philadelphia, PA, IDR Weekly VRDNs (Franklin
Institute)/(PNC Bank N.A. LOC) A-1 5,900,000
------------------------------------------------------ --------------
Total 146,717,584
------------------------------------------------------ --------------
PUERTO RICO--1.1%
------------------------------------------------------
7,400,000 Government Development Bank of Puerto Rico Weekly
VRDNs (Credit Suisse and Sumitomo Bank, Ltd. LOCs) A-1+ 7,400,000
------------------------------------------------------
6,800,000 Puerto Rico Industrial Medical and Environmental
Pollution Control Facilities Authority, 3.35% Annual
TOBs (American Home Products Guaranty), Optional
Tender 12/1/93 P-1 6,800,000
------------------------------------------------------ --------------
Total 14,200,000
------------------------------------------------------ --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
SOUTH CAROLINA--2.3%
------------------------------------------------------
$23,000,000 Greenville, SC, Hospital System Board of Trustees
Weekly VRDNs (Series 1993B) A-1+ $ 23,000,000
------------------------------------------------------
7,500,000 York County, SC, Pollution Center, 2.70% Semi-Annual
TOBs (Series 1984N)/(NC Electric Membership Corp.)/
(NRUCFC Guaranty), Optional Tender 3/15/94 A-1+ 7,500,000
------------------------------------------------------ --------------
Total 30,500,000
------------------------------------------------------ --------------
TENNESSEE--3.0%
------------------------------------------------------
5,000,000 Chattanooga, TN, HEFA Weekly VRDNs (McCallie
School)/(Trust Company Bank LOC) A-1+ 5,000,000
------------------------------------------------------
14,000,000 Chattanooga, TN, HEFA Weekly VRDNs (Siskin Hospital
for Physical Rehabilitation, Inc.)/(Sumitomo Bank Ltd.
LOC) P-1 14,000,000
------------------------------------------------------
3,700,000 Nashville & Davidson, TN, HEFA, 2.55% Annual TOB
(Series 1985B)/(Vanderbilt University Guaranty),
Optional Tender 5/1/94 A-1+ 3,700,000
------------------------------------------------------
10,000,000 Nashville, TN, Metropolitan Airport Authority
Adjustable Rate Refunding Weekly VRDNs (Series
1993)/(FGIC Insured) A-1+ 10,000,000
------------------------------------------------------
7,995,000 Shelby County, TN, 3.10% Annual TOBs Health, Educa-
tion & Housing Facility (MBIA Insured), Optional
Tender 8/1/94 A-1+ 7,995,000
------------------------------------------------------ --------------
Total 40,695,000
------------------------------------------------------ --------------
TEXAS--6.3%
------------------------------------------------------
5,000,000 Dallas County, TX, 2.70% Annual TOBs (Series C),
Optional Tender 6/15/94 A-1+ 5,000,000
------------------------------------------------------
3,500,000 Harris County, TX, HFDC Daily VRDNs (Series 1992A)/
(St. Luke's Episcopal Hospital Guaranty) A-1+ 3,500,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
TEXAS--CONTINUED
------------------------------------------------------
$ 1,500,000 Harris County, TX, HFDC Daily VRDNs (Series D)/
(St. Luke's Episcopal Hospital Guaranty) A-1+ $ 1,500,000
------------------------------------------------------
6,000,000 Harris County, TX, HFDC Weekly VRDNs (Memorial Senior
Services, Inc.)/(Societe Generale LOC) VMIG1 6,000,000
------------------------------------------------------
3,500,000 Houston, TX, Public Improvement Weekly VRDNs
(Series 1992A) A-1+ 3,500,000
------------------------------------------------------
6,700,000 San Antonio, TX, IDA Weekly VRDNs (River Center
Associates)/(PNC Bank N.A. LOC) VMIG1 6,700,000
------------------------------------------------------
5,000,000 Sulfur Springs, TX, IDA Weekly VRDNs (Hun
Industries)/(Credit Suisse LOC) A-1+ 5,000,000
------------------------------------------------------
7,650,000 Texas State Public Finance Authority Equipment, 3.00%
SB (Series 1993A), 2/1/94 NR(3) 7,654,792
------------------------------------------------------
5,000,000 Texas State Public Finance Authority Equipment, 3.00%
SB (Series 1993A), 8/1/94 NR(3) 5,000,000
------------------------------------------------------
13,600,000 Texas State Public Finance Authority, 2.50% CP,
Mandatory Tender 12/30/93 A-1+ 13,600,000
------------------------------------------------------
27,000,000 Texas State, 3.25% TRANs (Series 1993), 8/31/94 SP-1+ 27,092,695
------------------------------------------------------ --------------
Total 84,547,487
------------------------------------------------------ --------------
UTAH--1.7%
------------------------------------------------------
10,400,000 Intermountain Power Agency, UT, 2.70% Annual TOBs,
Optional Tender 6/15/94 A-1 10,400,000
------------------------------------------------------
12,600,000 Utah State Board of Regents Student Loan Revenue Bonds
Weekly VRDNs (AMBAC Insured) A-1+ 12,600,000
------------------------------------------------------ --------------
Total 23,000,000
------------------------------------------------------ --------------
VERMONT--0.6%
------------------------------------------------------
8,000,000 Vermont IDA Weekly VRDNs (Wallace Computer
Services, Inc.)/(Wachovia Bank & Trust Co. LOC) A-1 8,000,000
------------------------------------------------------ --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
VIRGINIA--1.9%
------------------------------------------------------
$ 4,280,000 Chesapeake Bay Bridge & Tunnel District, VA, General
Resolution Revenue Bonds Weekly VRDNs P-Floats/
(Series 1991)/(Merrill Lynch Company BPA)/(MBIA In-
sured) VMIG1 $ 4,280,000
------------------------------------------------------
4,460,000 Chesapeake Bay Bridge & Tunnel District, VA, General
Resolution Revenue Bonds Weekly VRDNs P-Floats
(Series 1991)/(Merrill Lynch Company BPA)/(MBIA In-
sured) VMIG1 4,460,000
------------------------------------------------------
8,280,000 Fairfax County, VA, Water Authority Refunding Revenue
Bonds Weekly VRDNs P-Floats (Merrill Lynch Company
BPA)/(Series 1992) VMIG1 8,280,000
------------------------------------------------------
8,000,000 Virginia State Housing Development Authority, 2.80%
Annual TOBs (Series 1993A), Mandatory Tender 11/4/94 SP-1+ 8,000,000
------------------------------------------------------ --------------
Total 25,020,000
------------------------------------------------------ --------------
WASHINGTON--0.9%
------------------------------------------------------
12,000,000 Washington State, 2.70% Multi-Term TOBs (Series
1994A)/(Dai-Ichi Kangyo Bank, Ltd. BPA), Optional
Tender 12/8/93 A-1 12,000,000
------------------------------------------------------ --------------
WEST VIRGINIA--0.7%
------------------------------------------------------
4,000,000 Marshall County, WV, PCR Weekly VRDNs
(Series 1992)/(PPG Industries Guaranty) A-1 4,000,000
------------------------------------------------------
5,740,000 West Virginia University Board of Regents, 2.90%
Annual TOBs (Morgan Guaranty Trust Co., New York LOC),
Optional Tender 2/1/94 A-1+ 5,740,000
------------------------------------------------------ --------------
Total 9,740,000
------------------------------------------------------ --------------
WISCONSIN--1.0%
------------------------------------------------------
5,000,000 Hartford, WI, IDA Weekly VRDNs (IC Products Co.)/ (PNC
Bank N.A. LOC) A-1 5,000,000
------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
- ----------- ------------------------------------------------------ -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
WISCONSIN--CONTINUED
------------------------------------------------------
$ 2,600,000 Village of Deerfield, WI, IDA Weekly VRDNs (InterPane
Coatings Corp.)/(PNC Bank N.A. LOC) VMIG1 $ 2,600,000
------------------------------------------------------
6,000,000 Wisconsin HEFA Weekly VRDNs (St. Luke's Medical
Center)/(Sumitomo Bank, Ltd. LOC) VMIG1 6,000,000
------------------------------------------------------ --------------
Total 13,600,000
------------------------------------------------------ --------------
WYOMING--0.8%
------------------------------------------------------
5,125,000 Lincoln County, WY, PCR, 2.70% Semi-Annual TOBs (Amoco
Oil Corp. Guaranty), Mandatory Tender 3/1/94 A-1+ 5,125,000
------------------------------------------------------
5,000,000 Unita County, WY, PCR, 3.14% Annual TOBs (Amoco Oil
Corp. Guaranty), Optional Tender 12/1/93 A-1+ 5,000,000
------------------------------------------------------ --------------
Total 10,125,000
------------------------------------------------------ --------------
OTHER--2.4%
------------------------------------------------------
15,000,000 Clipper Tax Exempt Trust, Weekly VRDNs (Series 1993-1) A-1+ 15,000,000
------------------------------------------------------
16,813,188 LaSalle National Bank Bustops Trust Weekly VRDNs
(Series 1993A)/(LaSalle National Bank BPA) A-1+ 16,813,188
------------------------------------------------------ --------------
Total 31,813,188
------------------------------------------------------ --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $1,375,284,282+
------------------------------------------------------ --------------
</TABLE>
* See Notes to Portfolio of Investments on page 34.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($1,346,791,070) at November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
BPA --Bond Purchase Agreement
CP --Commercial Paper
EDA --Economic Development Authority
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
GO --General Obligation
HEFA --Health and Education Facilities Authority
HFA --Housing Finance Authority/Agency
HFDC --Health Facility Development Corporation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDR --Industrial Development Revenue
IFA --Industrial Finance Authority/Agency
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
NRUCFC --National Rural Utilities Cooperative Finance Corporation
PCA --Pollution Control Authority
PCR --Pollution Control Revenue
RANs --Revenue Anticipation Notes
SB --Serial Bond
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
TRANs --Tax and Revenue Anticipation Notes
UT --Utah/Unlimited Tax
VA --Virginia/Veterans Administration
VRDNs --Variable Rate Demand Notes
</TABLE>
FEDERATED TAX-FREE TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
STANDARD & POOR'S CORPORATION ("S&P")
S&P'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 (+) designation.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
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.
MIG 1 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.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch's short term ratings place greater emphasis on the existence of liquidity
necessary to meet the issuers obligations in a timely manner.
F-1 Strongest degree of assurance for timely payment. Those issues determined to
provide exceptionally strong credit quality are given a plus (+)
designation.
VARIABLE RATE DEMAND NOTES (VRDN)
AND
TENDER OPTION BONDS (TOB)
S&P
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+, and A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
MOODY'S
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 designation using the same definition described above for the MIG
rating.
FITCH
Fitch usually assigns two ratings to long-term debt issues that include
provisions for a variable rate demand feature. The long-term rating addresses
the ability of the obligor to pay debt service and the short-term rating
addresses the timely payment of the demand feature. Examples of rating
designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for
the long-term and short-term ratings are provided below.)
COMMERCIAL PAPER (CP)
S&P
S&P's 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 designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
FITCH
F-1 Issues rated Fitch-1 demonstrate the strongest degree of assurance for
timely repayment of short-term promissory obligations. Those issuers
determined to provide exceptionally strong credit quality are given a plus
(+) designation.
LONG TERM DEBT
S&P
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.
Debt rated "AA" may also have a plus (+) or minus (-) sign designation.
Those issues determined to have the strongest credit qualities within a
rating category are assigned a plus (+) sign while those with the weakest
credit qualities are assigned a minus (-) sign.
- --------------------------------------------------------------------------------
MOODY'S
AAABonds that 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
edge." Interest payments are protected by a large margin and principal is
secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
AA Bonds that 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.
The bonds rated within the "AA" category may also have a 1, 2, or 3
designation. Those issues determined to have the strongest, average, or
weakest credit qualities within a rating category are assigned the 1, 2, or
3 designation, respectively.
FITCH
AAA Bonds that are rated AAA are of the highest credit quality. The obligor has
an exceptionally strong ability to pay debt service.
AA Bonds that are rated AA are of very high quality. The obligor has a very
strong ability to pay debt service. Debt rated in this category may also
have a (+) or (-) sign with a rating to indicate the relative position
within the rating category.
NON-RATED SECURITIES
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P, Moody's, or Fitch with respect to short-term
indebtedness. However, management considers them to be of comparable quality to
securities rated in one of the two highest short-term ratings categories by a
nationally recognized statistical ratings organization.
(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AAA" by S&P, "AAA" by Moody's or "AAA" by Fitch.
(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AA" by S&P, "AA" by Moody's, or "AA" by Fitch.
(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A"
by S&P, "A" by Moody's, or "A" by Fitch.
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $1,375,284,282
- ------------------------------------------------------------------------------
Cash 3,606,809
- ------------------------------------------------------------------------------
Interest receivable 7,807,925
- ------------------------------------------------------------------------------
Receivable for Trust shares sold 12,153
- ------------------------------------------------------------------------------ --------------
Total assets 1,386,711,169
- ------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------
Payable for investments purchased $37,585,002
- ----------------------------------------------------------------
Dividends payable 2,079,565
- ----------------------------------------------------------------
Payable for Trust shares repurchased 58,029
- ----------------------------------------------------------------
Accrued expenses and other liabilities 197,503
- ---------------------------------------------------------------- -----------
Total liabilities 39,920,099
- ------------------------------------------------------------------------------ --------------
NET ASSETS $1,346,791,070
- ------------------------------------------------------------------------------ --------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------
Paid-in capital $1,346,798,929
- ------------------------------------------------------------------------------
Accumulated net realized loss on investments (7,859)
- ------------------------------------------------------------------------------ --------------
NET ASSETS FOR 1,346,798,929 shares of beneficial interest
outstanding $1,346,791,070
- ------------------------------------------------------------------------------ --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($1,346,791,070 / 1,346,798,929 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------ --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2B) $38,122,618
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $5,829,667
- --------------------------------------------------------------------
Trustees' fees 21,406
- --------------------------------------------------------------------
Administrative personnel and services (Note 5) 646,592
- --------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 412,445
- --------------------------------------------------------------------
Trust share registration costs 47,497
- --------------------------------------------------------------------
Auditing fees 21,777
- --------------------------------------------------------------------
Legal fees 20,014
- --------------------------------------------------------------------
Printing and postage 11,960
- --------------------------------------------------------------------
State and local taxes 27,008
- --------------------------------------------------------------------
Insurance premiums 29,373
- --------------------------------------------------------------------
Miscellaneous 14,669
- -------------------------------------------------------------------- ----------
Total expenses 7,082,408
- --------------------------------------------------------------------
Deduct-Waiver of investment advisory fee (Note 5) 450,780
- -------------------------------------------------------------------- ----------
Net expenses 6,631,628
- --------------------------------------------------------------------------------- -----------
Net investment income 31,490,990
- ---------------------------------------------------------------------------------
Net realized gain on investments (identified cost basis) 65,014
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $31,556,004
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1993 1992
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 31,490,990 $ 48,968,828
- ------------------------------------------------------------
Net realized gain on investments ($65,014 and $165,424
respectively, as computed for federal tax purposes) 65,014 165,424
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from operations 31,556,004 49,134,252
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------
Dividends to shareholders from net investment income (31,490,990) (48,968,828)
- ------------------------------------------------------------ --------------- ---------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------
Proceeds from sale of shares 5,274,099,768 5,515,894,946
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 3,038,789 4,197,643
- ------------------------------------------------------------
Cost of shares redeemed (5,454,000,028) (5,717,400,332)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets from Trust share transactions (176,861,471) (197,307,743)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets (176,796,457) (197,142,319)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 1,523,587,527 1,720,729,846
- ------------------------------------------------------------ --------------- ---------------
End of period $ 1,346,791,070 $ 1,523,587,527
- ------------------------------------------------------------ --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Trust is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end, management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that
the best method currently available for valuing portfolio securities is
amortized cost. The Trust's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders each year all of its taxable income. Accordingly,
no provision for federal income or excise tax is necessary. Dividends paid by
the Trust representing net interest received on tax-exempt municipal
securities are not includable by shareholders as gross income for federal
income tax purposes because the Trust intends to meet certain requirements of
the Internal Revenue Code applicable to regulated investment companies which
will enable the Trust to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7,
1986, may be considered a tax preference item to shareholders.
At November 30, 1993, the Trust, for federal income tax purposes, has a
capital loss carryforward of $7,859, which expires in 1995 and which will
reduce the Trust's taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Trust of any liability for
federal tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. To the extent the Trust engages
in such transactions, it will do so for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
the purpose of investment leverage. The Trust will record a when-issued
security and the related liability on the trade date. Until the securities
are received and paid for, the Trust will maintain security positions such
that sufficient liquid assets will be available to make payment for
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
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.
E. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
The Trust computes its net income daily and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends to shareholders of record at the time of the previous
computation of the Trust's net asset value. Payment of dividends is made monthly
in cash or in additional shares at the net asset value on the payable date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
<S> <C> <C>
1993 1992
- ------------------------------------------------------------- -------------- --------------
Shares outstanding, beginning of period 1,523,660,400 1,720,968,143
- -------------------------------------------------------------
Shares sold 5,274,099,768 5,515,894,946
- -------------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 3,038,789 4,197,643
- -------------------------------------------------------------
Shares redeemed (5,454,000,028) (5,717,400,332)
- ------------------------------------------------------------- -------------- --------------
Shares outstanding, end of period 1,346,798,929 1,523,660,400
- ------------------------------------------------------------- -------------- --------------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Research, the Trust's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee of 0.40 of 1% of the Trust's average
daily net assets, subject to an undertaking to reimburse the Trust, limited to
the amount of the advisory fee, the amount by which the Trust's aggregate annual
operating expenses, exclusive of interest, taxes, brokerage commissions,
expenses of registering and qualifying the Trust and its shares under federal
and state laws, expenses of withholding taxes, and extraordinary expenses exceed
0.45 of 1% of its average daily net assets. For the year ended November 30,
1993, the investment advisory fee amounted to $5,829,667, of which $450,780 was
waived. Administrative personnel and services were provided at approximate cost
by Federated Administrative Services, Inc. Certain of the Officers and Trustees
of the Trust are Officers and Directors of the above corporations.
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
During the year ended November 30, 1993, the Trust engaged in purchase and sale
transactions with other Funds advised by the Adviser pursuant to Rule 17a-7 of
the Investment Company Act of 1940, amounting to $1,394,525,000 and
$1,010,960,000, respectively. These purchases and sales were conducted on an
arms-length basis insofar as they were transacted for cash considerations only,
at independent current market prices and without brokerage commission, fee, or
other remuneration.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related notes are unauditied.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FEDERATED TAX-FREE TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Tax-Free Trust as of November 30,
1993, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended November 30, 1993 and 1992, and the
financial highlights (see page 2 of the prospectus) for each of the years in the
ten-year period ended November 30, 1993. 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 the securities owned at
November 30, 1993 by correspondence with the custodian and brokers. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Tax-Free
Trust as of November 30, 1993, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
January 14, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Tax-Free Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Investment Adviser
Federated Research Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ----------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ----------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
Prospectus dated January 31, 1994
8010414A (1/94)
FEDERATED TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
the Trust dated January 31, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call Federated Tax-Free Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 1
Investment Limitations 2
Concentration of Investments 4
INVESTMENT RISKS 4
- ---------------------------------------------------------------
TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 6
Trust Ownership 6
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Trust 7
Advisory Fees 7
Other Related Services 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Use of the Amortized Cost Method 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 10
- ---------------------------------------------------------------
The Trust's Tax Status 10
YIELD 10
- ---------------------------------------------------------------
TAX EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax Equivalency Table 10
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
Federated Tax-Free Trust was established as a Massachusetts business trust under
a Declaration of Trust dated November 20, 1978.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Trust's investment objective is to provide dividend income exempt from
federal income tax while seeking relative stability of principal.
ACCEPTABLE INVESTMENTS
The Trust invests primarily in debt obligations issued by or on behalf of
states, territories and possessions of the United States, including the District
of Columbia, and any political subdivision or financing authority of any of
these, the income from which is, in the opinion of qualified legal counsel,
exempt from federal income tax ("Municipal Securities").
The Trust invests in Municipal Securities with remaining maturities of one year
or less at the time of purchase by the Trust. This investment policy and the
objective stated above cannot be changed without approval of shareholders.
When determining whether a Municipal Security presents minimal credit
risks, the investment adviser will consider the creditworthiness of the
issuer of a Municipal Security, the issuer of a demand feature if the
Trust has the unconditional right to demand payment for the Municipal
Security, or the guarantor of payment by either of those issuers.
The Trust is not required to sell a Municipal Security if the security's
rating is reduced below the required minimum subsequent to the Trust's
purchase of the security. The investment adviser considers this event,
however, in its determination of whether the Trust should continue to
hold the security in its portfolio. If ratings made by a nationally
recognized statistical rating organization (an "NRSRO") change because of
changes in its organization or in its rating system, the Trust will try
to use comparable ratings as standards in accordance with the investment
policies described in the Trust's prospectus.
MUNICIPAL LEASES
The Trust may purchase Municipal Securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Trust sufficient to make payment for the
securities to be purchased are segregated on the Trust's records at the trade
date. These assets are marked to market daily and maintained until the
transaction is settled. The Trust may engage in these transactions to an extent
that would cause the segregation of an amount up to 20% of the total value of
its assets.
TEMPORARY INVESTMENTS
The Trust may also invest in high quality temporary investments from time to
time for temporary defensive purposes. During the last fiscal year, the Trust
did not invest in temporary investments and does not presently intend to do so
in the coming fiscal year.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Trust and agree at the time
of sale to repurchase them at a mutually agreed upon time and price
within one year from the date of acquisition. The Trust or its custodian
will take possession of the securities subject to repurchase agreements
and these securities will be marked to market daily. To the extent that
the original seller does not repurchase the
- --------------------------------------------------------------------------------
securities from the Trust, the Trust could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Trust might be delayed pending court action.
The Trust believes that under the regular procedures normally in effect
for custody of the Trust's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Trust and allow retention or disposition of such securities. The Trust
will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are found
by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
From time to time, such as when suitable Municipal Securities are not available,
the Trust may invest a portion of its assets in cash. Any portion of the Trust's
assets maintained in cash will reduce the amount of assets in Municipal
Securities and thereby reduce the Trust's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Trust 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 purchases and sales of securities.
BORROWING MONEY
The Trust 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 the value of its total assets. In addition, the Trust may
enter into reverse repurchase agreements and otherwise borrow 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 Trust to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment. The
Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate, although it may invest
in Municipal Securities secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES AND MINERALS
The Trust will not purchase or sell commodities, commodity contracts, or
oil, gas, or other mineral exploration or development programs or leases.
UNDERWRITING
The Trust 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.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued Municipal Securities or temporary
investments or enter into repurchase agreements.
ACQUIRING SECURITIES
The Trust will not acquire the voting securities of any issuer, except as
part of a merger, consolidation, reorganization, or acquisition of
assets. It will not invest in securities issued by any other investment
company or investment trust.
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase securities issued by any one issuer having a
value of more than 5% of the value of its total assets except cash or
cash items and U.S. government obligations.
- --------------------------------------------------------------------------------
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. If
in the case of an industrial development bond or governmental-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 Trust 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 OF THE TRUST
The Trust will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or its investment adviser owning
individually more than .50 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Trust will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Trust may purchase Municipal
Securities accompanied by agreements of sellers to repurchase them at the
Trust's option.
INVESTING IN RESTRICTED SECURITIES
The Trust will not invest more than 10% of the value of its total assets
in securities which are subject to legal or contractual restrictions on
resale.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities, except as permitted by the
investment objective and policies of the Trust.
The above limitations cannot be changed without shareholder approval. The
following investment limitation, however, may be changed by Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities determined by the Board of Trustees not to be liquid.
Restricted securities and municipal lease securities are considered illiquid
unless determined by the Trust's investment adviser to be liquid under criteria
established by the Board of Trustees. Under the current criteria, the adviser
must consider the following factors in determining the liquidity of restricted
securities and municipal lease securities: (1) the frequency of trades and
quotes for the security; (2) the volatility of quotations and trade prices for
the security; (3) the number of dealers willing to purchase or sell the security
and the number of potential purchasers; (4) dealer undertakings to make a market
in the security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial condition
and prospects of the issuer of the security; and (7) such other factors as may
be relevant to the Fund's ability to dispose of the security. In the case of a
municipal lease security, the adviser must also consider the following
additional factors: (a) whether the lease can be terminated by the lessee; (b)
the potential recovery, if any, from a sale of the leased property upon
termination of the lease; (c) the lessee's general credit strength; (d) the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations;
and (e) any credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Trust 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
in the current fiscal year.
- --------------------------------------------------------------------------------
CONCENTRATION OF INVESTMENTS
The Trust will not purchase securities if, as a result of such purchase, more
than 25% of the value of the Trust's assets would be invested in any one
industry.
However, the Trust may invest more than 25% of the value of its assets in cash
or cash items (including time and demand deposits of U.S. branches of domestic
banks, such as certificates of deposit), 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 Trust does not intend to purchase securities that would increase the
percentage of its assets invested in the securities of governmental subdivisions
located in any one state, territory, or U.S. possession to more than 25%.
However, the Trust may invest more than 25% of the value of its assets in
tax-exempt project notes guaranteed by the U.S. government, regardless of the
location of the issuing municipality.
If the value of Trust assets invested in the securities of a governmental
subdivision changes because of changing values, the Trust will not be required
to make any reduction in its holdings.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
Litigation or legislation could affect the validity of certain Municipal
Securities or their tax-free interest. For example, litigation challenging the
validity of systems of financing public education has been initiated or
adjudicated in a number of states. The Trust will not investigate such
legislation or litigation unless it deems it necessary to do so. To the extent
that litigation or legislation has an adverse effect on the ratings ascribed to
a particular Municipal Security, there is some protection to the Trust's
shareholders from the Trust's policy of buying only high-rated securities.
TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Research,
Federated Investors, Federated Securities Corp., and Federated Administrative
Services, Inc. and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, President and Director,
Federated Investors, Inc. and Director, The Standard Fire Insurance Company.
Mr. Donahue is the father of J. Christopher Donahue, President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation, Senior Vice President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtor; President Northgate Village Development
Department Corporation; General Partner or Trustee in private real estate ventures in
John R. Wood and Southwest Florida; Director, Trustee, or Managing General Partner of the
Associates, Inc., Realtors Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
2nd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, Internist, Presbyterian and Montefiore Hospitals;
3471 Fifth Avenue Clinical Professor of Medicine and Trustee, University of Pittsburgh;
Suite 1111 Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director Eat 'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank & Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral Endowment for International Peace RAND Corporation, Online Computer Library
of Learning Center, Inc. and U.S. Space Foundation; Chairman, National Advisory Council
University of Pittsburgh for Environmental Policy & Technology; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of the Funds;
formerly, President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services, Inc.; President or Vice President of the
Pittsburgh, PA Funds; Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Director, Federated Investors, Inc. Mr. Donahue is the son of John
F. Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; President and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds; formerly, Executive Vice
Pittsburgh, PA President and Director, Federated Investors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee of some of the Funds; Vice President
and Treasurer of the Funds; formerly, Vice President and Treasurer,
Federated Investors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the Funds;
Federated Investors staff member, Federated Securities Corp. and Federated Administrative
Tower Services, Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel and Trustee, Federated Investors;
Federated Investors and Secretary Trustee, Federated Advisers, Federated Management, and Federated Research;
Tower Executive Vice President, Secretary, and Director, Federated Administrative
Pittsburgh, PA Services, Inc.; Executive Vice President, Assistant Secretary and Director,
Federated Securities Corp.; Vice President and Secretary of the Funds;
formerly, Secretary and General Counsel, Federated Investors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, Federated Investors, Inc. and The Standard Fire
Insurance Company and President of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insurance Management Series; Intermediate Municipal Trust; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; the Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of January 6, 1994, there were no shareholders of record owning 5% or more of
the outstanding shares of the Trust.
- --------------------------------------------------------------------------------
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Research. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee of
Federated Research; President and Trustee, Federated Investors and Chairman and
Trustee of the Trust. John A. Staley, IV, is President and Director of Federated
Research; Vice President and Trustee, Federated Investors; Executive Vice
President, Federated Securities Corp. and Vice President of the Trust. J.
Christopher Donahue is Trustee, Federated Research; Vice President and Trustee,
Federated Investors; President and Director, Federated Administrative Services,
Inc. and Vice President of the Trust. John W. McGonigle is Trustee of Federated
Research; Trustee, Vice President, Secretary and General Counsel, Federated
Investors; Executive Vice President, Secretary and Director, Federated
Administrative Services, Inc; Executive Vice President, Assistant Secretary and
Director, Federated Securities Corp. and Vice President and Secretary of the
Trust.
The adviser shall not be liable to the Trust or any 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.
ADVISORY FEES
For its advisory services, Federated Research receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
November 30, 1993, 1992, and 1991, the Trust's adviser earned $5,829,667,
$6,888,617, and $7,652,117, which were reduced by $450,780, $367,910, and
$350,797, respectively, because of undertakings to limit the Trust's expenses.
STATE EXPENSE LIMITATION
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed the California
expense limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
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 shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust at approximate cost.
For the fiscal years ending November 30, 1993, 1992, and 1991, the Trust
incurred costs for administrative services of $646,592, $563,312, and $679,096,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Research, the adviser to the Trust, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended November 30, 1993, 1992, and 1991 Federated Administrative
Services, Inc. paid approximately $164,324, $186,144, and $193,178,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. 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 Trust and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Trust is explained in the prospectus under "Investing in the Trust."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Trust are described in the prospectus. Net
asset value will not be calculated on the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Trust's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Trust's investment objective. Under the Rule,
the Trust is permitted to purchase instruments which are subject to demand
features or standby commitments. As defined by the Rule as amended, a demand
feature entitles the Trust to receive the principal amount of the instrument
from the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Trust to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instruments plus accrued interest at the time of exercise.
The Trust acquires instruments subject to demand features and standby
commitments to enhance the instruments' liquidity. The Trust treats demand
features and standby commitments as a part of the underlying instruments,
because the Trust does not acquire them for speculative purposes and cannot
transfer them separately from the
- --------------------------------------------------------------------------------
underlying instruments. Therefore, although the Rule defines demand features and
standby commitments as "puts," the Trust does not consider them to be separate
investments for purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
Rule 2a-7 requires that the Trust limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The order
also requires the Trust to maintain a dollar weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Trust.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
It is the Trust's usual practice to hold portfolio securities to maturity and
realize par, unless the investment adviser determines that sale or other
disposition is appropriate in light of the Trust's investment objective. Under
the amortized cost method of valuation, 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 Trust computed by dividing the annualized daily income on the Trust'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 indicated daily yield on shares of the
Trust computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Trust redeems shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for expedited telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Trust's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Trust's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Trust must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
YIELD
- --------------------------------------------------------------------------------
The Trust's yield for the seven-day period ended November 30, 1993 was 2.11%.
The Trust calculates its yield daily, based upon the seven days ending on the
day of the calculation, called the "base period." This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Trust, the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Trust's tax-equivalent yield for the seven-day period ended November 30,
1993 was 2.93%.
The tax-equivalent yield of the Trust is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Trust would have had to earn
to equal its actual yield, assuming a 28% tax rate (the maximum effective
federal rate for individuals) and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Trust may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Trust's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAX-FREE YIELD VS. TAXABLE YIELD
<TABLE>
<CAPTION>
Equivalent Taxable Yield for 1994
-------------------------------------------------------------------------
Federal Income Tax Bracket
Single Married Filing Jointly
28% 31% 15% 28% 31%
$21,450- Over Up to $35,800- Over
Tax Free Yield $51,900 $51,900 $35,800 $86,500 $86,500
- -------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
2.00% 2.35% 2.78% 2.90% 2.35% 2.78% 2.90%
2.50 2.94 3.47 3.62 2.94 3.47 3.62
3.00 3.53 4.17 4.35 3.53 4.17 4.35
3.50 4.12 4.86 5.07 4.12 4.86 5.07
4.00 4.71 5.56 5.80 4.71 5.56 5.80
4.50 5.29 6.25 6.52 5.29 6.25 6.52
5.00 5.88 6.94 7.25 5.88 6.94 7.25
5.50 6.47 7.64 7.97 6.47 7.64 7.97
6.00 7.06 8.33 8.70 7.06 8.33 8.70
</TABLE>
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Trust.
* Some portion of the Trust's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Trust's effective yield for the seven-day period ended November 30, 1993 was
2.13%.
The Trust's effective yield is computed 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.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Trust's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in Trust expenses; and
- - the relative amount of Trust cash flow.
From time to time the Trust may advertise its performance compared to similar
funds or portfolios using certain financial publications and/or compare its
performance to certain indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute net asset value. The financial
publications and/or indices which the Trust uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Trust will quote its Lipper ranking in the "short-term
municipal bond funds" category in advertising and sales literature.
- - DONOGHUE'S MONEY FUND REPORT provides average yields for tax-exempt money
market funds.
Advertisements and other sales literature for the Trust may refer to total
return. Total return is the historic change in the value of an investment in the
Trust based on the monthly reinvestment of dividends over a specified period of
time.
8010414B (1/94)
