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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). The Trust invests in short-term municipal securities to achieve
dividend income exempt from federal regular 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,
1996, 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 or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1996
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Credit Enhancement 4
Demand Features 4
When-Issued and Delayed
Delivery Transactions 5
Restricted and Illiquid Securities 5
Temporary Investments 5
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
TRUST INFORMATION 6
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Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Distribution of Shares 7
Shareholder Services 8
Administration of the Trust 8
Administrative Services 8
NET ASSET VALUE 8
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HOW TO PURCHASE SHARES 9
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Purchasing Shares By Wire 9
Purchasing Shares By Check 9
Automatic Investments 9
Subaccounting Services 9
HOW TO REDEEM SHARES 10
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Redeeming Shares By Telephone 10
Redeeming Shares By Mail 10
ACCOUNT AND SHARE INFORMATION 11
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Dividends 11
Capital Gains 11
Certificates and Confirmations 11
Accounts with Low Balances 11
Voting Rights 11
TAX INFORMATION 11
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Federal Income Tax 11
State and Local Taxes 12
PERFORMANCE INFORMATION 12
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FINANCIAL STATEMENTS 13
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INDEPENDENT AUDITORS' REPORT 34
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ADDRESSES 35
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.28%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.17%
Shareholder Services Fee (after waiver)(2)................................. 0.05%
Total Operating Expenses(3)...................................................... 0.45%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of a portion of
the management fee. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses were 0.77% absent the waivers of portions of
the management fee and the shareholder services fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE " 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
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption
at the end of each time period........................ $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.
FEDERATED TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 34.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
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1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET
VALUE,
BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
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INCOME FROM
INVESTMENT
OPERATIONS
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Net
investment
income 0.04 0.02 0.02 0.03 0.04 0.06 0.06 0.05 0.04 0.04
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LESS
DISTRIBUTIONS
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Distributions
from net
investment
income (0.04) (0.02) (0.02) (0.03) (0.04) (0.06) (0.06) (0.05) (0.04) (0.04)
- ----------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET
VALUE,
END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL
RETURN
(A) 3.57% 2.43% 2.18% 2.88% 4.49% 5.68% 6.03% 4.87% 4.11% 4.43%
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RATIOS TO
AVERAGE
NET ASSETS
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Expenses 0.45% 0.45% 0.46% 0.46% 0.46% 0.45% 0.45% 0.45% 0.44% 0.45%
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Net
investment
income 3.51% 2.38% 2.16% 2.84% 4.40% 5.54% 5.86% 4.74% 4.01% 4.31%
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SUPPLEMENTAL
DATA
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Net
assets,
end of
period
(000
omitted) $807,369 $1,215,547 $1,346,791 $1,523,588 $1,720,730 $1,887,467 $2,140,368 $2,618,595 $2,997,042 $4,119,247
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</TABLE>
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 20, 1978. The Trust is designed for banks and other
institutions that hold assets for individuals, trusts, estates or partnerships,
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 because it
invests in municipal securities. A minimum initial investment of $25,000 within
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
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INVESTMENT OBJECTIVE
The investment objective of the Trust is dividend income exempt from federal
regular 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 complying with the various requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus. 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. At least 80% of the
Trust's annual interest income will be exempt from federal regular income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) As a
matter of operating policy, which may be changed without shareholder approval,
the Trust will limit the average maturity of its portfolio to 90 days or less,
in order to meet regulatory requirements.
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 subdivisions, agencies,
and instrumentalities of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from federal regular income tax ("Municipal
Securities"). Examples of Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term 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 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Trust's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, or default of the party providing the credit enhancement will
adversely affect the quality and marketability of the underlying security. The
Trust may have more than 25% of its total assets invested in securities
credit-enhanced by banks.
DEMAND FEATURES. The Trust may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Trust. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Trust uses these arrangements to provide the Trust with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Trust may invest in restricted
securities. Restricted securities are any securities in which the Trust may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. Under criteria
established by the Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to be liquid
the Trust will limit their purchase, together with other illiquid securities, to
10% of its net assets.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines
that market conditions call for a temporary defensive posture, the Trust may
invest in tax-exempt or taxable securities, all of comparable quality to other
securities in which the Trust invests, such as: obligations issued by or on
behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; instruments issued by a
U.S. branch of a domestic bank or other deposit institutions having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment; and repurchase agreements (arrangements in which the organization
selling the 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. However, the interest from certain Municipal
Securities is subject to the federal alternative minimum tax.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do not
represent a pledge of credit or create any debt of or charge against the general
revenues of a municipality or public authority. Industrial development bonds are
typically classified as revenue bonds.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to achieve
its investment objective also depends on the continuing ability of the issuers
of Municipal Securities and 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 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.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research, the Trust's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment
research and supervision for the Trust and is responsible for the purchase 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. The adviser has
undertaken to reimburse the Trust up to the amount of the advisory fee for
operating expenses in excess of limitations established by certain states.
In addition, under the investment advisory contract, the adviser will waive
the amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including the investment advisory fee
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws and regulations, 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.
ADVISER'S BACKGROUND. Federated Research, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Trust; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Trustees, and could result in severe
penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the 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. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of the Trust, computed at an annual rate, to
provide personal services for shareholders and to provide the maintenance of
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon shares owned by their clients or customers for services.
The schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Trust and Federated Shareholder Services.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE 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.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
NET ASSET VALUE
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The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
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Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Trust reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Trust. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the 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, MA; 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. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to:
Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check
should be made payable to Federated Tax-Free Trust. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received), and shares begin
earning dividends the next day.
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.
SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single
master accounts. A subaccounting system is available through the transfer agent
to minimize 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. State securities laws may require certain financial institutions such
as depository institutions to register as dealers.
HOW TO REDEEM SHARES
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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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Trust provided the Trust has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 12:00 noon (Eastern time) will be wired the same day to
the shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Trust shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Trust name; the account name as registered
with the Trust; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Trust does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in additional shares of the 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.
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. Monthly confirmations are sent to report
all transactions as well as dividends paid during the month.
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.
VOTING RIGHTS. Each share of the Trust gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The 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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, 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.
Because interest received by the 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 total return, 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.
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 the
Trust's performance to certain indices.
FEDERATED TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--101.0%
- ---------------------------------------------------------------------
ALABAMA--1.9%
-----------------------------------------------------
$11,000,000 Birmingham, AL, GO (Series 1992A) Weekly VRDNs (First
Alabama Bank, Birmingham LOC) A-1+ $ 11,000,000
-----------------------------------------------------
2,000,000 Bon Air, AL IDB Weekly VRDNs (Avondale Mills, Inc.)/
(Trust Company Bank, Atlanta LOC) A-1+ 2,000,000
-----------------------------------------------------
1,100,000 Huntsville, AL Health Care Authority/Health Care
Facilities, (Series 1994A) Weekly VRDNs (MBIA INS)/
(Amsouth Bank N.A., Birmingham LIQ) A-1 1,100,000
-----------------------------------------------------
1,000,000 Montgomery, AL BMC Special Care Facilities Finance
Authority, (Series 94A) Weekly VRDNs (Baptist Medical
Center, AL)/(Amsouth Bank N.A., Birmingham LOC) VMIG1 1,000,000
----------------------------------------------------- --------------
Total 15,100,000
----------------------------------------------------- --------------
ARIZONA--1.2%
-----------------------------------------------------
10,000,000 Pima County, AZ IDA, Floating Rate Notes (Series A)
Weekly VRDNs (Tucson Electric Power Co.)/(Barclays
Bank PLC, London LOC) VMIG1 10,000,000
----------------------------------------------------- --------------
ARKANSAS--0.2%
-----------------------------------------------------
1,900,000 Arkansas Hospital Equipment Finance Authority,
(Series 85) Weekly VRDNs (Credit Suisse, Zurich LOC) A-1+ 1,900,000
----------------------------------------------------- --------------
CALIFORNIA--11.6%
-----------------------------------------------------
1,500,000 California PCFA, (Series 1991) Weekly VRDNs (North
County, CA Recycling & Energy Recovery)/(Union Bank
of Switzerland, Zurich LOC) A-1+ 1,500,000
-----------------------------------------------------
25,000,000 California School Cash Reserve Program Authority,
(Series 1995A), 4.75% TRANs (MBIA INS), 7/3/1996 SP-1+ 25,132,899
-----------------------------------------------------
10,500,000 California State Weekly VRDNs (FGIC INS)/(Banque
Nationale de Paris LIQ) VMIG1 10,500,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
CALIFORNIA--CONTINUED
-----------------------------------------------------
$10,000,000 (a) Clipper CA Tax-Exempt Trust, (94-2) Weekly VRDNs
(California State)/(State Street Bank and Trust Co.
LIQ)/ (Bank of America NT and SA, San Francisco, Bank
of Nova Scotia, Toronto, Banque Nationale de Paris,
Canadian Imperial Bank of Commerce, Toronto, Chemical
Bank, New York, Citibank NA, New York, Credit Suisse,
Zurich, Morgan Guaranty Trust Co., New York, National
Westminster Bank, PLC, London, Societe Generale North
America, Inc., Sumitomo Bank Ltd., Osaka, Swiss Bank
Corp., Basle, Toronto-Dominion Bank and Westdeutsche
Landesbank Girozentrale LOCs) VMIG1 $ 10,000,000
-----------------------------------------------------
10,000,000 Kern County, CA Board of Education, 4.50% TRANs,
6/28/1996 SP-1+ 10,030,359
-----------------------------------------------------
7,400,000 Los Angeles County, CA Metropolitan Transportation
Authority, General Revenue Bonds, (Series 1995-A)
Weekly VRDNs (Union Station Gateway Project)/ (FSA
INS)/(Societe Generale, Paris LIQ) A-1+ 7,400,000
-----------------------------------------------------
10,000,000 Los Angeles County, CA Unified School District, 4.50%
TRANs, 7/3/1996 SP-1+ 10,045,304
-----------------------------------------------------
8,000,000 Los Angeles County, CA, 4.50% TRANs (Bank of America
NT and SA, San Francisco, Credit Suisse, Zurich,
Morgan Guaranty Trust Co., New York, Swiss Bank
Corp., Basle, Union Bank of Switzerland, Zurich and
Westdeutsche Landesbank Girozentrale LOCs), 7/1/1996 SP-1 8,031,365
-----------------------------------------------------
11,000,000 Santa Cruz County, CA, 4.50% TRANs, 7/11/1996 SP-1+ 11,032,191
----------------------------------------------------- --------------
Total 93,672,118
----------------------------------------------------- --------------
COLORADO--2.9%
-----------------------------------------------------
2,355,000 Loveland, CO, IDR (Series 1993S), 3.75% TOBs
(Safeway, Inc.)/(Bankers Trust Co., New York LOC),
Optional Tender 6/1/1996 P-1 2,355,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
COLORADO--CONTINUED
-----------------------------------------------------
$ 2,355,000 Loveland, CO, IDR (Series 1993S), 3.95% TOBs
(Safeway, Inc.)/(Bankers Trust Co., New York LOC),
Optional Tender 12/1/1995 P-1 $ 2,355,000
-----------------------------------------------------
19,000,000 Moffat County, CO, PCR (Series 1984) Weekly VRDNs
(Columbus UTE Electric Associates)/(National Rural
Utilities Cooperative Finance Corp. GTD) A-1 19,000,000
----------------------------------------------------- --------------
Total 23,710,000
----------------------------------------------------- --------------
CONNECTICUT--0.5%
-----------------------------------------------------
4,000,000 Connecticut State, Special Assessment Unemployment
Compensation Advance Fund, Revenue Bonds (Series
1993C), 3.90% TOBs (FGIC INS)/(FGIC Securities
Purchase, Inc. LIQ), Mandatory Tender 7/1/1996 A-1+ 4,000,000
----------------------------------------------------- --------------
FLORIDA--5.0%
-----------------------------------------------------
2,000,000 Fort Lauderdale, FL Performing Arts Center Authority
Weekly VRDNs (Sun Bank NA, Orlando LOC) VMIG1 2,000,000
-----------------------------------------------------
7,000,000 Orange County, FL, Health Facilities Authority Weekly
VRDNs (Mayflower Retirement Community)/(Rabobank
Nederland, Utrecht LOC) A-1 7,000,000
-----------------------------------------------------
10,000,000 Orlando, FL Utilities Commission, Variable Rate
Demand Water and Electric Revenue BANS (Series 1991)
Weekly VRDNs (Morgan Guaranty Trust Co., New York
LIQ) A-1+ 10,000,000
-----------------------------------------------------
4,800,000 Sunshine State Governmental Finance Commission, FL,
3.70% CP (Morgan Guaranty Trust Co., New York,
National Westminster Bank, PLC, London and Union Bank
of Switzerland, Zurich LOCs), Mandatory Tender
12/19/1995 VMIG1 4,800,000
-----------------------------------------------------
10,000,000 Sunshine State Governmental Finance Commission, FL,
3.80% CP (Morgan Guaranty Trust Co., New York,
National Westminster Bank, PLC, London and Union Bank
of Switzerland, Zurich LOCs), Mandatory Tender
12/8/1995 VMIG1 10,000,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
FLORIDA--CONTINUED
-----------------------------------------------------
$ 4,500,000 Suwannee County, FL, (Series 1989) Weekly VRDNs
(Advent Christian Village Project)/(Barnett Bank of
Jacksonville LOC) VMIG1 $ 4,500,000
-----------------------------------------------------
2,100,000 Volusia County, FL HFA, Variable Rate Demand Health
Facilities Revenue Bonds Daily VRDNs (Alliance
Community For Retirement Living, Inc. Project)/
(Rabobank Nederland, Utrecht LOC) A-1+ 2,100,000
----------------------------------------------------- --------------
Total 40,400,000
----------------------------------------------------- --------------
GEORGIA--3.1%
-----------------------------------------------------
3,185,000 Fulco, GA Hospital Authority Weekly VRDNs (Piedmont
Hospital)/(Trust Company Bank, Atlanta LOC) A-1+ 3,185,000
-----------------------------------------------------
15,900,000 Georgia State, (Series 1995C), 3.50% TOBs, (FNB,
Chicago LIQ) Optional Tender 4/1/1996 NR(1) 15,900,000
-----------------------------------------------------
4,000,000 Municipal Electric Authority of Georgia, (Series B),
4.25% TOBs, Optional Tender 6/1/1996 VMIG1 4,002,900
-----------------------------------------------------
2,200,000 Rockdale County, GA Hospital Authority, Revenue
Anticipation Certificates (Series 1994) Weekly VRDNs
(Rockdale Hospital)/(Trust Company Bank, Atlanta LOC) VMIG1 2,200,000
----------------------------------------------------- --------------
Total 25,287,900
----------------------------------------------------- --------------
ILLINOIS--6.5%
-----------------------------------------------------
7,720,000 Chicago, IL, GO LT Notes (Series A), 3.75% TOBs
(Morgan Guaranty Trust Co., New York LOC), Mandatory
Tender 5/1/1996 A-1+ 7,720,000
-----------------------------------------------------
7,800,000 Illinois Development Finance Authority, (Series
1993A) Weekly VRDNs (Loyola Academy)/(Northern Trust
Co., Chicago, IL LOC) A-1+ 7,800,000
-----------------------------------------------------
17,900,000 Illinois Health Facilities Authority Weekly VRDNs
(OSF Health Care Systems) VMIG1 17,900,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
ILLINOIS--CONTINUED
-----------------------------------------------------
$ 6,200,000 Illinois Health Facilities Authority, (Series 1989A)
Weekly VRDNs (Methodist Health Services Corp.)/(Fuji
Bank, Ltd., Tokyo LOC) A-1 $ 6,200,000
-----------------------------------------------------
7,500,000 Illinois Health Facilities Authority, Variable Rate
Demand Revenue Bonds (Series 1994) Weekly VRDNs
(South Suburban Hospital)/(Harris Trust & Savings
Bank, Chicago LOC) A-1+ 7,500,000
-----------------------------------------------------
2,670,000 Rockford, IL, EDRB, 4.40% TOBs (Independence Village
of Rockford)/(Banque Paribas, Paris LOC), Optional
Tender 12/1/1996 A-1 2,670,000
-----------------------------------------------------
2,760,000 Rockford, IL, EDRB, 4.95% TOBs (Independence Village
of Rockford)/(Banque Paribas, Paris LOC), Optional
Tender 12/1/1995 A-1 2,760,000
----------------------------------------------------- --------------
Total 52,550,000
----------------------------------------------------- --------------
INDIANA--2.1%
-----------------------------------------------------
17,000,000 Indiana Bond Bank, Advance Funding Program Notes
(Series 1995 A-3) VRNs, 1/10/1996 SP-1+ 17,000,000
----------------------------------------------------- --------------
IOWA--1.1%
-----------------------------------------------------
6,230,000 Indianola, IA Health Care Facility, Refunding Revenue
Bonds (Series 1992) Weekly VRDNs (The Village
Project)/(Norwest Bank Minnesota, Minneapolis LOC) A-1+ 6,230,000
-----------------------------------------------------
2,500,000 Iowa Higher Education Loan Authority, Revenue Bonds
Weekly VRDNs (MBIA Insurance Corporation INS)/
(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) VMIG1 2,500,000
----------------------------------------------------- --------------
Total 8,730,000
----------------------------------------------------- --------------
KENTUCKY--0.5%
-----------------------------------------------------
4,200,000 Kentucky Development Finance Authority Health Care
System Weekly VRDNs (Appalachian Regional Healthcare
System)/(Societe Generale, Paris LOC) VMIG1 4,200,000
----------------------------------------------------- --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MARYLAND--2.4%
-----------------------------------------------------
$ 2,100,000 Baltimore County, MD Port Facility Monthly VRDNs
(Occidental Petroleum Corp.)/(Morgan Guaranty Trust
Co., New York LOC) A-1+ $ 2,100,000
-----------------------------------------------------
900,000 Baltimore County, MD, (Series 1992) Weekly VRDNs
(Sheppard & Enoch Pratt Hospital Facility)/(Societe
Generale, Paris LOC) VMIG1 900,000
-----------------------------------------------------
1,500,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, Inc.)/
(Barclays Bank PLC, London LOC) A-1+ 1,500,000
-----------------------------------------------------
6,475,000 Montgomery County, MD EDA Weekly VRDNs (Howard Hughes
Medical Center) A-1+ 6,475,000
-----------------------------------------------------
750,000 Montgomery County, MD, Unlimited GO, 9.20% Bonds,
6/1/1996 NR(1) 769,887
-----------------------------------------------------
2,845,000 Queen Annes County, MD Economic Development Revenue,
(Series 1994), 3.75% TOBs (Safeway, Inc.)/ (Bankers
Trust Co., New York LOC), Optional Tender 6/1/1996 A-1+ 2,845,000
-----------------------------------------------------
2,915,000 Queen Annes County, MD Economic Development Revenue,
(Series 1994), 3.95% TOBs (Safeway, Inc.)/ (Bankers
Trust Co., New York LOC), Optional Tender 12/1/1995 A-1+ 2,915,000
-----------------------------------------------------
1,500,000 University of Maryland, Revolving Equipment Loan
Program (Series A) Weekly VRDNs (Student Loan
Marketing Association LIQ) A-1+ 1,500,000
----------------------------------------------------- --------------
Total 19,004,887
----------------------------------------------------- --------------
MASSACHUSETTS--0.3%
-----------------------------------------------------
2,500,000 Haverhill, MA, 8.875% Bonds (United States Treasury
PRF), 12/1/1995 (@102) NR(1) 2,550,000
----------------------------------------------------- --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MICHIGAN--2.6%
-----------------------------------------------------
$ 2,000,000 Bruce Township, MI Hospital Finance Authority,
Adjustable Rate Tender Securities Weekly VRDNs
(Sisters of Charity Health Care System)/(MBIA
INS)/(Morgan Guaranty Trust Co., New York LIQ) VMIG1 $ 2,000,000
-----------------------------------------------------
2,000,000 Clinton Twp, MI EDA, Adjustable Rate Tender
Securities Weekly VRDNs (Sisters of Charity Health
Care System)/ (MBIA INS)/(Morgan Guaranty Trust Co.,
New York LIQ) A-1+ 2,000,000
-----------------------------------------------------
1,500,000 Cornell, MI Economic Development Corp., IDR Refunding
Bonds (Series 1990), 3.75% CP (Mead-Escanaba Paper
Co. Project)/(Credit Suisse, Zurich LOC), Mandatory
Tender 1/9/1996 A-1+ 1,500,000
-----------------------------------------------------
13,100,000 Michigan State Hospital Finance Authority, (Series A)
Weekly VRDNs (OSF Health Care Systems) P-1 13,100,000
-----------------------------------------------------
1,600,000 Michigan State Housing Development Authority, Rental
Housing Revenue Bonds (1994 Series C) Weekly VRDNs
(Credit Suisse, Zurich LOC) A-1+ 1,600,000
-----------------------------------------------------
400,000 Michigan Underground Storage Tank Financial Assurance
Authority, (Series I - 1995) Weekly VRDNs (Canadian
Imperial Bank of Commerce, Toronto LOC) A-1+ 400,000
----------------------------------------------------- --------------
Total 20,600,000
----------------------------------------------------- --------------
MINNESOTA--13.0%
-----------------------------------------------------
5,500,000 Becker, MN, PCR (Series 1992A), 3.60% CP (Northern
States Power Co.), Mandatory Tender 5/15/1996 A-1+ 5,500,000
-----------------------------------------------------
7,300,000 Bloomington, MN Port Authority, Special Tax Revenue
Refunding Bonds (Series 1994B) Weekly VRDNs (Mall of
America)/(FSA INS)/(Credit Local de France LIQ) A-1+ 7,300,000
-----------------------------------------------------
12,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs
(Hennepin Co. MN GTD) NR(1) 12,000,000
-----------------------------------------------------
11,000,000 Minneapolis, MN, GO Bonds (Series 1995) Weekly VRDNs
(Arena Acquisition Project (MN)) A-1+ 11,000,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MINNESOTA--CONTINUED
-----------------------------------------------------
$ 8,600,000 Minnesota State Higher Education Coordinating Board,
Supplemental Student Loan Program Variable Rate
Refunding Revenue Bonds (Series 1994A) Weekly VRDNs
(Norwest Bank Minnesota, Minneapolis LIQ) VMIG1 $ 8,600,000
-----------------------------------------------------
1,000,000 Rochester, MN Health Care Facility Authority Weekly
VRDNs (Mayo Foundation) VMIG1 1,000,000
-----------------------------------------------------
26,200,000 Rochester, MN Health Care Facility Authority Weekly
VRDNs (Mayo Foundation) VMIG1 26,200,000
-----------------------------------------------------
24,000,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch
Refining Co.) A-1+ 24,000,000
-----------------------------------------------------
990,000 St. Louis Park Hennepin County, MN Weekly VRDNs A-1+ 990,000
-----------------------------------------------------
875,000 St. Louis Park Hennepin County, MN, (Series A) Weekly
VRDNs A-1+ 875,000
-----------------------------------------------------
7,800,000 University of Minnesota, (Series H), 3.90% CP
(Regents of University of Minnesota), Mandatory
Tender 1/12/1996 A-1+ 7,800,000
----------------------------------------------------- --------------
Total 105,265,000
----------------------------------------------------- --------------
MISSOURI--2.5%
-----------------------------------------------------
6,400,000 Missouri State Environmental Improvement & Energy
Authority, (Series 1993M) Weekly VRDNs (Associated
Electric Cooperative, Inc.)/(National Rural Utilities
Cooperative Finance Corp. GTD) A-1 6,400,000
-----------------------------------------------------
13,370,000 Missouri State Environmental Improvement & Energy
Authority, PCR Bonds Series 1985 B, 3.75% CP (Union
Electric Co.)/(Westdeutsche Landesbank Girozentrale
LOC), Mandatory Tender 2/6/1996 A-1+ 13,370,000
----------------------------------------------------- --------------
Total 19,770,000
----------------------------------------------------- --------------
NEW YORK--3.1%
-----------------------------------------------------
5,000,000 Nassau County, NY, (Series 1995A), 4.50% TANs,
3/15/1996 SP-1+ 5,008,474
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NEW YORK--CONTINUED
-----------------------------------------------------
$10,000,000 New York City, NY, (Fiscal 1996 Series A), 4.50%
RANs, 4/11/1996 SP-1+ $ 10,028,122
-----------------------------------------------------
10,000,000 New York City, NY, (Series B), 4.75% RANs (Bank of
Nova Scotia, Toronto, Canadian Imperial Bank of
Commerce, Toronto, Chemical Bank, New York, Citibank
NA, New York, Commerzbank AG, Frankfurt, Morgan
Guaranty Trust Co., New York and Union Bank of
Switzerland, Zurich LOCs), 6/28/1996 SP-1 10,064,521
----------------------------------------------------- --------------
Total 25,101,117
----------------------------------------------------- --------------
NORTH CAROLINA--6.6%
-----------------------------------------------------
20,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs
(Weyerhaeuser Co.) A-1 20,000,000
-----------------------------------------------------
27,215,000 (a) NCNB Pooled Tax-Exempt Trust, (Series 1990A) Weekly
VRDNs (NCNB Tax Exempt Trust 1990a)/(Nationsbank,
N.A. LOC) P-1 27,215,000
-----------------------------------------------------
6,000,000 North Carolina Medical Care Commission Hospital,
Revenue Bonds (Series 1992B) Weekly VRDNs (North
Carolina Baptist) A-1+ 6,000,000
----------------------------------------------------- --------------
Total 53,215,000
----------------------------------------------------- --------------
OHIO--5.0%
-----------------------------------------------------
800,000 Akron, OH, Sanitary Sewer System Revenue Bonds Weekly
VRDNs (Credit Suisse, Zurich LOC) A-1+ 800,000
-----------------------------------------------------
6,000,000 (a) Cleveland, OH City School District, Energy
Conservation Improvement Bonds (Series 1994) Weekly
VRDNs (Internationale Nederlanden Bank N.V. LIQ)/
(Internationale Nederlanden Bank N.V. LOC) A-1+ 6,000,000
-----------------------------------------------------
3,000,000 Cleveland-Cuyahoga County, OH Port Authority, (Series
1993) Weekly VRDNs (Rock & Roll Hall of Fame
Museum)/(Credit Local de France LOC) A-1+ 3,000,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
OHIO--CONTINUED
-----------------------------------------------------
$ 3,955,000 Franklin County, OH Hospital Facility Authority,
(Series 1992) Weekly VRDNs (Wesley Glenn, Inc.)/
(Fifth Third Bank, Cincinnati LOC) VMIG1 $ 3,955,000
-----------------------------------------------------
4,400,000 Hamilton County, OH Health System Weekly VRDNs (West
Park Community)/(Fifth Third Bank, Cincinnati LOC) VMIG1 4,400,000
-----------------------------------------------------
2,735,000 Marion County, OH Hospital Authority, (Series 1991)
Weekly VRDNs (Marion County, OH Pooled Hospital
Program)/(Bank One, Columbus, N.A. LOC) P-1 2,735,000
-----------------------------------------------------
1,000,000 Ohio State Air Quality Development Authority Weekly
VRDNs (Timken Co.)/(Credit Suisse, Zurich LOC) A-1+ 1,000,000
-----------------------------------------------------
2,500,000 Ohio State Water Development Authority, Multimodal
Water Development (Series 1993) Weekly VRDNs (Timken
Co.)/(Wachovia Bank of Georgia NA, Atlanta LOC) A-1+ 2,500,000
-----------------------------------------------------
4,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly
VRDNs (Rickenbacker Holdings, Inc.)/(Bank One,
Columbus, N.A. LOC) P-1 4,000,000
-----------------------------------------------------
6,300,000 Toledo, OH, City Services Special Assessment Notes
(Services 1995), 5.25% TRANs (Mitsubishi Bank Ltd,
Tokyo LOC), 5/2/1996 MIG1 6,321,443
-----------------------------------------------------
5,500,000 University of Cincinnati, OH, (Series N), 5.00% BANs,
3/21/1996 SP-1+ 5,505,568
----------------------------------------------------- --------------
Total 40,217,011
----------------------------------------------------- --------------
OKLAHOMA--4.3%
-----------------------------------------------------
2,740,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly
VRDNs (Muskogee Mall Limited Partnership)/ (Boatmen's
National Bank of St. Louis LOC) VMIG1 2,740,000
-----------------------------------------------------
4,010,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly
VRDNs (Warmack Muskogee Limited Partnership)/
(Boatmen's National Bank of St. Louis LOC) VMIG1 4,010,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
OKLAHOMA--CONTINUED
-----------------------------------------------------
$15,000,000 Oklahoma State Industrial Authority, Health System
Revenue Bonds (Series 1995A), 4.00% CP (Baptist
Medical Center, OK), Mandatory Tender 12/7/1995 A-1 $ 15,000,000
-----------------------------------------------------
13,000,000 Oklahoma State Industrial Authority, Health System
Revenue Bonds (Series 1995A), 4.10% CP (Baptist
Medical Center, OK), Mandatory Tender 1/18/1996 A-1 13,000,000
----------------------------------------------------- --------------
Total 34,750,000
----------------------------------------------------- --------------
PENNSYLVANIA--3.3%
-----------------------------------------------------
11,900,000 Allegheny County, PA HDA, Variable Rate Hospital
Revenue Bonds (Series B 1995) Weekly VRDNs (Allegheny
General Hospital)/(Morgan Guaranty Trust Co., New
York LOC) VMIG1 11,900,000
-----------------------------------------------------
8,000,000 Commonwealth of Pennsylvania, (First Series of
1995-1996), 4.50% TANs, 6/28/1996 SP-1+ 8,032,716
-----------------------------------------------------
6,470,000 Pittsburgh, PA Public Parking Authority, Parking
Revenue Bonds, 9.50% Bonds (United States Treasury
PRF), 12/1/1995 (@102) NR(1) 6,599,400
----------------------------------------------------- --------------
Total 26,532,116
----------------------------------------------------- --------------
PUERTO RICO--0.2%
-----------------------------------------------------
2,000,000 Puerto Rico Government Development Bank Weekly VRDNs
(Credit Suisse, Zurich LOC) A-1+ 2,000,000
----------------------------------------------------- --------------
TENNESSEE--5.4%
-----------------------------------------------------
15,000,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie
School)/(Trust Company Bank, Atlanta LOC) A-1+ 15,000,000
-----------------------------------------------------
2,415,000 Metropolitan Government Nashville & Davidson
Counties, TN HEFA, (Series 1985B), 4.35% TOBs
(Vanderbilt University), Optional Tender 5/1/1996 A-1+ 2,415,000
-----------------------------------------------------
19,900,000 Metropolitan Nashville Tennessee AA, (Series 1993)
Weekly VRDNs (FGIC INS)/(Societe Generale, Paris LIQ) A-1+ 19,900,000
-----------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
TENNESSEE--CONTINUED
-----------------------------------------------------
$ 6,000,000 Shelby County, TN Health Education & Housing
Facility, (Series C), 3.90% TOBs (Methodist Health
System, Inc.)/ (MBIA INS), Optional Tender 8/1/1996 A-1+ $ 6,000,000
----------------------------------------------------- --------------
Total 43,315,000
----------------------------------------------------- --------------
TEXAS--4.9%
-----------------------------------------------------
4,325,000 Dallas, TX, (Series C), 3.90% TOBs, Optional Tender
6/17/1996 VMIG1 4,325,000
-----------------------------------------------------
4,875,000 Grapevine, TX, IDC Airport Improvement, (Series
1983A), 4.75% TOBs (Singer Company)/(Bank of Montreal
LOC), Optional Tender 4/1/1996 P-1 4,875,000
-----------------------------------------------------
7,900,000 Harris County, TX HFDC Weekly VRDNs (Memorial Senior
Services, Inc.)/(Societe Generale, Paris LOC) VMIG1 7,900,000
-----------------------------------------------------
5,000,000 Sulfur Springs, TX IDA Weekly VRDNs (HON Industries,
Inc.)/(Credit Suisse, Zurich LOC) A-1+ 5,000,000
-----------------------------------------------------
5,000,000 Texas State, (Series 1995A), 4.75% TRANs, 8/30/1996 SP-1+ 5,032,812
-----------------------------------------------------
12,000,000 Texas State, (Series 1995B), 3.65% CP, Mandatory
Tender 8/20/1996 A-1+ 12,000,000
----------------------------------------------------- --------------
Total 39,132,812
----------------------------------------------------- --------------
UTAH--0.6%
-----------------------------------------------------
5,000,000 Intermountain Power Agency, UT, (Series F), 3.80%
TOBs, Optional Tender 6/15/1996 VMIG1 5,000,000
----------------------------------------------------- --------------
VERMONT--1.0%
-----------------------------------------------------
8,000,000 Vermont IDA Weekly VRDNs (Wallace Computer, Inc.)/
(Wachovia Bank of NC, NA, Winston-Salem LOC) A-1+ 8,000,000
----------------------------------------------------- --------------
VIRGINIA--1.7%
-----------------------------------------------------
14,000,000 Arlington County, VA Weekly VRDNs (Ballston Public
Parking)/(Citibank NA, New York LOC) A-1 14,000,000
----------------------------------------------------- --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
WEST VIRGINIA--1.6%
-----------------------------------------------------
$ 8,000,000 Cabell County Commission, WV, Life Care Facilities
Multi-Option Adjustable Rate Revenue Bonds (Series
1995) Weekly VRDNs (Foster Foundation)/ (Huntington
National Bank, Columbus, OH LOC) A-1 $ 8,000,000
-----------------------------------------------------
5,100,000 West Virginia University Board of Regents, 5.35% TOBs
(Morgan Guaranty Trust Co., New York LOC), Optional
Tender 2/1/1996 A-1+ 5,100,000
----------------------------------------------------- --------------
Total 13,100,000
----------------------------------------------------- --------------
WISCONSIN--1.0%
-----------------------------------------------------
8,000,000 Wisconsin Health and Educational Facilities
Authority, Variable Rate Demand Revenue Bonds (Series
1994) Weekly VRDNs (Felician Health Care, Inc.
Project)/ (Lasalle National Bank, Chicago LOC) A-1+ 8,000,000
----------------------------------------------------- --------------
WYOMING--2.1%
-----------------------------------------------------
5,125,000 Lincoln County, WY, PCR, 3.75% TOBs (Amoco Corp.),
Optional Tender 4/1/1996 NR(1) 5,125,000
-----------------------------------------------------
5,560,000 Wyoming Community Development Authority, (Series
1986C), 3.70% TOBs (First National Bank of Chicago
LIQ), Optional Tender 6/1/1996 NR(2) 5,560,000
-----------------------------------------------------
6,100,000 Wyoming Community Development Authority, (Series
1986C), 4.30% TOBs (First National Bank of Chicago
LIQ), Optional Tender 12/1/1995 NR(2) 6,100,000
----------------------------------------------------- --------------
Total 16,785,000
----------------------------------------------------- --------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- ----------------------------------------------------- -------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
OTHER--2.8%
-----------------------------------------------------
$15,000,000(a) Clipper Tax Exempt Trust, (Series 1993-1) Weekly
VRDNs (State Street Bank and Trust Co. LIQ) A-1+ $ 15,000,000
-----------------------------------------------------
7,810,192(a) LaSalle National Bank Leasetops Trust, Series 1995A
Leasetops Certificates Weekly VRDNs (LaSalle National
Bank, Chicago LOC) A-1 7,810,192
----------------------------------------------------- --------------
Total 22,810,192
----------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 815,698,153
----------------------------------------------------- --------------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) Denotes a restricted security which is subject to restrictions on resale under Federal
Securities laws. At the end of the period, these securities amounted to $66,025,192
which represents 8.2% of net assets.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($807,369,416) at November 30, 1995.
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
BANs --Bond Anticipation Notes
CP --Commercial Paper
EDA --Economic Development Authority
EDRB --Economic Development Revenue Bonds
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
GTD --Guarantee
HDA --Hospital Development Authority
HEFA --Health and Education Facilities Authority
HFA --Housing Finance Authority
HFDC --Health Facility Development Corporation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDC --Industrial Development Corporation
IDR --Industrial Development Revenue
IFA --Industrial Finance Authority
INS --Insured
LIQ --Liquidity Agreement
LOCs --Letters of Credit
LOC --Letter of Credit
LT --Limited Tax
MBIA --Municipal Bond Investors Assurance
PCFA --Pollution Control Finance Authority
PCR --Pollution Control Revenue
PLC --Public Limited Company
PRF --Prerefunded
RANs --Revenue Anticipation Notes
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
TRANs --Tax and Revenue Anticipation Notes
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
VRNs --Variable Rate Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $815,698,153
- --------------------------------------------------------------------------------
Cash 561,543
- --------------------------------------------------------------------------------
Income receivable 7,040,196
- --------------------------------------------------------------------------------
Receivable for shares sold 3,176
- -------------------------------------------------------------------------------- ------------
Total assets 823,303,068
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $13,430,000
- ------------------------------------------------------------------
Payable for shares redeemed 257,743
- ------------------------------------------------------------------
Income distribution payable 2,147,204
- ------------------------------------------------------------------
Accrued expenses 98,705
- ------------------------------------------------------------------ -----------
Total liabilities 15,933,652
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 807,379,535 shares outstanding $807,369,416
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $807,379,535
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (10,119)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $807,369,416
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
$807,369,416 / 807,379,535 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $40,971,493
- -----------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Investment advisory fee $ 4,138,814
- --------------------------------------------------------------------
Administrative personnel and services fee 783,271
- --------------------------------------------------------------------
Custodian fees 135,736
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 61,845
- --------------------------------------------------------------------
Directors'/Trustees' fees 15,459
- --------------------------------------------------------------------
Auditing fees 16,543
- --------------------------------------------------------------------
Legal fees 21,111
- --------------------------------------------------------------------
Portfolio accounting fees 119,882
- --------------------------------------------------------------------
Shareholder services fee 2,586,759
- --------------------------------------------------------------------
Share registration costs 11,181
- --------------------------------------------------------------------
Printing and postage 15,812
- --------------------------------------------------------------------
Insurance premiums 15,762
- --------------------------------------------------------------------
Taxes 7,848
- --------------------------------------------------------------------
Miscellaneous 12,209
- -------------------------------------------------------------------- -----------
Total expenses 7,942,232
- --------------------------------------------------------------------
Waivers--
- ------------------------------------------------------
Waiver of investment advisory fee $(1,198,154)
- ------------------------------------------------------
Waiver of shareholder services fee (2,069,407)
- ------------------------------------------------------ -----------
Total waivers (3,267,561)
- -------------------------------------------------------------------- -----------
Net expenses 4,674,671
- ----------------------------------------------------------------------------------- -----------
Net investment income 36,296,822
- -----------------------------------------------------------------------------------
Net realized gain on investments 9,580
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $36,306,402
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1995 1994
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 36,296,822 $ 30,872,573
- ------------------------------------------------------------
Net realized gain (loss) on investments 9,580 (11,840)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from operations 36,306,402 30,860,733
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income (36,296,822) (30,872,573)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 3,371,354,462 4,662,199,876
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 2,688,363 2,966,874
- ------------------------------------------------------------
Cost of shares redeemed (3,782,230,461) (4,796,398,508)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions (408,187,636) (131,231,758)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets (408,178,056) (131,243,598)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 1,215,547,472 1,346,791,070
- ------------------------------------------------------------ --------------- ---------------
End of period $ 807,369,416 $ 1,215,547,472
- ------------------------------------------------------------ --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Tax-Free Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Trust uses the amortized cost method to value
its portfolio securities in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the 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 income. Accordingly, no
provisions for federal tax are necessary.
At November 30, 1995, the Trust, for federal tax purposes, had a capital
loss carryforward of $10,119, 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 as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
------------------------------ ------------------------------
<S> <C>
2002 $10,119
</TABLE>
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.
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
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
feature. Such restricted securities may be determined to be liquid under
criteria established by the Board of Trustees. The Trust will not incur any
registration costs upon such resales. Restricted securities are valued at
amortized cost in accordance with Rule 2a-7 under the Investment Company
Act of 1940.
Additional information on each restricted security held at November 30,
1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE(S) COST
------------------------------------------------------- ---------------- -----------
<S> <C> <C>
Clipper CA Tax-Exempt Trust, (94-2) Weekly VRDN's
(State Street Bank and Trust Co. LIQ)/(Various LOC's) 10/21/94 $10,000,000
NCNB Pooled Tax-Exempt Trust, (Series 1990A) Weekly
VRDN's (Nations Bank, NA LOC) 7/3/90-1/2/92 27,215,000
Cleveland, OH City School District, Energy Conservation
Improvement Bonds (Series 1994) Weekly VRDN's
(Internationale Nederlanden Bank N.V. LIQ/LOC) 8/30/95-10/23/95 6,000,000
Clipper Tax Exempt Trust, (Series 1993-1) Weekly VRDN's
(State Street Bank and Trust Co. LIQ) 5/16/95 15,000,000
LaSalle National Bank Leasetops, Trust, Series 1995A
Leasetops Certificates Weekly VRDN's (LaSalle
National Bank, Chicago, LOC) 10/11/95 7,810,192
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1995, capital paid-in aggregated $807,379,535. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1995 1994
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 3,371,354,462 4,662,199,876
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,688,363 2,966,874
- -------------------------------------------------------------
Shares redeemed (3,782,230,461) (4,796,398,508)
- ------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (408,187,636) (131,231,758)
- ------------------------------------------------------------- -------------- --------------
</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.
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
The Adviser will waive, to the extent of its advisory fee, the amount, if any,
by which the Trust's aggregate annual operating expenses exceed 0.45 of 1% of
average daily net assets of the Trust.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. This 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 the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the 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 services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive a portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Trust. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended November 30, 1995, the Trust
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $1,904,270,000 and $1,641,885,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
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,
1995, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended November 30, 1995 and 1994, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at November 30, 1995 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Tax-Free
Trust as of November 30, 1995, 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
Pittsburgh, Pennsylvania
January 12, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Tax-Free Trust Federated Investors Tower
Pittsburgh, PA 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------------
Independent Public Accountants
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, PA 15222-5401
- ----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED TAX-FREE TRUST
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
Prospectus dated January 31, 1996
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 314282104
8010414A (1/96)
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, 1996. This
Statement is not a prospectus. You may request a copy of a prospectus or a
paper copy of this Statement, if you have received it electronically, free
of charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated January 31, 1996
Federated Securities Corp.
Distributor
A subsidiary of Federated Investors
INVESTMENT POLICIES 2
Acceptable Investments 2
Participation Interests 2
Municipal Leases 2
Ratings 3
When-Issued and Delayed Delivery
Transactions 4
Repurchase Agreements 4
Credit Enhancement 5
INVESTMENT LIMITATIONS 6
Regulatory Compliance 9
FEDERATED TAX-FREE TRUST MANAGEMENT
10
The Funds 17
Share Ownership 19
Trustee Compensation 19
Trustee Liability 20
INVESTMENT ADVISORY SERVICES 20
Investment Adviser 20
Advisory Fees 21
Other Related Services 22
BROKERAGE TRANSACTIONS 22
OTHER SERVICES 23
Trust Administration 23
Custodian and Portfolio
Recordkeeper 24
Transfer Agent 24
Independent Auditors 24
SHAREHOLDER SERVICES AGREEMENT 24
DETERMINING NET ASSET VALUE 25
REDEMPTION IN KIND 26
MASSACHUSETTS PARTNERSHIP LAW 26
THE TRUST'S TAX STATUS 27
PERFORMANCE INFORMATION 27
Yield 28
Effective Yield 28
Tax-Equivalent Yield 28
Tax-Equivalency Table 28
Total Return 30
Performance Comparisons 31
ABOUT FEDERATED INVESTORS 31
Mutual Fund Market 32
Institutional Clients 32
Trust Organizations 33
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 33
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may not be changed by
the Board of 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 these participation interests, 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. Furthermore, a lease may provide that the
participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became due.
In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects);
the likelihood that the lessee will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation"); and any
credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.
RATINGS
The securities in which the 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 Ratings Group ("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."
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. 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. 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,
broker/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. 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.
CREDIT ENHANCEMENT
The Trust typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the "credit enhancer"), rather than
the issuer. However, credit-enhanced securities will not be treated as having
been issued by the credit enhancer for diversification purposes, unless the
Trust has invested more than 10% of its assets in securities issued,
guaranteed or otherwise credit enhanced by the credit enhancer, in which case
the securities will be treated as having been issued by both the issuer and
the credit enhancer.
The Trust may have more than 25% of its total assets invested in securities
credit enhanced by banks.
CONCENTRATION OF INVESTMENTS
The Trust will not invest 25% or more of the value of its total assets in any
one industry, or in industrial development bonds or other securities the
interest upon which is paid from revenues of similar types of projects, except
that the Trust may invest 25% or more of the value of its total assets in
cash, cash items, or securities issued or guaranteed by the government of the
United States or its agencies, or instrumentalities and repurchase agreements
collateralized by such U.S. government securities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Trust will not not make short sales of securities or purchase any
securities on margin, except for such credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Trust will not issue senior securities except that the Trust may borrow
money in amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Trust will not borrow money, except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of
5% of the value of its total assets or in an amount up to one-third of the
value of its total assets including the amount borrowed in order to meet
redemption requests without immediately selling any portfolio securities. This
borrowing provision is not for investment leverage but solely to facilitate
management of the portfolio by enabling the Trust to meet redemption requests
where the liquidation of portfolio securities is deemed to be inconvenient or
disadvantagious. While any such borrowings are outstanding, no net purchases
of investment securities will be made by the Trust. If due to market
fluctuations or other reasons the value of the Trust's assets falls below 300%
of its borrowing, the Trust will reduce its borrowing within three business
days.
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 the Trust may, in
accordance with its investment objective, policies and limitations, acquire
publicly or non-publicly issued municipal securities or temporary investments
or enter into repurchase agreements.
INVESTING IN COMMODITIES AND MINERALS
The Trust will not purchase or sell commodities or commodity contracts, or
oil, gas or other mineral explorations or development programs.
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.
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase securities of any one issuer (other than cash,
cash items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the securities of that
issuer. For purposes of this limitation, each governmental subdivision, i.e.
state, territory, possession of the United states or any political subdivision
of any of the foregoing, including agencies, authorities, instrumentalities,
or similar entities, or of the District of Columbia shall 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 the assets
and revenues of a non-governmental user will be determined to be the sole
issuer. If, however, in the case of an industrial development bond, or
governmental issued security, a governmental or some 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. For purposes of this
limitation, cash instruments do not include securities issued by banks.
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 assets of the Trust in
securities of issuers (or in the alternative, guarantors, where applicable)
which have a record of less than three years of continuous operation,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
The Trust will not purchase or retain the securities of any issuer other than
the securities of the Trust, if, to the Trust's knowledge, those officers and
Trustees of the Trust or the Adviser, who individually own beneficially more
than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
INVESTING IN OPTIONS
The Trust will not purchase or sell puts, calls, straddles or spreads or any
combination thereof, except that the Trust may purchase variable rate
municipal securities from a broker, dealer or other person accompanied by the
agreement of such seller to purchase, at the Trust's option, the municipal
security prior to the maturity thereof.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Trust will not invest in securities issued by any other investment company
or investment trust. The Trust will not acquire voting securities except as
part of a merger, consolidation, reorganization, or acquisition of assets.
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 acquire voting securities except as part of a merger,
consolidation, reorganization, or acquisition of assets.
For purposes of the above limitations, the Trust considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items." Except
with respect to borrowing money, if a percentage limitation is adhered to at
the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
The 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.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the 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.
FEDERATED TAX-FREE TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Tax-Free Trust, and principal occupations including
those with Federated Research, its affiliates, and the "Funds" described in
the Statement of Additional Information.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
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
Birthdate: June 23, 1937
Trustee
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
Birthdate: July 4, 1918
Trustee
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
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, 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
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
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.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
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
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive 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 of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Services Company; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Treasurer of some of the Funds.
* This Trustee 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
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FTI Funds;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; 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; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds;
World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust`s outstanding
shares.
As of January 4, 1996, the following shareholders of record owned 5% or more
of the outstanding shares of the Trust: Fiduciary Trust Company International
Customer Account, New York, New York, owned 9.20%; and First Interstate Bank,
Calabasas, California, owned 8.11%.
TRUSTEE COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue, $0 $0 for the Trust and
54 other investment companies in the Fund Complex
Thomas G. Bigley $2,079.00 $86,331 for the Trust and
54 other investment companies in the Fund Complex
John T. Conroy, Jr. $2,230.00 $115,760 for the Trust and
54 other investment companies in the Fund Complex
William J. Copeland $2,230.00 $115,760 for the Trust and
54 other investment companies in the Fund Complex
James E. Dowd $2,230.00 $115,760 for the Trust and
54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $2,230.00 $115,760 for the Trust and
54 other investment companies in the Fund Complex
Peter E. Madden $2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
Gregor F. Meyer $2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
John Murray $2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
Wesley W. Posvar $2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
Marjorie P. Smuts$2,079.00 $104,898 for the Trust and
54 other investment companies in the Fund Complex
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, 1995, 1994, and 1993, the adviser earned $4,138,814, $5,196,527,
and $5,829,667, respectively, of which $1,198,154, $1,249,214, and $450,780,
respectively, were 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.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the 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, 1995, 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.
OTHER SERVICES
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, 1995, 1994, and
1993, the Administrators earned $783,271, $897,360, and $646,592,
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.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. It also provides certain accounting and
recordkeeping services with respect to the Trust's portfolio investments.
TRANSFER AGENT
As transfer agent, Federated Services Company maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP, Pittsburgh,
PA.
SHAREHOLDER SERVICES AGREEMENT
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 balances;
answering routine client inquiries; and assisting clients in changing dividend
options, account designations, and addresses. By adopting the Shareholder
Services Agreement, the Trustees expect that the 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
year ending November 30, 1995, payments in the amount of $2,586,759 were made
pursuant to the Shareholder Services Agreement, $2,069,407 of which was
waived.
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.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust itself cannot meet its
obligations to indemnify shareholders and pay judgments against them.
THE 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 yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased
with dividends earned from the original one share and all dividends declared
on the original and any purchased shares; dividing the net change in the
account's value by the value of the account at the beginning of the base
period to determine the base period return; and multiplying the base period
return by 365/7.
The Trust's yield for the seven-day period ended November 30, 1995, was 3.46%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.The Trust's effective yield for the
seven-day period ended Nobember 30, 1995, was 3.52%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Trust is calculated similarly to the yield but
is adjusted to reflect the taxable yield that the Trust would have had to earn
to equal its actual yield, assuming 39.60% tax rate (the maximum effective
federal rate for individuals) and assuming that the income is 100% tax exempt.
The Trust's tax-equivalent yield for the seven-day period ended November 30,
1995, was 5.73%.
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 table below indicates, a "tax-free" investment
can be an attractive choice for investors, particularly in times of narrow
spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed
by multiplying the number of shares owned at the end of the period by the net
asset value per share at the end of the period. The number of shares owned at
the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any
additional shares, assuming the monthly reinvestment of all dividends and
distributions.
The Trust's average annual total returns for the one, five, and ten-year
periods ended November 30, 1995, were 3.57%, 3.07% and 4.05%, respectively.
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.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands
of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds,
a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money
market fund. As of December 31, 1995, Federated Investors managed more than
$31 billion in assets across approximately 43 money market funds, including 17
government, 8 prime and 18 municipal with assets approximating $17 billion,
$7.4 billion and $6.6 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
RATINGS APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Standard & Poor's Ratings Group ("S&P") assigns dual ratings to all long-term
debt issues that have as part of their provisions a variable rate demand
feature. The first rating (long-term rating) addresses the likelihood of
repayment of principal and interest when due, and the second rating (short-
term rating) describes the demand characteristics. Several examples are
AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term and the short-
term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
MOODY'S INVESTORS SERVICE, INC.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's short-term ratings are designated Moody's Investment Grade (MIG or
VMIG) (see below)).
The purpose of the MIG or VMIG ratings is to provide investors with a simple
system by which the relative investment qualities of short-term obligations
may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the
first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The VMIG
rating can be assigned a 1 or 2 designation using the same definitions
described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-
1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries,
high rates of return on funds employed, conservative capitalization
structure with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal
cash generation, well-established access to a range of financial markets and
assured sources of alternate liquidity
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes is can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to
securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt
rated "AAA" by S&P or "Aaa" by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt
rated "AA" by S&P or "Aa" by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt
rated "A" by S&P or Moody's.
CUSIP 314282104
