- --------------------------------------------------------------------------------
FEDERATED TAX-FREE TRUST
PROSPECTUS
The shares of Federated Tax-Free Trust (the "Trust") offered by this
prospectus represent interests in an open-end, diversified management
investment company (a mutual fund), investing in short-term municipal
securities to achieve dividend income exempt from federal income tax
while seeking relative stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE 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.
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, 1995, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy
of the Statement of Additional Information free of charge, obtain
other information, or make inquiries about the Trust, by contacting
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, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
- ---------------------------------------------------
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
Regulatory Compliance 7
TRUST INFORMATION 7
- ---------------------------------------------------
Management of the Trust 7
Distribution of Shares 8
Administration of the Trust 8
NET ASSET VALUE 9
- ---------------------------------------------------
INVESTING IN THE TRUST 9
- ---------------------------------------------------
Share Purchases 9
Minimum Investment Required 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 11
Capital Gains 11
REDEEMING SHARES 11
- ---------------------------------------------------
By Mail 11
Telephone Redemption 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ---------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ---------------------------------------------------
Federal Income Tax 13
PERFORMANCE INFORMATION 14
- ---------------------------------------------------
FINANCIAL STATEMENTS 15
- ---------------------------------------------------
INDEPENDENT AUDITORS' REPORT 44
- ---------------------------------------------------
ADDRESSES 45
- ---------------------------------------------------
</TABLE>
I
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
<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
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee...................................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)................................................................. 0.30%
12b-1 Fee......................................................................................... None
Total Other Expenses.............................................................................. 0.15%
Shareholder Services Fee (after waiver) (2).......................................... 0.04%
Total Trust Operating Expenses (3)........................................................ 0.45%
<FN>
(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 maximum shareholder services fee is 0.25%.
(3) The Total Trust Operating Expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1995. The Total Trust
Operating Expenses were 0.45% for the fiscal year ended November 30, 1994
and would have been 0.55% absent the waiver of a portion of the management
fee.
</TABLE>
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 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period................................................. $ 5 $ 14 $ 25 $ 57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
FEDERATED TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 44.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------
1994 1993 1992 1991 1990
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.02 0.02 0.03 0.04 0.06
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.02) (0.03) (0.04) (0.06)
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
TOTAL RETURN* 2.43% 2.18% 2.88% 4.49% 5.68%
- ------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------------------------------------------------
Expenses 0.45% 0.46% 0.46% 0.46% 0.45%
- ------------------------------------------------------------
Net investment income 2.38% 2.16% 2.84% 4.40% 5.54%
- ------------------------------------------------------------
Expense waiver/reimbursement (a) 0.10% 0.03% -- -- --
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period
(000 omitted) $1,215,547 $1,346,791 $1,523,588 $1,720,730 $1,887,467
- ------------------------------------------------------------
<CAPTION>
1989 1988 1987 1986 1985
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.06 0.05 0.04 0.04 0.05
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.06) (0.05) (0.04) (0.04) (0.05)
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
TOTAL RETURN* 6.03% 4.87% 4.11% 4.43% 4.95%
- ------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------------------------------------------------
Expenses 0.45% 0.45% 0.44% 0.45% 0.45%
- ------------------------------------------------------------
Net investment income 5.86% 4.74% 4.01% 4.31% 4.82%
- ------------------------------------------------------------
Expense waiver/reimbursement (a) -- -- 0.01% -- --
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period
(000 omitted) $2,140,368 $2,618,595 $2,997,042 $4,119,247 $3,533,028
- ------------------------------------------------------------
<FN>
* Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This expense decrease is reflected in both the expense and net investment
income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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,
as a convenient means of accumulating an interest in a professionally managed,
diversified portfolio investing primarily in short-term municipal securities.
The Trust may not be a suitable investment for retirement plans since it invests
in municipal securities. A minimum initial investment of $25,000 over a 90-day
period is required.
The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is dividend income exempt from federal
income tax while seeking relative stability of principal. 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, unless
indicated otherwise, cannot be changed without shareholder approval.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing primarily in a portfolio
of municipal securities maturing in one year or less. The average maturity of
the securities in the Trust's portfolio, computed on a dollar-weighted basis,
will be 90 days or less, as required by applicable regulations. The Trust also
has a policy, which cannot be changed without shareholder approval, of limiting
its dollar weighted average portfolio for 120 days or less. At least 80% of the
Trust's annual interest income will be exempt from federal income tax.
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;
3
- municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
- participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the
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 published interest rate
or interest rate index. 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 rate 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. 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. An 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 FIN-1+ or FIN-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 be 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,
4
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 by both 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.
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
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 seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Trust may invest in tax-exempt or taxable securities such as: obligations issued
by or on behalf of municipal or corporate issuers having the same quality
characteristics as described above; obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; instruments issued by a U.S.
branch of a domestic bank or other deposit institution having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Trust
a temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Trust is permitted to make taxable, temporary investments, there is
no current intention to do so.
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
5
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 participation interests, or the credit enhancers of
either, to meet their obligations for the payment of interest and principal when
due. In addition, from time to time, the supply of Municipal Securities
acceptable for purchase by the Trust could become limited.
The Trust may invest in Municipal Securities which are repayable out of revenue
streams generated from economically related projects or facilities and/or whose
issuers are located in the same state. Sizable investments in these Municipal
Securities could involve an increased risk to the Trust should any of these
related projects or facilities experience financial difficulties.
Obligations of issuers of Municipal Securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the ability of states
or municipalities to levy taxes. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of any issuer to pay,
when due, the principal of and interest on its municipal securities may be
materially affected.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a money market instrument for
a percentage of its cash value with an agreement to buy it back on a set date)
or pledge securities except, under certain circumstances, the Trust may borrow
up to one-third of the value of its total assets and pledge up to 10% of the
value of such assets to secure such borrowings. This investment limitation
cannot be changed without shareholder approval.
6
The Trust will not invest more than 10% of the value of its total assets in
securities which are subject to legal or contractural restrictions on resale.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not invest more than 10% of its net assets in illiquid
securities.
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
- --------------------------------------------------------------------------------
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 and sale of portfolio instruments.
ADVISORY FEES. The 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 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
7
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 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.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it will pay Federated Shareholder Services, an
affiliate of Federated Investors, an amount not exceeding .25 of 1% of the
average daily net asset value of the Trust to provide personal services and/or
maintenance of shareholder accounts to the Trust and its shareholders. From time
to time and for such periods as deemed appropriate, the amount stated above may
be reduced voluntarily.
Federated Shareholder Services may elect to pay financial institutions fees
based upon shares owned by their clients or customers for services provided to
those clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by Federated
Shareholder Services.
GLASS-STEAGALL ACT. The Glass-Steagall Act prohibits a depository institution
(such as a commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Trustees will consider appropriate
changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and accounting services)
8
necessary to operate the Trust. Federated Administrative Services provides these
at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
-------------------- ------------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares. Average
aggregate daily net assets include those of all mutual funds advised by
affiliates of Federated Investors. Federated Administrative Services may choose
voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, MA is custodian for the
securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, PA is transfer agent for the shares of, and dividend disbursing
agent for, the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche LLP, Boston, MA.
NET ASSET VALUE
- --------------------------------------------------------------------------------
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 cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m., and 4:00 p.m.
(Eastern 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)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE TRUST
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Shares may
be purchased either by wire or mail. The Trust reserves the right to reject any
purchase request.
9
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.
BY WIRE. To purchase by Federal Reserve wire, call the Trust before 3:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m., (Eastern time) that
day. Federal funds should be wired as follows: Federated Services Company, c/o
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 Trust); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase by mail, send a check made payable to Federated Tax-Free
Trust to: Federated Services Company, State Street Bank and Trust Company, P.O.
Box 8602, Boston, MA 02266-8602. Orders by mail are considered received when
payment by check is converted into federal funds. This is normally the next
business day after the check is received.
AUTOMATIC INVESTMENTS. Investors may establish accounts with their financial
institutions to have cash accumulations automatically invested in the Trust. The
investments may be made on predetermined dates or when the investor's account
reaches a certain level. Participating financial institutions are responsible
for prompt transmission of orders relating to the program, and they may charge
for their services. Investors should read this prospectus along with the
financial institution's agreement or literature describing these services and
fees.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Trust. Financial institutions may impose different minimum investment
requirements on their customers.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial 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. Financial institutions 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 financial 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 or Federated Services Company in writing.
10
Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Trust unless cash
payments are requested by writing to the Trust. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Trust will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Services Company 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 as described below.
BY MAIL
Shares may be redeemed by sending a written request to: Federated Tax-Free
Trust, P.O. Box 8602, Boston, MA 02266-8602. The written request should state:
Federated Tax-Free Trust; shareholder's name; the account number; and the share
or dollar amount requested. Sign the request exactly as the shares are
registered. Shareholders should call the Trust for assistance in redeeming by
mail.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
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 their
signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; 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.
11
The Trust and the 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 the
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
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. Dividends are paid up to and including the day that a redemption
request is processed.
TELEPHONE REDEMPTION
Shares may be redeemed by telephoning the Trust. Telephone instructions may be
recorded and if reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. An
authorization form permitting the Trust to accept telephone requests must first
be completed. Authorization forms and information on this service are available
from Federated Securities Corp.
If the redemption request is received before 3:00 p.m. (Eastern time), the
proceeds will be wired the same day to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System, and those
shares redeemed will not be entitled to that day's dividend. A daily dividend
will be paid on shares redeemed if the redemption request is received after 3:00
p.m. (Eastern time). However, the proceeds are not wired until the following
business day.
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 "By Mail", should be considered. If at any time
the Trust shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
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.
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 election of Trustees under certain circumstances.
12
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 by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
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 certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Trust may purchase all types of municipal bonds, including private activity
bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the 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.
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust:
13
- 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.
OTHER STATE AND LOCAL TAXES. Because interest received by Trust may not be
exempt from all state and local income taxes, shareholders may be required to
pay state and local taxes on dividends received from the Trust. Shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its yield, effective yield, and
tax-equivalent yield.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Trust's tax exempt yield, assuming a specific tax rate.
Advertisements and 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, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare its
performance to certain indices.
14
FEDERATED TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--99.5%
- -----------------------------------------------------------------------------
ALABAMA--1.5%
------------------------------------------------------------
$ 6,100,000 Birmingham, AL, GO Weekly VRDNs (Series 1992A)/ (First
Alabama Bank LOC) A-1+ $ 6,100,000
------------------------------------------------------------
3,100,000 Birmingham, AL, Medical Clinic Board Daily VRDNs (University
of Alabama Health Services Foundation)/ (Morgan Guaranty
Trust Co. LOC) A-1+ 3,100,000
------------------------------------------------------------
1,500,000 Huntsville, AL, Health Care Authority/Health Care Facilities
Weekly VRDNs (Series 1994A)/(MBIA Insured)/ (AmSouth Bank
N.A. BPA) A-1 1,500,000
------------------------------------------------------------
1,875,000 Madison, AL, IDA Weekly VRDNs (Series A)/(Executive Inn
Ltd.)/(AmSouth Bank N.A. LOC) A-1 1,875,000
------------------------------------------------------------
1,000,000 Montgomery, AL, Special Care Facilities Finance Authority
Weekly VRDNs (Series 94A)/(Baptist Medical Center)/(AmSouth
Bank N.A. LOC) VMIG1 1,000,000
------------------------------------------------------------
4,575,000 Montgomery, AL, IDB Pollution Control & Solid Disposal
Revenue, 3.45% CP (General Electric Co. Guaranty), Mandatory
Tender 12/20/94 A-1+ 4,575,000
------------------------------------------------------------ ----------------
Total 18,150,000
------------------------------------------------------------ ----------------
ALASKA--1.6%
------------------------------------------------------------
3,000,000 Alaska Housing Finance Corporation Weekly VRDNs (Series
1994A)/(Westdeutsche Landesbank Girozentrale, Credit Suisse
and Swiss Bank Corp. LOCs) A-1+ 3,000,000
------------------------------------------------------------
16,500,000 Valdez, AK, Marine Terminal Daily VRDNs (Exxon Corp.
Guaranty) A-1+ 16,500,000
------------------------------------------------------------ ----------------
Total 19,500,000
------------------------------------------------------------ ----------------
ARIZONA--1.3%
------------------------------------------------------------
5,300,000 Phoenix, AZ, Daily VRDNs A-1+ 5,300,000
------------------------------------------------------------
</TABLE>
15
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
ARIZONA--CONTINUED
------------------------------------------------------------
$10,600,000 Pima County, AZ, IDA Weekly VRDNs (Tucson Electric Power
Company)/(Barclays Bank, PLC LOC) VMIG1 $ 10,600,000
------------------------------------------------------------ ----------------
Total 15,900,000
------------------------------------------------------------ ----------------
ARKANSAS--0.2%
------------------------------------------------------------
2,095,000 Arkansas Hospital Equipment Finance Authority Weekly VRDNs
(Jefferson Hospital Association)/(Credit Commerciale de
France LOC) VMIG1 2,095,000
------------------------------------------------------------
900,000 Arkansas Hospital Equipment Finance Authority Weekly VRDNs
(Series 85)/(Credit Suisse LOC) A-1+ 900,000
------------------------------------------------------------ ----------------
Total 2,995,000
------------------------------------------------------------ ----------------
CALIFORNIA--7.9%
------------------------------------------------------------
7,500,000 California Pollution Control Finance Authority, 3.70% CP
(Series 1988C)/(Pacific Gas & Electric Co.)/(Credit Suisse
LOC), Mandatory Tender 1/9/95 A-1+ 7,500,000
------------------------------------------------------------
10,500,000 California State, 4.10% Semi-Annual TOBs (FGIC
Insured)/(Banque Nationale de Paris BPA), Optional Tender
5/1/95 A-1+ 10,500,000
------------------------------------------------------------
7,000,000 California State, 5.00% RANs (Series A), 6/28/95 SP-1+ 7,031,439
------------------------------------------------------------
5,078,713(a) California State, First Boston California Trust/Floating
Rate Trust Certificate, Weekly VRDNs (Series 10)/(Credit
Suisse Financial Products BPA)/(Bank of America NT & SA,
Banque Nationale de Paris, Bank of Nova Scotia Canadian
Imperial Bank of Commerce, Chemical Bank, Citibank N.A.,
Credit Suisse, Morgan Guaranty Trust Co., National
Westminster Bank, PLC, London, Societe Generale North
America, Inc., Sumitomo Bank Ltd., Swiss Bank Corp.,
Westdeusche Landesbank Girozentrale & Toronto Dominion Bank
LOCs) MIG1 5,078,713
------------------------------------------------------------
10,000,000 California State, Monthly VRNs (Series C) SP-1+ 10,000,000
------------------------------------------------------------
</TABLE>
16
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------
$10,000,000 California Student Loan Revenue Bonds, 3.90% Annual TOBs
(Series B)/(Student Loan Marketing Association), Mandatory
Tender 7/1/95 VMIG1 $ 10,000,000
------------------------------------------------------------
10,000,000(a) Clipper, CA, Tax-Exempt Trust (94-2) Weekly VRDNs (State
Street Bank & Trust Co. BPA)/(Toronto-Dominion Bank, Bank of
Nova Scotia, Banque Nationale de Paris, Canadian Imperial
Bank of Commerce, Chemical Bank, Citibank N.A. & Credit
Suisse LOCs) VMIG1 10,000,000
------------------------------------------------------------
18,950,000 Los Angeles County, CA, 4.50% TRANs, 6/30/95 SP-1+ 19,018,545
------------------------------------------------------------
10,000,000 San Bernardino County, CA, Board of Education, 4.25% TRANs,
7/28/95 SP-1+ 10,012,388
------------------------------------------------------------
7,000,000 Stanislaus County, CA, Office of Education, 4.25% TRANs,
7/10/95 SP-1+ 7,022,440
------------------------------------------------------------ ----------------
Total 96,163,525
------------------------------------------------------------ ----------------
COLORADO--3.7%
------------------------------------------------------------
22,985,000 Arapahoe County, CO, Improvement Authority, 3.90%
Semi-Annual TOBs (Series G)/(Societe Generale, Paris LOC),
Optional Tender 2/28/95 SP-1+ 22,985,000
------------------------------------------------------------
2,500,000 Loveland, CO, IDR, 3.40% Semi-Annual TOBs (Series
1993S)/(Safeway, Inc.)/(Bankers Trust Co. LOC), Mandatory
Tender 12/1/94 A-1+ 2,500,000
------------------------------------------------------------
19,000,000 Moffat County, CO, PCR Weekly VRDNs (Series 1984)/ (Colorado
UTE Electric Association)/(NRUCFC Guaranty) A-1 19,000,000
------------------------------------------------------------ ----------------
Total 44,485,000
------------------------------------------------------------ ----------------
FLORIDA--5.1%
------------------------------------------------------------
1,000,000 Eustis Health Facilities Authority, FL, Weekly VRDNs (Series
1985)/(Waterman Medical Center, Inc.)/(Banque Paribas LOC) P-1 1,000,000
------------------------------------------------------------
</TABLE>
17
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
FLORIDA--CONTINUED
------------------------------------------------------------
$ 2,000,000(a) Florida State Board Education, Weekly VRDNs (Series
10)/(Morgan Guaranty Trust Co. BPA) VMIG1 $ 2,000,000
------------------------------------------------------------
8,485,000 Fort Lauderdale, FL, Performing Arts Center Authority Weekly
VRDNs (Sun Bank N.A. LOC) VMIG1 8,485,000
------------------------------------------------------------
6,000,000 Jacksonville, FL, Electric Authority, 3.45% CP (Series
C-1)/(Morgan Guaranty Trust Co., BPA), Mandatory Tender
12/21/94 A-1+ 6,000,000
------------------------------------------------------------
2,000,000 Orange County, FL, Health Facilities Authority Weekly VRDNs
(Mayflower Retirement Community, Inc.)/ (Banque Paribas LOC) A-1+ 2,000,000
------------------------------------------------------------
5,000,000 Sunshine State Governmental Finance Commission, FL, 3.10% CP
(Morgan Guaranty Trust Co., National Westminster Bank, PLC
and Union Bank of Switzerland LOCs), Mandatory Tender
12/16/94 VMIG1 5,000,000
------------------------------------------------------------
10,000,000 Sunshine State Governmental Finance Commission, FL,
3.20%-3.45% CP (Morgan Guaranty Trust Co., National
Westminster Bank, PLC and Union Bank of Switzerland LOCs),
Mandatory Tender 12/13/94 VMIG1 10,000,000
------------------------------------------------------------
2,500,000 Sunshine State Governmental Finance Commission, FL, 3.20% CP
(Morgan Guaranty Trust Co., National Westminster Bank, PLC
and Union Bank of Switzerland LOCs), Mandatory Tender
12/20/94 VMIG1 2,500,000
------------------------------------------------------------
5,900,000 Sunshine State Governmental Finance Commission, FL, 3.55% CP
(Morgan Guaranty Trust Co., National Westminister Bank, PLC
and Union Bank of Switzerland LOCs), Mandatory Tender
1/12/95 VMIG1 5,900,000
------------------------------------------------------------
10,000,000 Sunshine State Governmental Finance Commission, FL, 3.70% CP
(Morgan Guaranty Trust Co., National Westminster Bank, PLC
and Union Bank of Switzerland LOCs), Mandatory Tender
2/17/95 VMIG1 10,000,000
------------------------------------------------------------
</TABLE>
18
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
FLORIDA--CONTINUED
------------------------------------------------------------
$ 9,500,000 Sunshine State Governmental Finance Commission, FL, 3.85% CP
(Morgan Guaranty Trust Co., National Westminster Bank, PLC
and Union Bank of Switzerland LOCs), Mandatory Tender
2/10/95 VMIG1 $ 9,500,000
------------------------------------------------------------ ----------------
Total 62,385,000
------------------------------------------------------------ ----------------
GEORGIA--1.8%
------------------------------------------------------------
6,000,000 Burke County, GA, PCR Weekly VRDNs (Series 1992)/ (Georgia
Power Co.)/(Trust Company Bank LOC) A-1+ 6,000,000
------------------------------------------------------------
3,385,000 Fulco, GA, Hospital Authority Weekly VRDNs (Piedmont
Hospital)/(Trust Company Bank LOC) A-1+ 3,385,000
------------------------------------------------------------
5,000,000 Fulton County, GA, Multi-Family Housing Authority Revenue
Refunding Weekly VRDNs (Series 1994)/ (Spring Creek
Crossing)/(Wachovia Bank of Atlanta, GA, N.A. LOC) A-1+ 5,000,000
------------------------------------------------------------
8,000,000 Rockdale County, GA, Hospital Authority Revenue Anticipation
Certificates Weekly VRDNs (Series 1994)/ (Trust Company Bank
LOC) VMIG1 8,000,000
------------------------------------------------------------ ----------------
Total 22,385,000
------------------------------------------------------------ ----------------
ILLINOIS--9.2%
------------------------------------------------------------
3,600,000 Chicago, IL, Weekly VRDNs (Series 1994B)/(Societe Generale,
Paris LOC) A-1+ 3,600,000
------------------------------------------------------------
4,700,000 Illinois Development Authority Weekly VRDNs (Series
1993A)/(Loyola Academy)/(Northern Trust Co. LOC) A-1+ 4,700,000
------------------------------------------------------------
10,000,000 Illinois Development Finance Authority Weekly VRDNs (Series
1994)/(Chicago Symphony Orchestra)/(Northern Trust Co. and
Sanwa Bank Ltd. LOC(s)) A-1+ 10,000,000
------------------------------------------------------------
</TABLE>
19
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
ILLINOIS--CONTINUED
------------------------------------------------------------
$10,000,000 Illinois Development Finance Authority Weekly VRDNs (Series
1994)/(Museum of Contemporary Art)/(NBD Bank, N.A., Harris
Trust & Savings Bank, Northern Trust Co., and LaSalle
National Bank LOCs) A-1+ $ 10,000,000
------------------------------------------------------------
5,000,000 Illinois Development Finance Authority, PCR, 3.65% CP
(Series A)/(Illinois Power Company)/(Canadian Imperial Bank
of Commerce LOC), Mandatory Tender 1/17/95 A-1+ 5,000,000
------------------------------------------------------------
15,000,000 Illinois Development Finance Authority, PCR, 3.80% CP
(Series A)/(Illinois Power Co.)/(Canadian Imperial Bank of
Commerce LOC), Mandatory Tender 2/10/95 A-1+ 15,000,000
------------------------------------------------------------
20,500,000 Illinois Health Facilities Authority Weekly VRDNs (Series
1989A)/(Methodist Health Services Corp.)/(Fuji Bank Ltd.
LOC) A-1 20,500,000
------------------------------------------------------------
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
------------------------------------------------------------
6,600,000 Illinois State Toll Highway Authority Weekly VRDNs (Series
1993B)/(MBIA Insured)/(Societe Generale, Paris BPA) VMIG1 6,600,000
------------------------------------------------------------
2,845,000 Rockford, IL, EDRB, 3.00% Annual TOBs (Independence Village
of Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/94 P-1 2,845,000
------------------------------------------------------------ ----------------
Total 112,245,000
------------------------------------------------------------ ----------------
INDIANA--3.3%
------------------------------------------------------------
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, 3.03% RANs (Series A2), 1/17/95 SP-1+ 20,006,998
------------------------------------------------------------
</TABLE>
20
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
INDIANA--CONTINUED
------------------------------------------------------------
$ 2,500,000 Indianapolis, IN, Local Public Improvement Bond Bank Notes,
3.75% TANs (Series 1994A)/(Indianapolis Bond Bank), 1/16/95 SP-1+ $ 2,501,851
------------------------------------------------------------
7,500,000 Indianapolis, IN, Local Public Improvement Bond Bank Notes,
3.75% TANs (Series 1994B)/(Indianapolis Bond Bank), 1/16/95 SP-1+ 7,505,552
------------------------------------------------------------ ----------------
Total 40,014,401
------------------------------------------------------------ ----------------
IOWA--0.7%
------------------------------------------------------------
6,390,000 Indianola, IA, Weekly VRDNs Health Care Facility Refunding
Revenue (Series 1992)/(Norwest Bank Minnesota LOC) A-1+ 6,390,000
------------------------------------------------------------
2,700,000 Iowa Higher Education Loan Authority Revenue Bonds Weekly
VRDNs (MBIA Insured) VMIG1 2,700,000
------------------------------------------------------------ ----------------
Total 9,090,000
------------------------------------------------------------ ----------------
KANSAS--1.0%
------------------------------------------------------------
12,300,000 Burlington, KS, 3.50% CP (Series 1985A)/(Kansas City Power &
Light Company)/(Toronto-Dominion Bank LOC), Mandatory Tender
12/7/94 A-1+ 12,300,000
------------------------------------------------------------ ----------------
KENTUCKY--0.4%
------------------------------------------------------------
4,400,000 Kentucky Development Finance Authority Health Care Systems
Weekly VRDNs (Appalachian Regional Health Care,
Inc.)/(Societe Generale LOC) VMIG1 4,400,000
------------------------------------------------------------ ----------------
LOUISIANA--1.0%
------------------------------------------------------------
2,000,000 East Baton Rouge Parish, LA, PCR Daily VRDNs (Series
1993)/(Exxon Corporation Guaranty) A-1+ 2,000,000
------------------------------------------------------------
10,000,000 Louisiana PFA Advance Funding Notes, 4.60% TANs (Series
1994B)/(Orleans Parish School Board), 8/31/95 SP-1+ 10,028,778
------------------------------------------------------------ ----------------
Total 12,028,778
------------------------------------------------------------ ----------------
</TABLE>
21
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
MARYLAND--1.5%
------------------------------------------------------------
$ 700,000 Baltimore, MD, PCR Weekly VRDNs (SCM Plants, Inc.)/
(Barclays Bank, PLC LOC) A-1+ $ 700,000
------------------------------------------------------------
6,000,000 Maryland State Department of Transportation, 6.20% SB,
8/15/95 NR(2) 6,075,824
------------------------------------------------------------
7,000,000 Montgomery County, MD, EDA Weekly VRDNs (Howard Hughes
Medical Institute) A-1+ 7,000,000
------------------------------------------------------------
2,915,000 Queen Annes County, MD, EDR, 3.10% Multi-Term TOBs (Series
1994)/(Safeway Inc.)/(Bankers Trust Company LOC), Mandatory
Tender 12/1/94 A-1+ 2,915,000
------------------------------------------------------------
2,000,000 Washington Suburban Sanitary District Weekly VRDNs (Series
1993)/(Toronto-Dominion Bank LOC) A-1+ 2,000,000
------------------------------------------------------------ ----------------
Total 18,690,824
------------------------------------------------------------ ----------------
MASSACHUSETTS--1.2%
------------------------------------------------------------
14,000,000 Massachusetts HEFA Weekly VRDNs (Series D)/(Capital Asset
Program)/(MBIA Insured)/(Sanwa Bank Ltd. BPA) VMIG1 14,000,000
------------------------------------------------------------ ----------------
MICHIGAN--1.2%
------------------------------------------------------------
14,600,000 Michigan State Hospital Finance Authority Weekly VRDNs
(Series A)/(Sisters of the Third Order of St.
Francis)/(Swiss Bank Corp. LOC) P-1 14,600,000
------------------------------------------------------------ ----------------
MINNESOTA--7.2%
------------------------------------------------------------
5,000,000 Becker, MN, PCR, 4.40% CP (Series 1992A)/(Northern States
Power Company Guaranty), Mandatory Tender 3/21/95 A-1+ 5,000,000
------------------------------------------------------------
7,500,000 Bloomington, MN, Port Authority Weekly VRDNs Special Tax
Revenue Refunding Bonds (Series 1994B)/ (Mall of
America)/(FSA Insured)/(Credit Locale de France BPA) A-1+ 7,500,000
------------------------------------------------------------
3,400,000(a) Minnesota State Weekly VRDNs P-Floats (Merrill Lynch Capital
Services BPA) VMIG1 3,400,000
------------------------------------------------------------
</TABLE>
22
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
MINNESOTA--CONTINUED
------------------------------------------------------------
$ 5,340,000(a) Minnesota State Weekly VRDNs P-Floats (Merrill Lynch Capital
Services BPA) VMIG1 $ 5,340,000
------------------------------------------------------------
13,905,000 Olmsted County, MN, COPs, Building Authority Weekly VRDNs
(Human Services Infrastructure)/(Sanwa Bank Ltd. LOC) A-1+ 13,905,000
------------------------------------------------------------
11,000,000 Rochester, MN, Health Care Facility Authority Weekly VRDNs
(Mayo Clinic Foundation) VMIG1 11,000,000
------------------------------------------------------------
11,000,000 Rochester, MN, Health Care Facility Authority Weekly VRDNs
(Mayo Clinic Foundation) VMIG1 11,000,000
------------------------------------------------------------
23,450,000 Rosemont, MN, PCR Weekly VRDNs (Series 1984)/ (Koch Refining
Co. Guaranty) A-1+ 23,450,000
------------------------------------------------------------
1,065,000 Saint Louis Park Hennepin County, MN, Weekly VRDNs A-1+ 1,065,000
------------------------------------------------------------
1,000,000 Saint Louis Park Hennepin County, MN, Weekly VRDNs (Series
A) A-1+ 1,000,000
------------------------------------------------------------
5,000,000 University of Minnesota, 3.60% Semi-Annual TOBs (Series
G)/(Regents of University of Minnesota Guaranty), Optional
Tender 2/1/95 A-1+ 5,000,000
------------------------------------------------------------ ----------------
Total 87,660,000
------------------------------------------------------------ ----------------
MISSOURI--0.6%
------------------------------------------------------------
7,000,000 Missouri State Environmental Improvement & Energy Authority
Weekly VRDNs (Series 1993M)/(Associated Electric
Cooperative, Inc.)/(NRUCFC Guaranty) A-1+ 7,000,000
------------------------------------------------------------ ----------------
MONTANA--1.2%
------------------------------------------------------------
9,700,000 Forsyth, MT, Rosebud County, PCR, 3.80% CP
(Pacificorp)/(Industrial Bank of Japan Ltd. LOC), Mandatory
Tender 2/9/95 A-1 9,700,000
------------------------------------------------------------
</TABLE>
23
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
MONTANA--CONTINUED
------------------------------------------------------------
$ 4,900,000 Forsyth, MT, Rosebud County, PCR, 3.45% CP (Pacificorp,
Inc.)/(Industrial Bank of Japan Ltd. LOC), Mandatory Tender
12/8/94 A-1 $ 4,900,000
------------------------------------------------------------ ----------------
Total 14,600,000
------------------------------------------------------------ ----------------
NEW MEXICO--1.0%
------------------------------------------------------------
11,700,000 Albuquerque, NM, Municipal Gross Receipt Tax Revenue Weekly
VRDNs MIG1 11,700,000
------------------------------------------------------------ ----------------
NEW YORK--0.8%
------------------------------------------------------------
10,000,000 New York City, NY, Monthly VRNs (Series B) SP-1 10,000,000
------------------------------------------------------------ ----------------
NORTH CAROLINA--7.4%
------------------------------------------------------------
4,918,585(a) Charlotte, NC, Weekly VRDNs Floating Rate Trust Certificates
(Series 1992)/(Credit Suisse Financial Products BPA) P-1 4,918,585
------------------------------------------------------------
20,000,000 Martin County, NC, IFA Weekly VRDNs (Series 1993)/
(Weyerhauser, Inc. Guaranty) A-1 20,000,000
------------------------------------------------------------
45,050,000 NCNB Pooled Tax-Exempt Trust Weekly VRDNs (Series
1990A)/(NationsBank of North Carolina N.A. LOC) P-1 45,050,000
------------------------------------------------------------
3,715,000 North Carolina Medical Care Commission Hospital Revenue
Bonds Weekly VRDNs (Series 1986AZ)/(MBIA Insured)/(Banque
Paribas BPA) VMIG1 3,715,000
------------------------------------------------------------
6,000,000 North Carolina Medical Care Commission Hospital Revenue
Bonds Weekly VRDNs (Series 1993)/(Moses H. Cone Memorial
Hospital) A-1+ 6,000,000
------------------------------------------------------------
2,500,000 North Carolina Medical Care Commission Hospital Weekly VRDNs
(Series 1993A)/(Duke University Hospital) A-1+ 2,500,000
------------------------------------------------------------
7,450,000(a) University of North Carolina at Chapel Hill Utilities System
Revenue Bonds Weekly VRDNs P-Floats (Series 1993)/(Merrill
Lynch Capital Services BPA) VMIG1 7,450,000
------------------------------------------------------------ ----------------
Total 89,633,585
------------------------------------------------------------ ----------------
</TABLE>
24
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
OHIO--4.4%
------------------------------------------------------------
$12,400,000 Cleveland, OH, City School District Energy Conservation
Improvement Bonds Weekly VRDNs (Series 1994)/(Internationale
Nederlanden Bank N.V. LOC) A-1+ $ 12,400,000
------------------------------------------------------------
5,000,000 Cleveland, OH, City School District, 4.50% TRANs (Series
1994)/(Canadian Imperial Bank of Commerce LOC), 12/30/94 SP-1+ 5,005,430
------------------------------------------------------------
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
------------------------------------------------------------
3,955,000 Franklin County, OH, Healthcare Facilities Weekly VRDNs
(Series 1992)/(Wesley Glenn, Inc.)/(Fifth Third Bank LOC) VMIG1 3,955,000
------------------------------------------------------------
1,400,000 Hamilton County, OH, Health Care System Weekly VRDNs (West
Park Retirement Community, Inc.)/(Fifth Third Bank LOC) VMIG1 1,400,000
------------------------------------------------------------
9,100,000 Hamilton County, OH, Hospital Authority Weekly VRDNs (Series
1986A)/(Good Samaritan Hospital) A-1 9,100,000
------------------------------------------------------------
3,670,000 Marion County, OH, Hospital Authority, 4.00% Semi-Annual
TOBs (Series 1991)/(Banc One LOC), Optional Tender 5/1/95 A-1+ 3,670,000
------------------------------------------------------------
2,450,000(a) Ohio State Public Facilities Commission Weekly VRDNs (Series
1993II)/(Merrill Lynch Capital Services BPA)/ (AMBAC
Insured) VMIG1 2,450,000
------------------------------------------------------------
5,000,000 Toledo-Lucas County, OH, Port Authority IDA, 3.40% CP (CSX
Corp.)/(Bank of Nova Scotia LOC), Mandatory Tender 12/14/94 A-1+ 5,000,000
------------------------------------------------------------
5,500,000 University of Cincinnati, OH, 4.00% BANs (Series K1),
3/23/95 SP-1+ 5,512,252
------------------------------------------------------------ ----------------
Total 53,492,682
------------------------------------------------------------ ----------------
</TABLE>
25
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
OKLAHOMA--0.6%
------------------------------------------------------------
$ 2,840,000 Muskogee, OK, Industrial Trust Weekly VRDNs (Series
1985)/(Muskogee Mall Limited Partnership)/(Boatmens National
Bank LOC) VMIG1 $ 2,840,000
------------------------------------------------------------
4,110,000 Muskogee, OK, Industrial Trust Weekly VRDNs (Series
1985)/(Warmack-Muskogee Limited Partnership)/ (Boatmens
National Bank LOC) VMIG1 4,110,000
------------------------------------------------------------ ----------------
Total 6,950,000
------------------------------------------------------------ ----------------
PENNSYLVANIA--7.4%
------------------------------------------------------------
5,000,000 Beaver County, PA, IDA, PCR Refunding, 4.50% CP (Series
1994)/(Duquesne Light Power Co.)/(Swiss Bank Corp. LOC),
Mandatory Tender 10/10/95 A-1+ 5,000,000
------------------------------------------------------------
20,000,000 Commonwealth of Pennsylvania, 4.75% TAN (Series 1994-1995),
6/30/95 SP-1+ 20,084,232
------------------------------------------------------------
7,000,000 Dauphin County, PA, General Authority Hospital Revenue Bonds
Weekly VRDNs (Jamison Memorial Hospital)/(Toronto-Dominion
Bank LOC) A-1+ 7,000,000
------------------------------------------------------------
6,000,000 Delaware County, PA, PCR 3.90% CP (Series C)/ (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 2/17/95 A-1+ 6,000,000
------------------------------------------------------------
4,000,000 Delaware County, PA, PCR, 3.90% CP (Series C)/ (Philadelphia
Electric Co.)/(FGIC Insured), Mandatory Tender 1/20/95 A-1+ 4,000,000
------------------------------------------------------------
8,000,000 Erie County, PA, Hospital Authority Weekly VRDNs (St.
Vincent Health System)/(Fuji Bank Ltd. LOC) A-1 8,000,000
------------------------------------------------------------
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+ 9,000,259
------------------------------------------------------------
</TABLE>
26
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
------------------------------------------------------------
$ 8,200,000 Philadelphia, PA, 3.10% GO CP (Series 1990)/(Fuji Bank, Ltd.
LOC), Mandatory Tender 12/15/94 A-1 $ 8,200,000
------------------------------------------------------------
5,000,000 Philadelphia, PA, 4.75% TRANs (Series A)/(Canadian Imperial
Bank of Commerce LOC), 6/15/95 SP-1+ 5,019,371
------------------------------------------------------------
2,600,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs
(Series C)/(VHA of PA Capital Asset Finance Program)/(AMBAC
Insured)/(First National Bank, Chicago BPA) A-1 2,600,000
------------------------------------------------------------
6,600,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs
(Series F)/(VHA of PA Capital Asset Finance Program)/(AMBAC
Insured)/(First National Bank, Chicago BPA) A-1 6,600,000
------------------------------------------------------------
2,400,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs
(Series F)/(VHA of Pennsylvania Capital Asset Finance
Program)/(AMBAC Insured)/(First National Bank, Chicago BPA) A-1 2,400,000
------------------------------------------------------------
1,300,000 Sayre, PA, Health Care Facilities Authority Weekly VRDNs
(Series J)/(VHA of Pennsylvania Capital Asset Finance
Program)/(AMBAC Insured)/(First National Bank, Chicago BPA) A-1 1,300,000
------------------------------------------------------------
2,500,000 Washington County, PA, Municipal Authority Facilities Weekly
VRDNs (Eye & Ear Hospital)/(Pittsburgh National Bank LOC) P-1 2,500,000
------------------------------------------------------------ ----------------
Total 90,303,862
------------------------------------------------------------ ----------------
PUERTO RICO--0.5%
------------------------------------------------------------
6,600,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 6,600,000
------------------------------------------------------------ ----------------
</TABLE>
27
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
SOUTH CAROLINA--1.9%
------------------------------------------------------------
$13,500,000 Greenville, SC, Hospital System Board of Trustees Daily
VRDNs (Series 1993B)/(Greenville, SC, Hospital) A-1+ $ 13,500,000
------------------------------------------------------------
9,830,000 York County, SC, PCR, 3.75% Semi-Annual TOBs (Series
1984N)/(NC Electric Membership Corp.)/ (NRUCFC Guaranty),
Optional Tender 3/15/95 A-1 9,830,000
------------------------------------------------------------ ----------------
Total 23,330,000
------------------------------------------------------------ ----------------
SOUTH DAKOTA--0.4%
------------------------------------------------------------
5,000,000 South Dakota Housing Development Authority, 3.30% Annual
TOBs (Series 1994C), Mandatory Tender 4/6/95 A-1+ 5,000,000
------------------------------------------------------------ ----------------
TENNESSEE--4.7%
------------------------------------------------------------
25,000,000 Chattanooga, TN, HEFA Weekly VRDNs (McCallie School)/(Trust
Company Bank LOC) A-1+ 25,000,000
------------------------------------------------------------
14,000,000 Chattanooga, TN, HEFA Weekly VRDNs (Siskin Hospital for
Physical Rehabilitation, Inc.)/(Sumitomo Bank Ltd. LOC) P-1 14,000,000
------------------------------------------------------------
7,700,000 Metropolitan Nashville Tennessee Airport Authority Weekly
VRDNs (Series 1993)/(FGIC Insured)/(Societe Generale, Paris
BPA) A-1+ 7,700,000
------------------------------------------------------------
2,515,000 Nashville & Davidson, TN, HEFA, 3.55% Annual TOBs (Series
1985B)/(Vanderbilt University), Optional Tender 5/1/95 A-1+ 2,515,000
------------------------------------------------------------
7,905,000 Shelby County, TN, Health , Education & Housing Facility,
4.20% Annual TOBs (Methodist Health System, Inc.)/(MBIA
Insured), Optional Tender 8/1/95 A-1+ 7,905,000
------------------------------------------------------------ ----------------
Total 57,120,000
------------------------------------------------------------ ----------------
TEXAS--10.2%
------------------------------------------------------------
4,600,000 Dallas County, TX, 3.60% Annual TOBs (Series C), Optional
Tender 6/15/95 A-1+ 4,600,000
------------------------------------------------------------
</TABLE>
28
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
TEXAS--CONTINUED
------------------------------------------------------------
$ 4,875,000 Grapevine, TX, IDC Airport Improvement, 3.50% Annual TOBs
(Series 1983A)/(Singer Company)/(Bank of Montreal LOC),
Optional Tender 4/1//95 A-1+ $ 4,875,000
------------------------------------------------------------
16,000,000 Harris County, TX, 4.00% TANs (Series 1994), 2/28/95 SP-1+ 16,012,928
------------------------------------------------------------
10,200,000 Harris County, TX, HFDC Daily VRDNs (Series 1994)/
(Methodist Hospital) A-1+ 10,200,000
------------------------------------------------------------
12,000,000 Harris County, TX, Toll Road UT & Sub. Lien Revenue Weekly
VRDNs (Series 1994H) A-1+ 12,000,000
------------------------------------------------------------
13,100,000 North Central Texas, Health Facilities Development Corp.,
3.60% CP (Series 1991A)/(MBIA Insured), Mandatory Tender
1/17/95 A-1+ 13,100,000
------------------------------------------------------------
5,000,000 Sulfur Springs, TX, IDA Weekly VRDNs (Hun
Industries)/(Credit Suisse LOC) A-1+ 5,000,000
------------------------------------------------------------
20,000,000 Texas State Indexed Trust Receipt Daily VRDNs (Series 1994) A-1+ 20,000,000
------------------------------------------------------------
15,000,000 Texas State Indexed Trust Receipt Daily VRDNs (Series 1994) A-1+ 15,000,000
------------------------------------------------------------
8,000,000 Texas State Public Finance Authority, 3.40% CP, Mandatory
Tender 12/15/94 A-1+ 8,000,000
------------------------------------------------------------
15,000,000 Texas State Public Finance Authority, 3.60% CP (Series
1993A), Mandatory Tender 1/25/95 A-1+ 15,000,000
------------------------------------------------------------ ----------------
Total 123,787,928
------------------------------------------------------------ ----------------
UTAH--0.9%
------------------------------------------------------------
10,400,000 Intermountain Power Agency, UT, 3.60% Annual TOBs (Series
F), Optional Tender 6/15/95 A-1 10,400,000
------------------------------------------------------------ ----------------
VERMONT--0.7%
------------------------------------------------------------
8,000,000 Vermont IDA Weekly VRDNs (Wallace Computer Services,
Inc.)/(Wachovia Bank & Trust Co. LOC) A-1 8,000,000
------------------------------------------------------------ ----------------
</TABLE>
29
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
VIRGINIA--0.9%
------------------------------------------------------------
$ 2,045,000(a) Chesapeake Bay Bridge & Tunnel District, VA, General
Resolution Revenue Bonds Weekly VRDNs P-Floats (Series
1991)/(Merrill Lynch Capital Services BPA)/ (MBIA Insured) VMIG1 $ 2,045,000
------------------------------------------------------------
3,380,000(a) Fairfax County, VA, Water Authority Revenue Bonds Weekly
VRDNs (Series PA-9)/(Series 1992)/(Merrill Lynch Capital
Services BPA) VMIG1 3,380,000
------------------------------------------------------------
5,000,000 Virginia State, HDA, 4.25% Annual TOBs (Series 1993A),
Mandatory Tender 7/12/95 A-1+ 5,000,000
------------------------------------------------------------ ----------------
Total 10,425,000
------------------------------------------------------------ ----------------
WEST VIRGINIA--0.4%
------------------------------------------------------------
5,430,000 West Virginia University Board of Regents, 2.75% Annual TOBs
(Morgan Guaranty Trust Co., New York LOC), Optional Tender
2/1/95 A-1+ 5,430,000
------------------------------------------------------------ ----------------
WISCONSIN--1.6%
------------------------------------------------------------
5,000,000 Hartford, WI, IDA Weekly VRDNs (IC Products Co.)/ (PNC Bank
N.A. LOC) A-1 5,000,000
------------------------------------------------------------
6,000,000 Wisconsin State HEFA Weekly VRDNs (St. Luke's Medical
Center)/(Sumitomo Bank Ltd. LOC) VMIG1 6,000,000
------------------------------------------------------------
8,000,000 Wisconsin State HEFA Weekly VRDNs (Series 1994)/ (Felician
Health Care, Inc.)/(LaSalle National Bank LOC) A-1+ 8,000,000
------------------------------------------------------------ ----------------
Total 19,000,000
------------------------------------------------------------ ----------------
WYOMING--1.5%
------------------------------------------------------------
5,125,000 Lincoln County, WY, PCR, 3.75% Semi-Annual TOBs (Exxon
Company Guaranty), Optional Tender 4/1/95 A-1+ 5,125,000
------------------------------------------------------------
5,000,000 Uinta County, WY, PCR, 2.90% Annual TOBs (Amoco Oil Corp.
Guaranty), Optional Tender 12/1/94 A-1+ 5,000,000
------------------------------------------------------------
</TABLE>
30
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- -------------- ------------------------------------------------------------ -------- ----------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------------
WYOMING--CONTINUED
------------------------------------------------------------
$ 7,815,000 Wyoming Community Development Authority, SFM, 3.40%
Semi-Annual TOBs (Series 1986C)/(FNB, Chicago BPA), Optional
Tender 12/1/94 NR(2) $ 7,815,000
------------------------------------------------------------ ----------------
Total 17,940,000
------------------------------------------------------------ ----------------
OTHER--2.6%
------------------------------------------------------------
15,000,000(a) Clipper Tax Exempt Trust, Weekly VRDNs (Series
1993-1)/(State Street Bank & Trust Co. BPA) A-1+ 15,000,000
------------------------------------------------------------
8,916,507(a) LaSalle National Bank Bustops Trust Weekly VRDNs (Series
1993A)/(LaSalle National Bank BPA) A-1+ 8,916,507
------------------------------------------------------------
8,213,919(a) LaSalle National Bank LeaseTops Trust Weekly VRDNs (Series
1994B)/(LaSalle National Bank BPA) A-1+ 8,213,919
------------------------------------------------------------ ----------------
Total 32,130,426
------------------------------------------------------------ ----------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 1,209,836,011+
------------------------------------------------------------ ----------------
<FN>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. These securities have been determined to be
liquid under criteria established by the Board of Trustees. At the end of
the period, these securities amounted to ($78,192,724) 6.4% of net assets.
* See Notes to Portfolio of Investments on page 33. Current credit ratings are
unaudited.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($1,215,547,472) at November 30,1994.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
31
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
<TABLE>
<S> <C>
The following abbreviations are used in this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
BPA --Bond Purchase Agreement
COPs --Certificate of Participation
CP --Commercial Paper
EDA --Economic Development Authority
EDR --Economic Development Revenue
EDRB --Economic Development Revenue Bonds
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
HDA --Hospital Development Authority
HEFA --Health and Education Facilities Authority
HFDC --Health Facility Development Corporation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDC --Industrial Development Corporation
IDR --Industrial Development Revenue
IFA --Industrial Finance Authority/Agency
LOC(s) --Letter(s) of Credit
MBIA --Municipal Bond Investors Assurance
NRUCFC --National Rural Utilities Cooperative Finance Corporation
PCR --Pollution Control Revenue
PFA --Public Facility Authority
RANs --Revenue Anticipation Notes
SB --Serial Bond
SFM --Single Family Mortgage
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
TRANs --Tax and Revenue Anticipation Notes
VHA --Voluntary Hospitals of America
VRDNs --Variable Rate Demand Notes
VRNs --Variable Rate Note
</TABLE>
32
FEDERATED TAX-FREE TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
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.
MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
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 issuers determined
to provide exceptionally strong credit quality are given a (+) 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.
33
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
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.
34
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
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.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S
AAA--Bonds 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.
A--Bonds that are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
35
FEDERATED TAX-FREE TRUST
- ---------------------------------------------------------
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.
36
FEDERATED TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------
Investments, at amortized cost and value $ 1,209,836,011
- ----------------------------------------------------------------------------------------------
Cash 960,151
- ----------------------------------------------------------------------------------------------
Interest receivable 8,521,510
- ----------------------------------------------------------------------------------------------
Receivable for Trust shares sold 14,722
- ---------------------------------------------------------------------------------------------- ---------------
Total assets 1,219,332,394
- ----------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------
Dividends payable $ 3,005,415
- --------------------------------------------------------------------------------
Payable for investments purchased 400,000
- --------------------------------------------------------------------------------
Payable for Trust shares repurchased 211,081
- --------------------------------------------------------------------------------
Accrued expenses 168,426
- -------------------------------------------------------------------------------- -----------
Total liabilities 3,784,922
- ---------------------------------------------------------------------------------------------- ---------------
NET ASSETS $ 1,215,547,472
- ---------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------
Paid-in capital $ 1,215,567,171
- ----------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (19,699)
- ---------------------------------------------------------------------------------------------- ---------------
NET ASSETS FOR 1,215,567,171 shares of beneficial interest outstanding $ 1,215,547,472
- ---------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share
($1,215,547,472 DIVIDED BY 1,215,567,171 shares of beneficial interest
outstanding) $ 1.00
- ---------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
37
FEDERATED TAX-FREE TRUST
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------
Interest income $ 36,749,531
- --------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------
Investment advisory fee $ 5,196,527
- ------------------------------------------------------------
Trustees' fees 20,965
- ------------------------------------------------------------
Administrative personnel and services 897,360
- ------------------------------------------------------------
Custodian and portfolio accounting fees 363,100
- ------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 47,407
- ------------------------------------------------------------
Shareholder services fee 479,962
- ------------------------------------------------------------
Trust share registration costs 9,036
- ------------------------------------------------------------
Auditing fees 19,743
- ------------------------------------------------------------
Legal fees 18,752
- ------------------------------------------------------------
Printing and postage 12,148
- ------------------------------------------------------------
Taxes 26,854
- ------------------------------------------------------------
Insurance premiums 22,839
- ------------------------------------------------------------
Miscellaneous 11,479
- ------------------------------------------------------------ -----------
Total expenses 7,126,172
- ------------------------------------------------------------
Deduct--Waiver of investment advisory fee 1,249,214
- ------------------------------------------------------------ -----------
Net expenses 5,876,958
- -------------------------------------------------------------------------- ------------
Net investment income 30,872,573
- --------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (11,840)
- -------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 30,860,733
- -------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
38
FEDERATED TAX-FREE TRUST
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 30,872,573 $ 31,490,990
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments ($11,840 net loss and $65,014 net
gain, respectively, as computed for federal tax purposes) (11,840) 65,014
- --------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 30,860,733 31,556,004
- --------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income (30,872,573) (31,490,990)
- --------------------------------------------------------------------------- ---------------- ----------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 4,662,199,876 5,274,099,768
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 2,966,874 3,038,789
- ---------------------------------------------------------------------------
Cost of shares redeemed (4,796,398,508) (5,454,000,028)
- --------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from Trust share transactions (131,231,758) (176,861,471)
- --------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (131,243,598) (176,796,457)
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 1,346,791,070 1,523,587,527
- --------------------------------------------------------------------------- ---------------- ----------------
End of period $ 1,215,547,472 $ 1,346,791,070
- --------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
39
FEDERATED TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Trust is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end, no-load, 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. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Trust's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by
the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its tax-exempt income.
Accordingly, no provisions for federal tax are necessary.
At November 30, 1994, the Trust for federal tax purposes, had a capital loss
carryforward of $19,699, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 1995 ($7,859) and 2002 ($11,840).
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. RESTRICTED SECURITIES--Restricted securities are securities that may only be
resold upon registration under Federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees (the
"Trustees"). The Trust will not incur any
40
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
registration costs upon such resales. Restricted securities are valued at
amortized cost in accordance with Rule 2a-7 under the Act. Additional
information on each restricted security held at November 30, 1994, is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
- -------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
California State, First Boston California Trust/Floating Rate Trust Certificate,
Weekly VRDNs (Series 10)/(Various LOCs) 8/2/94 $ 5,078,713
- --------------------------------------------------------------------------------
Clipper, CA, Tax-Exempt Trust (94-2) Weekly VRDNs (State Street Bank & Trust Co.
BPA)/(Various LOCs) 10/21/94 10,000,000
- --------------------------------------------------------------------------------
Florida State Board Education, Weekly VRDNs (Series 10)/(Morgan Guaranty Trust
Co. BPA) 9/29/94 2,000,000
- --------------------------------------------------------------------------------
Minnesota State Weekly VRDNs P-Floats (Merrill Lynch Capital Services BPA) 6/2/93 3,400,000
- --------------------------------------------------------------------------------
Minnesota State Weekly VRDNs P-Floats (Merrill Lynch Capital Services BPA) 6/2/93 5,340,000
- --------------------------------------------------------------------------------
Charlotte, NC, Weekly VRDNs Floating Rate Trust Certificates (Series
1992)/(Credit Suisse Financial Products BPA) 8/11/93 4,918,585
- --------------------------------------------------------------------------------
University of North Carolina at Chapel Hill Utilities System Revenue Bonds
Weekly VRDNs P-Floats (Series 1993)/ (Merrill Lynch Capital Services BPA) 6/2/93 7,450,000
- --------------------------------------------------------------------------------
Ohio State Public Facilities Commission Weekly VRDNs (Series 1993II)/ (Merrill
Lynch Capital Services BPA)/(AMBAC Insured) 7/9/93 2,450,000
- --------------------------------------------------------------------------------
Chesapeake Bay Bridge & Tunnel District, VA, General Resolution Revenue Bonds
Weekly VRDNs P-Floats (Series 1991)/(Merrill Lynch Capital Services BPA)/(MBIA
Insured) 9/28/93 2,045,000
- --------------------------------------------------------------------------------
Fairfax County, VA, Water Authority Revenue Bonds Weekly VRDNs (Series
PA-9)/(Series 1992)/(Merrill Lynch Capital Services BPA) 6/2/93 3,380,000
- --------------------------------------------------------------------------------
Clipper Tax Exempt Trust, Weekly VRDNs (Series 1993-1)/(State Street Bank &
Trust Co. BPA) 9/27/93 15,000,000
- --------------------------------------------------------------------------------
LaSalle National Bank Bustops Trust Weekly VRDNs (Series 1993A)/ (LaSalle
National Bank BPA) 3/17/93 8,916,507
- --------------------------------------------------------------------------------
LaSalle National Bank LeaseTops Trust Weekly VRDNs (Series 1994B)/ (LaSalle
National Bank BPA) 6/15/94 8,213,919
- --------------------------------------------------------------------------------
</TABLE>
F. OTHER--Investment transactions are accounted for on the trade date.
41
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1994, capital paid-in aggregated $1,215,567,171. Transactions in
Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
Shares sold 4,662,199,876 5,274,099,768
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 2,966,874 3,038,789
- --------------------------------------------------
Shares redeemed (4,796,398,508) (5,454,000,028)
- -------------------------------------------------- ---------------- ----------------
Net change resulting from Trust share
transactions (131,231,758) (176,861,471)
- -------------------------------------------------- ---------------- ----------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Research, the Trust's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Trust's average daily net assets. The Adviser will waive, to
the extent of its advisory fee, the amount, if any, by which the Trust's
aggregate annual operating expenses (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) exceeded 0.45 of 1% of average daily net assets of the Trust.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to 0.25
of 1% of average daily net assets of the Trust for the period. This fee is to
obtain certain personal services for shareholders and to maintain the
shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Trust. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
INTERFUND TRANSACTIONS--During the year ended November 30, 1994, the Trust
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17a-7 of the Act, amounting to $1,371,950,000 and $1,156,169,297,
respectively. These purchases and sales were conducted on an arms
42
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
length basis and transacted for cash consideration only, at independent current
market prices and without brokerage commissions, fees or other remuneration.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
43
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,
1994, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended November 30, 1994 and 1993, and the
financial highlights (see page 2 of this prospectus) for each of the years in
the ten-year period ended November 30, 1994. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1994 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Tax-Free
Trust as of November 30, 1994, 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 LLP
Boston, Massachusetts
January 6, 1995
44
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federated Tax-Free Trust
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------
Investment Adviser
Federated Research Federated Investors Tower
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, MA 02266-8602
- -------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 125 Summer Street
Boston, MA 02110-1617
- -------------------------------------------------------------------------------------------
</TABLE>
45
FEDERATED TAX-FREE TRUST
PROSPECTUS
An open-end, diversified,
management investment company
Prospectus dated January 31,
1995
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314282104
8010414A (1/95) [RECYCLED PAPER LOGO]
Federated Tax-Free Trust
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Federated Tax-Free Trust (the "Trust") dated January
31, 1995. This Statement is not a prospectus. To receive a copy of
a prospectus, write or call the Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1995
Federated Securities Corp.
Distributor
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
When-Issued And Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Investment Limitations 2
Brokerage Transactions 4
Federated Tax-Free Trust
Management 4
The Funds 7
Share Ownership 8
Officers and Trustees
Compensation 8
Trustee Liability 9
Investment Advisory Services 9
Investment Adviser 9
Advisory Fees 9
Other Related Services 9
Shareholder Services Plan 10
Determining Net Asset Value 10
Redemption in Kind 10
The Trust's Tax Status 11
Performance Information 11
Yield 11
Effective Yield 11
Tax-Equivalent Yield 11
Tax-Equivalency Table 11
Total Return 12
Performance Comparisons 12
A subsidiary of Federated InvestorsInvestment Policies
Unless indicated otherwise, the policies described below may not be
changed by the Trustees without shareholder approval.
Acceptable Investments
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of
the security, the issuer of any demand feature applicable to the
security, or any guarantor of either the security or any demand feature.
Participation Interests
The financial institutions from which the Trust purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Trust the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days). The municipal securities subject to the
participation interests are not limited to the Trust's maximum maturity
requirements so long as the participation interests include the right to
demand payment from the issuers of those interests. By purchasing
participation interests having a seven day demand feature, the Trust is
buying a security meeting the maturity and quality requirements of the
Trust and also is receiving the tax-free benefits of the underlying
securities.
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.
In determining the liquidity of municipal lease securities, the
investment adviser, under the authority delegated by the Board of
Trustees, will base its determination on the following factors: whether
the lease can be terminated by the lessee; the potential recovery, if
any, from a sale of the leased property upon termination of the lease;
the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects); the likelihood
that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation");
and any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
When-Issued And Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or 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 are
maintained until the transaction has been settled. As a matter of
operating policy the Trust does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the
segregation of more than 20% of the total value of its assets.
Repurchase Agreements
Certain securities in which the Trust invests may be purchased pursuant
to repurchase agreements. Repurchase agreements are arrangements in
which banks, brokers/dealers, and other recognized financial
institutions sell securities 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 seller
does not repurchase the securities from the Trust, the Trust could
receive less than the repurchase price on any sale of such securities.
The Trust or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked to
market daily. In the event that a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the 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 deemed by the Trust's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Trust transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Trust will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Trust to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not
ensure this result. When effecting reverse repurchase agreements, liquid
assets of the Trust, in a dollar amount sufficient to make payment for
the obligations to be purchased, are: segregated on the Trust's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
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 are
necessary for clearance of transactions.
Issuing Senior Securities
The Trust will not issue senior securities except as permitted by
the investment objective and policies of the Trust.
Pledging Assets
The Trust will not mortgage, pledge, or hypothecate any assets
except as necessary 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.
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.
Investing in Commodities
The Trust will not purchase or sell commodities or commodity
contracts.
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.
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.
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.
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.
Issuing Senior Securities
The Trust will not issue senior securities, except as permitted by
the investment objective and policies of the Trust.
Investing in Restricted Securities
The Trust will not invest more than 10% of its total assets in
securities subject to legal or contractual restrictions on resale.
Investing in New Issuers
The Trust will not invest more than 5% of the value of its total
assets in securities of issuers 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.
Investing in Options
The Trust will not invest in puts, calls, straddles, spreads, or
any combination of them.
Investing in Minerals
The Trust will not purchase or sell interests in oil, gas, or
other mineral exploration or development programs or leases.
The above limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Illiquid Securities
The Trust will not invest more than 10% of the value of its net
assets in illiquid securities.
Investing for Control
The Trust will not invest in securities of a company for the
purpose of exercising control or management.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such limitation.
The 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 during the coming fiscal year.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the Board of Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the 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. Research
services provided by brokers and dealers may be used by the adviser or
its affiliates in advising the Trust and other accounts. To the extent
that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They determine
in good faith that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research services
provided. During the fiscal year ended November 30, 1994, the Trust paid
no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the
type the Trust may make may also be made by those other accounts. When
the Trust and one or more other accounts managed by the adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the adviser to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the
Trust or the size of the position obtained or disposed of by the Trust.
In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of
the Trust.
Federated Tax-Free Trust Management
Officers and Directors are listed with their addresses, present
positions with Federated Tax-Free Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Company.
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Director
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Director
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Two Gateway Center-Suite 674
Pittsburgh, PA
Director
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Company.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
The Funds
As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; 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 Institutional
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; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; 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; Managed Series
Trust; The Medalist Funds: Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; World Investment Series, Inc.
Share Ownership
Officers and Trustees own less than 1% of the Trust's outstanding
shares.
As of January 10, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Trust: Fiduciary Trust Company
International Customer Account, New York, New York owned 7.3%.
Officers and Trustees Compensation
NAME , AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH COMPENSATION FROM TO TRUSTEES FROM
TRUST TRUST TRUST AND FUND
COMPLEX
John F. Donahue,
Chairman and Trustee $ -0- $ -0- for the Trust and
69 investment companies
Thomas G. Bigley,
Trustee $ 557.00 $ 24,991 for the Trust
and
50 investment companies
John T. Conroy, Jr.,
Trustee $ 2,498.75 $ 136,100 for the Trust
and
65 investment companies
William J. Copeland,
Trustee $ 2,498.75 $ 136,100 for the Trust
and
65 investment companies
James E. Dowd,
Trustee $ 2,498.75 $ 136,100 for the Trust
and
65 investment companies
Lawrence D. Ellis, M.D.,
Trustee $ 2,262.50 $ 123,600 for the Trust
and
65 investment companies
Edward L. Flaherty, Jr.,
Trustee $ 2,498.75 $ 136,100 for the Trust
and
65 investment companies
Peter E. Madden,
Trustee $ 1,928.50 $ 104,880 for the Trust
and
65 investment companies
Gregor F. Meyer,
Trustee $ 2,262.50 $ 123,600 for the Trust
and
65 investment companies
Wesley W. Posvar,
Trustee $ 2,262.50 $ 123,600 for the Trust
and
65 investment companies
Marjorie P. Smuts,
Trustee $ 2,262.50 $ 123,600 for the Trust
and
65 investment companies
Trustee Liability
The Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Investment Adviser
The Trust's investment adviser is Federated Research. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the Trustees of which are John F. Donahue, his
wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust 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.
For the fiscal years ended November 30, 1994, 1993 and 1992, the adviser
earned $5,196,527, $5,829,667, and $6,888,617, respectively, of which
$1,249,214, $450,780, and $367,910, respectively, was waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
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 this
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 fees.
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.
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's Administrator. (For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred
to as the "Administrators".) For the fiscal years ended November 30,
1994, 1993 and 1992, the Administrators earned $897,360, $646,592, and
$563,312, respectively. Dr. Henry J. Gailliot, an officer of Federated
Research, the adviser to the Trust, holds approximately 20% of the
outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
Shareholder Services Plan
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided
which are necessary for the maintenance of shareholder accounts and to
encourage personal services to shareholders by a representative who has
knowledge of the shareholder's particular circumstances and goals. These
activities and services may include, but are not limited to: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balance; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses. By adopting the Shareholder Services Plan, the Board of
Trustees expects that the Trust will benefit by: (1) providing personal
services to shareholders; (2) investing shareholder assets with a
minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal period
ending November 30, 1994, payments in the amount of $479,962 were made
pursuant to the Shareholder Services Plan, none of which was paid to
financial institutions.
Custodian . .State Street Bank and Trust Company, Boston, MA is
custodian for the securities and cash of the Trust.
Transfer Agent and Portfolio Recordkeeper. .As transfer agent, Federated
Services Company maintains all necessary shareholder records. For its
services, the transfer agent receives a fee based on the number of
shareholder accounts. It also provides certain accounting and
recordkeeping services with respect to the Trust's portfolio
investments.
Determining Net Asset Value
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on shares of the 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 opposite may be
true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-
7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Trust's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be
taken if there is a difference of more than 0.5 of 1% between the two
values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
Redemption in Kind
The 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 payments
should be in kind. In such cases, 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 who sell these securities could
receive less than the redemption value and could incur certain
transaction costs.
The Trust's Tax Status
To qualify for the special tax treatment afforded to regulated
investment companies, 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.
Performance Information
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is
invested; changes in interest rates; changes in expenses; and the
relative amount of cash flow. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in shares of the Trust, the performance
will be reduced for those shareholders paying those fees.
Yield
The Trust calculates its yield based upon the seven days ending on the
day of the calculation, called the "base period." This yield is computed
by: determining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period, with
the net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original one
share and all dividends declared on the original and any purchased
shares; dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine the base
period return; and multiplying the base period return by 365/7.
The Trust's yield for the seven-day period ended November 30, 1994, was
3.31%.
Effective Yield
The Trust calculates its effective yield by compounding the unannualized
base period return by: adding 1 to the base period return; raising the
sum to the 365/7th power; and subtracting 1 from the result.
The Trust's effective yield for the seven-day period ended November 30,
1994, was 3.36%.
Tax-Equivalent Yield
The Trust's tax-equivalent yield for the seven-day period ended November
30, 1994, assuming an effective tax rate of 28%, was 4.60%.
Tax-Equivalency Table
A tax-equivalency table may be used in advertising and sales literature.
The interest earned by the municipal securities 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 following table
indicates, a "tax-free" investment can be an attractive choice for
investors, particularly in times of narrow spreads between tax-free and
taxable yields.
Tax-exempt Yield vs. Taxable Yield
Taxable Yield Equivalent for 1995
Federal Income Tax Bracket:
15.00% 28.00% 31.00% 36.00%
39.60%
Joint $1- $39,001 - $94,251 - $143,601 - OVER
Return 39,000 94,250 143,600 256,500 256,500
Single Return $1- $23,351 - $56,551 - $117,951 - OVER
23,350 56,550 117,950 256,500 $256,500
Tax-Exempt
Yield Taxable Yield Equivalent
2.00% 2.35% 2.78% 2.90% 3.13%
3.31%
2.50% 2.94% 3.47% 3.62% 3.91%
4.14%
3.00% 3.53% 4.17% 4.35% 4.69%
4.97%
3.50% 4.12% 4.86% 5.07% 5.47%
5.79%
4.00% 4.71% 5.56% 5.80% 6.25%
6.62%
4.50% 5.29% 6.25% 6.52% 7.03%
7.45%
5.00% 5.88% 6.94% 7.25% 7.81%
8.28%
5.50% 6.47% 7.64% 7.97% 8.59%
9.11%
6.00% 7.06% 8.33% 8.70% 9.38%
9.93%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.
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.
Total Return
Average annual total return is the average compounded rate of return for
a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the
period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number
of shares purchased at the beginning of the period with $1,000, adjusted
over the period by any additional shares, assuming the monthly
reinvestmen tof all dividends and distributions.
Performance Comparisons
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 offering price. The financial publications and/or indices which
the Trust uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories based on total return, which assumes the reinvestment
of all income dividends and capital gains distributions, if any.
o Donoghue's Money Fund Report publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12-month-to-date investment results for the
same money funds.
o Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
314282104
8010414B(1/95)
