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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, management investment company (a mutual
fund). The Trust invests in short-term municipal securities to provide dividend
income exempt from federal regular income taxes 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,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Trust, contact the Trust
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1997
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
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
TRUST INFORMATION 6
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Management of the Trust 6
Distribution of Shares 7
Administration of the Trust 7
NET ASSET VALUE 8
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HOW TO PURCHASE SHARES 9
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HOW TO REDEEM SHARES 9
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ACCOUNT AND SHARE INFORMATION 10
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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 32
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ADDRESSES 33
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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 would have been 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
------ ------- ------- --------
<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 32.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<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 0.03 0.04 0.02 0.02 0.03 0.04 0.06 0.06 0.05 0.04
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LESS
DISTRIBUTIONS
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Distributions
from net
investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.06) (0.06) (0.05) (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
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TOTAL
RETURN (A) 3.18% 3.57% 2.43% 2.18% 2.88% 4.49% 5.68% 6.03% 4.87% 4.11%
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RATIOS TO
AVERAGE NET
ASSETS
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Expenses 0.45% 0.45% 0.45% 0.46% 0.46% 0.46% 0.45% 0.45% 0.45% 0.44%
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Net
investment
income 3.12% 3.51% 2.38% 2.16% 2.84% 4.40% 5.54% 5.86% 4.74% 4.01%
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SUPPLEMENTAL
DATA
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Net
assets,
end of
period
(000
omitted) $747,785 $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
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</TABLE>
(a) Based on net asset value, which does not reflect the sales charge 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,
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 over a 90-day
period is required.
The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide dividend income exempt from
federal regular income taxes while seeking relative stability of principal. This
investment objective cannot be changed without shareholder approval. While there
is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by complying with the diversification and other requirements
of Rule 2a-7 under the Investment Company Act of 1940 which regulates money
market mutual funds and by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing primarily in a portfolio
of municipal securities maturing in one year or less. 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.
As a matter of investment policy, which cannot be changed without shareholder
approval, 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.)
ACCEPTABLE INVESTMENTS. The Trust invests primarily in debt obligations issued
by or on behalf of states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax ("Municipal Securities").
Examples of Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
- participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the
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, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Trust and affect its share
price. 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.
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,
including non-negotiable time deposits 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. The Trust's concentration in Municipal Securities may
entail a greater level of risk than other types of money market funds.
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. These investment limitations cannot be changed without shareholder
approval.
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 the Trust's average daily net assets. 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.
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 $76 billion invested across
more than 338 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the 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.
ADMINISTRATION OF THE TRUST
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 the average daily net asset value of its shares, computed at an
annual rate, to obtain certain personal services for shareholders and to
maintain shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
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<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
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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 Shareholder 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 Shareholders 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.
HOW TO REDEEM SHARES
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Shares are redeemed at their net asset value next determined after Federated
Shareholders 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 minimum 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 on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the 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 Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the 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
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Trust or
Federated Shareholder 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 owned by a shareholder gives that
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, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the 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, Donnelly and Meck, 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, yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the 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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--100.1%
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
ALABAMA--2.8%
---------------------------------------------------------------
$ 1,700,000 Birmingham, AL Medical Clinic Board Daily VRDNs (University of
Alabama Health System)/(Morgan Guaranty Trust Co., New York
LOC) $ 1,700,000
---------------------------------------------------------------
2,000,000 Birmingham, AL, (Series 1995) Weekly VRDNs (First Alabama Bank,
Birmingham LOC) 2,000,000
---------------------------------------------------------------
4,600,000 Birmingham, AL, GO (Series 1992A) Weekly VRDNs (First Alabama
Bank, Birmingham LOC) 4,600,000
---------------------------------------------------------------
1,300,000 Bon Air, AL IDB Weekly VRDNs (Avondale Mills, Inc.)/(SunTrust
Bank, Atlanta LOC) 1,300,000
---------------------------------------------------------------
4,000,000 Chatom, AL, IDB PCR, 3.70% CP (Alabama Electric Co-op, Inc.)/
(National Rural Utilities Cooperative Finance Corp. GTD),
Mandatory Tender 2/14/1997 4,000,000
---------------------------------------------------------------
4,000,000 Jefferson County, AL, Sewer Revenue Warrants (Series 1995-A)
Weekly VRDNs (Bayerische Landesbank Girozentrale LOC) 4,000,000
---------------------------------------------------------------
1,425,000 Marshall County, AL, Special Obligation School Refunding
Warrant (Series 1994) Weekly VRDNs (Marshall County, AL Board
of Education)/(First Alabama Bank, Birmingham LOC) 1,425,000
---------------------------------------------------------------
2,000,000 Montgomery, AL BMC Special Care Facilities Finance Authority,
(Series 94A) Weekly VRDNs (Baptist Medical Center, AL)/
(Amsouth Bank N.A., Birmingham LOC) 2,000,000
--------------------------------------------------------------- ------------
Total 21,025,000
--------------------------------------------------------------- ------------
ALASKA--0.7%
---------------------------------------------------------------
5,000,000 Anchorage, AK, 4.25% TANs, 12/13/1996 5,001,375
--------------------------------------------------------------- ------------
ARIZONA--3.3%
---------------------------------------------------------------
11,600,000 Maricopa County, AZ, PCR (Series 1994C) Daily VRDNs (Arizona
Public Service Corp.)/(Toronto-Dominion Bank LOC) 11,600,000
---------------------------------------------------------------
5,000,000 Pima County, AZ IDA Weekly VRDNs (Tucson Electric Power Co.)/
(Barclays Bank PLC, London LOC) 5,000,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
ARIZONA--CONTINUED
---------------------------------------------------------------
$ 8,100,000 Pima County, AZ IDA, (Series A) Weekly VRDNs (Tucson Electric
Power Co.)/(Barclays Bank PLC, London LOC) $ 8,100,000
--------------------------------------------------------------- ------------
Total 24,700,000
--------------------------------------------------------------- ------------
ARKANSAS--0.4%
---------------------------------------------------------------
3,265,000 Arkansas Development Finance Authority, Single Family Mortgage
Revenue bonds (1996 Series G), 3.70% TOBs, Mandatory Tender
11/5/1997 3,265,000
--------------------------------------------------------------- ------------
CALIFORNIA--7.8%
---------------------------------------------------------------
5,000,000 Alameda Unified School District, CA, 4.375% TRANs, 7/1/1997 5,015,376
---------------------------------------------------------------
8,000,000 California School Cash Reserve Program Authority, (Series A),
4.75% TRANs (MBIA Insurance Corporation INS), 7/2/1997 8,040,447
---------------------------------------------------------------
8,000,000 California State, (Series A), 4.50% RANs, 6/30/1997 8,023,570
---------------------------------------------------------------
14,000,000 California Statewide Communities Development Authority,
(1996 Series A), 4.75% TRANs (FSA INS), 6/30/1997 14,061,091
---------------------------------------------------------------
5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A),
4.75% TRANs (FSA INS), 6/30/1997 5,019,852
---------------------------------------------------------------
13,250,000 Pitney Bowes Credit Corp. Leasetops Trust, Leasetops
Certificates (Series 1996A) Weekly VRDNs (San Diego County, CA,
Regional Communications System)/(San Diego County, CA, Regional
Communications System LIQ)/(Landesbank Hessen-Thueringen,
Frankfurt LOC) 13,250,000
---------------------------------------------------------------
100,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA
Public Facility Finance)/(Commerzbank AG, Frankfurt and
National Westminster Bank, PLC, London LOCs) 100,000
---------------------------------------------------------------
5,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75%
TRANs, 6/30/1997 5,018,862
--------------------------------------------------------------- ------------
Total 58,529,198
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
COLORADO--1.4%
---------------------------------------------------------------
$ 4,600,000 Denver, CO City & County Airport Authority, Subordinate Lien
Revenue Bonds (Series C), 6.00% Bonds (Toronto-Dominion Bank
LOC), 4/1/1997 (@100) $ 4,632,654
---------------------------------------------------------------
5,820,000 Loveland, CO, IDR (Series 1993S), 3.65% TOBs (Safeway, Inc.)/
(Bankers Trust Co., New York LOC), Mandatory Tender
12/1/1996-6/2/1997 5,820,000
--------------------------------------------------------------- ------------
Total 10,452,654
--------------------------------------------------------------- ------------
CONNECTICUT--1.5%
---------------------------------------------------------------
10,830,000 Connecticut State Transportation Infrastructure Authority
Weekly VRDNs (Connecticut State)/(Commerzbank AG, Frankfurt
LOC) 10,830,000
--------------------------------------------------------------- ------------
DELAWARE--0.5%
---------------------------------------------------------------
3,800,000 Delaware Health Facilities Authority, Revenue Bonds (Series
1988) Weekly VRDNs (Delaware Health Facilities Pooled Loan
Program)/ (MBIA Insurance Corporation INS)/(J.P. Morgan
Delaware, Wilmington LIQ) 3,800,000
--------------------------------------------------------------- ------------
FLORIDA--10.5%
---------------------------------------------------------------
9,940,000 Broward County, FL School District, (Series 1996A and 1996 B),
4.25% RANs, 4/24/1997 9,962,689
---------------------------------------------------------------
4,300,000 Collier County, FL HFA, Multi-Family Revenue Bonds (Series
1985) Weekly VRDNs (River Reach Project)/(Morgan Guaranty Trust
Co., New York LOC) 4,300,000
---------------------------------------------------------------
12,500,000 Dade County, FL HFA, Hospital Revenue Bonds (Series 1995)
Weekly VRDNs (Miami Children's Hospital Project)/
(AMBAC INS)/(SunTrust Bank, Atlanta LIQ) 12,500,000
---------------------------------------------------------------
12,000,000 Dade County, FL Water & Sewer System Weekly VRDNs (FGIC
INS)/(Commerzbank AG, Frankfurt LIQ) 12,000,000
---------------------------------------------------------------
5,000,000 Florida HFA Weekly VRDNs (Cornerstone Imaging, Inc.)/
(PNC Bank, N.A. LOC) 5,000,000
---------------------------------------------------------------
1,100,000 Florida HFA, Multi Family Housing Revenue Bonds (Series 1985TT)
Weekly VRDNs (River Oaks Project)/(Citibank NA, New York LOC) 1,100,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
FLORIDA--CONTINUED
---------------------------------------------------------------
$ 2,000,000 Gulf Breeze, FL, Variable Rate Demand Revenue Bonds (Series
1995A) Weekly VRDNs (Florida Municipal Bond Fund)/ (Barnett
Bank, N.A. LOC) $ 2,000,000
---------------------------------------------------------------
7,532,000 Orange County, FL, 3.65% CP (NationsBank, South LOC), Mandatory
Tender 12/11/1996 7,532,000
---------------------------------------------------------------
4,000,000 Orange County, FL, Health Facilities Authority Weekly VRDNs
(Mayflower Retirement Community)/(Rabobank Nederland,
Utrecht LOC) 4,000,000
---------------------------------------------------------------
2,000,000 Pinellas County, FL Health Facility Authority, (Series 1987)
Weekly VRDNs (St. Mark Village Project)/(NationsBank, South
LOC) 2,000,000
---------------------------------------------------------------
3,000,000 Putnam County, FL Development Authority, PCR Bonds (Series
1984H) Weekly VRDNs (Seminole Electric Cooperative, Inc
(FL))/(National Rural Utilities Cooperative Finance Corp. LOC) 3,000,000
---------------------------------------------------------------
15,000,000 Tampa, FL, Occupational License Tax Bonds (Series 1996A) Weekly
VRDNs (FGIC INS)/(FGIC LIQ) 15,000,000
--------------------------------------------------------------- ------------
Total 78,394,689
--------------------------------------------------------------- ------------
GEORGIA--4.8%
---------------------------------------------------------------
15,000,000 Cobb-Marietta, GA Coliseum & Exhibit Hall Authority, Junior
Lien Revenue Bonds (Series 1996A) Weekly VRDNs (MBIA Insurance
Corporation INS)/(Canadian Imperial Bank of Commerce, Toronto
LIQ) 15,000,000
---------------------------------------------------------------
2,885,000 Fulco, GA Hospital Authority Weekly VRDNs (Piedmont Hospital)/
(SunTrust Bank, Atlanta LOC) 2,885,000
---------------------------------------------------------------
10,000,000 Fulton County, GA Housing Authority, Multifamily Housing
Revenue Refunding Bonds (Series 1994) Weekly VRDNs (Spring
Creek Crossing Project)/(Wachovia Bank of Georgia NA, Atlanta
LOC) 10,000,000
---------------------------------------------------------------
3,000,000 Marietta, GA Housing Authority, Multifamily Housing Revenue
Refunding Bonds (Series 1996) Weekly VRDNs (Winterset
Apartments Project)/(Wachovia Bank of Georgia NA, Atlanta LOC) 3,000,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
GEORGIA--CONTINUED
---------------------------------------------------------------
$ 4,900,000 Rockdale County, GA Hospital Authority, Revenue Anticipation
Certificates (Series 1994) Weekly VRDNs (Rockdale Hospital)/
(SunTrust Bank, Atlanta LOC) $ 4,900,000
--------------------------------------------------------------- ------------
Total 35,785,000
--------------------------------------------------------------- ------------
ILLINOIS--8.9%
---------------------------------------------------------------
13,100,000 Chicago, IL, GO (Series 1996), 3.10% TOBs (Landesbank Hessen-
Thueringen, Frankfurt LOC), Mandatory Tender 2/4/1997 13,100,000
---------------------------------------------------------------
18,000,000 Illinois Development Finance Authority, (Series 1994) Weekly
VRDNs (Museum of Contemporary Art)/(Harris Trust & Savings
Bank, Chicago, Lasalle National Bank, Chicago, NBD Bank,
Michigan and Northern Trust Co., Chicago, IL LOCs) 18,000,000
---------------------------------------------------------------
15,000,000 Illinois Development Finance Authority, PCR, (Series 1996B)
Weekly VRDNs (Commonwealth Edison Co.)/(AMBAC INS)/
(Bank of New York, New York LIQ) 15,000,000
---------------------------------------------------------------
17,500,000 Illinois Health Facilities Authority Weekly VRDNs (OSF Health
Care Systems) 17,500,000
---------------------------------------------------------------
2,670,000 Rockford, IL, EDRB, 4.45% TOBs (Independence Village of
Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/1996 2,670,000
--------------------------------------------------------------- ------------
Total 66,270,000
--------------------------------------------------------------- ------------
INDIANA--1.2%
---------------------------------------------------------------
5,000,000 Indiana Bond Bank, Advance Funding Program Notes
(Series 1996 A-2), 4.25% BANs, 1/9/1997 5,003,872
---------------------------------------------------------------
4,000,000 Indianapolis, IN Local Public Improvement Bond Bank,
(Series 1996 B), 4.25% BANs, 1/9/1997 4,001,883
--------------------------------------------------------------- ------------
Total 9,005,755
--------------------------------------------------------------- ------------
IOWA--1.2%
---------------------------------------------------------------
6,060,000 Indianola, IA Health Care Facility, Refunding Revenue Bonds
(Series 1992) Weekly VRDNs (The Village Project)/(Norwest Bank
Minnesota, Minneapolis LOC) 6,060,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
IOWA--CONTINUED
---------------------------------------------------------------
$ 2,500,000 Iowa Higher Education Loan Authority, Revenue Bonds Weekly
VRDNs (MBIA Insurance Corporation INS)/(Dai-Ichi Kangyo Bank
Ltd., Tokyo LIQ) $ 2,500,000
--------------------------------------------------------------- ------------
Total 8,560,000
--------------------------------------------------------------- ------------
KENTUCKY--1.9%
---------------------------------------------------------------
3,900,000 Kentucky Development Finance Authority Health Care System
Weekly VRDNs (Appalachian Regional Healthcare System)/
(Abn-Amro BKN.V. LOC) 3,900,000
---------------------------------------------------------------
10,000,000 Kentucky Interlocal School Transportation Association, (Series
A), 4.05% TRANs, 6/30/1997 10,000,000
--------------------------------------------------------------- ------------
Total 13,900,000
--------------------------------------------------------------- ------------
MARYLAND--2.7%
---------------------------------------------------------------
1,700,000 Baltimore County, MD Port Facility Monthly VRDNs (Occidental
Petroleum Corp.)/(Morgan Guaranty Trust Co., New York LOC) 1,700,000
---------------------------------------------------------------
800,000 Baltimore County, MD, (Series 1992) Weekly VRDNs (Sheppard &
Enoch Pratt Hospital Facility)/(Societe Generale, Paris LOC) 800,000
---------------------------------------------------------------
3,700,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, Inc.)/(Barclays
Bank PLC, London LOC) 3,700,000
---------------------------------------------------------------
1,000,000 Frederick County, MD, Revenue Bonds (Series 1995) Weekly VRDNs
(Sheppard Pratt Residential Treatment Facility)/(Societe
Generale, Paris LOC) 1,000,000
---------------------------------------------------------------
4,000,000 Montgomery County, MD, EDR Weekly VRDNs (Howard Hughes Medical
Center) 4,000,000
---------------------------------------------------------------
5,600,000 Queen Annes County, MD Economic Development Revenue, (Series
1994), 3.65% TOBs (Safeway, Inc.)/(Bankers Trust Co.,
New York LOC), Mandatory Tender 12/1/1996-6/2/1997 5,600,000
---------------------------------------------------------------
2,500,000 University of Maryland, Revolving Equipment Loan Program
(Series A) Weekly VRDNs (Student Loan Marketing Association
LIQ) 2,500,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
MARYLAND--CONTINUED
---------------------------------------------------------------
$ 1,000,000 Washington Suburban Sanitation District, MD, (1996 Series)
Weekly VRDNs (Westdeutsche Landesbank Girozentrale LIQ) $ 1,000,000
--------------------------------------------------------------- ------------
Total 20,300,000
--------------------------------------------------------------- ------------
MASSACHUSETTS--1.1%
---------------------------------------------------------------
8,500,000 Massachusetts Bay Transit Authority, (Series C), 3.60% CP
(Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender
1/24/1997 8,500,000
--------------------------------------------------------------- ------------
MICHIGAN--2.8%
---------------------------------------------------------------
3,000,000 Bruce Township, MI Hospital Finance Authority, Tender
Securities (ARTS) Weekly VRDNs (Sisters of Charity Health Care
System)/ (MBIA Insurance Corporation INS)/(Morgan Guaranty
Trust Co., New York LIQ) 3,000,000
---------------------------------------------------------------
3,600,000 Michigan State Hospital Finance Authority, (Series A) Weekly
VRDNs (OSF Health Care Systems) 3,600,000
---------------------------------------------------------------
3,000,000 Michigan State Housing Development Authority, Rental Housing
Revenue Bonds (1994 Series C) Weekly VRDNs (Credit Suisse,
Zurich LOC) 3,000,000
---------------------------------------------------------------
10,000,000 Michigan Underground Storage Tank Financial Assurance
Authority, (Series I), 3.55% CP (Canadian Imperial Bank of
Commerce, Toronto LOC), Mandatory Tender 2/5/1997 10,000,000
---------------------------------------------------------------
1,485,000 Sterling Heights, MI Economy Development Corp., Limited
Obligation Revenue Refunding Bonds Weekly VRDNs (Sterling
Shopping Center Associates Project)/(NBD Bank, Michigan LOC) 1,485,000
--------------------------------------------------------------- ------------
Total 21,085,000
--------------------------------------------------------------- ------------
MINNESOTA--10.9%
---------------------------------------------------------------
8,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding
Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA
INS)/(Credit Local de France LIQ) 8,000,000
---------------------------------------------------------------
10,300,000 Burnsville, MN, Variable Rate Demand Revenue Bonds (Series
1996) Weekly VRDNs (YMCA Projects)/(Norwest Bank Minnesota,
Minneapolis LOC) 10,300,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
MINNESOTA--CONTINUED
---------------------------------------------------------------
$ 7,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN
GTD) $ 7,000,000
---------------------------------------------------------------
4,000,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995) Weekly
VRDNs (Walker Methodist Health Center, Inc. Project)/(First
Bank NA, Minneapolis LOC) 4,000,000
---------------------------------------------------------------
10,000,000 Minneapolis, MN, (Series 1993) Weekly VRDNs (Market Square Real
Estate, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 10,000,000
---------------------------------------------------------------
3,200,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 3,200,000
---------------------------------------------------------------
8,000,000 Minnesota Agricultural and Economic Development Board, (Series
1996) Weekly VRDNs (Evangelical Lutheran Good Samaritan
Society)/(Rabobank Nederland, Utrecht LOC) 8,000,000
---------------------------------------------------------------
2,100,000 Owatonna, MN, Hospital Revenue Bonds Weekly VRDNs (Health
Central System)/(Norwest Bank Minnesota, Minneapolis LOC) 2,100,000
---------------------------------------------------------------
6,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo
Foundation) 6,000,000
---------------------------------------------------------------
6,500,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo
Foundation) 6,500,000
---------------------------------------------------------------
14,450,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch
Refining Co.) 14,450,000
---------------------------------------------------------------
940,000 St. Louis Park Hennepin County, MN Weekly VRDNs 940,000
---------------------------------------------------------------
725,000 St. Louis Park Hennepin County, MN, (Series A) Weekly VRDNs 725,000
--------------------------------------------------------------- ------------
Total 81,215,000
--------------------------------------------------------------- ------------
MISSOURI--3.2%
---------------------------------------------------------------
5,800,000 Missouri State Environmental Improvement & Energy Authority,
(Series 1993M) Weekly VRDNs (Associated Electric Cooperative,
Inc.)/(National Rural Utilities Cooperative Finance Corp. GTD) 5,800,000
---------------------------------------------------------------
13,370,000 Missouri State Environmental Improvement & Energy Authority,
Pollution Control Revenue Bonds Series 1985 B, 3.65% CP (Union
Electric Co.)/(Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 6/12/1997 13,370,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
MISSOURI--CONTINUED
---------------------------------------------------------------
$ 5,000,000 Missouri State Environmental Improvement & Energy Authority,
Pollution Control Revenue Bonds Series 1985 B, 3.90% CP (Union
Electric Co.)/(Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 10/9/1997 $ 5,000,000
--------------------------------------------------------------- ------------
Total 24,170,000
--------------------------------------------------------------- ------------
NEW YORK--4.0%
---------------------------------------------------------------
5,000,000 Nassau County, NY, (Series 1996A), 4.00% RANs, 3/5/1997 5,007,842
---------------------------------------------------------------
10,000,000 New York City, NY, (Series A), 4.50% TANs, 2/12/1997 10,014,001
---------------------------------------------------------------
15,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia,
Toronto, Canadian Imperial Bank of Commerce, Toronto and
Commerzbank AG, Frankfurt LOCs), 6/30/1997 15,066,447
--------------------------------------------------------------- ------------
Total 30,088,290
--------------------------------------------------------------- ------------
NORTH CAROLINA--4.9%
---------------------------------------------------------------
20,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs (Weyerhaeuser
Co.) 20,000,000
---------------------------------------------------------------
16,915,000 NCNB Pooled Tax-Exempt Trust , (Series 1990A) Weekly VRDNs
(NCNB Tax Exempt Trust 1990a)/(Nationsbank, N.A. LOC) 16,915,000
--------------------------------------------------------------- ------------
Total 36,915,000
--------------------------------------------------------------- ------------
OHIO--2.5%
---------------------------------------------------------------
800,000 Akron, OH, Sanitary Sewer System Revenue Bonds Weekly VRDNs
(Credit Suisse, Zurich LOC) 800,000
---------------------------------------------------------------
3,885,000 Franklin County, OH Hospital Facility Authority, (Series 1992)
Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati
LOC) 3,885,000
---------------------------------------------------------------
3,700,000 Hamilton County, OH Health System Weekly VRDNs (West Park
Community)/(Fifth Third Bank, Cincinnati LOC) 3,700,000
---------------------------------------------------------------
2,540,000 Marion County, OH Hospital Authority, (Series 1991) Weekly
VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One,
Columbus, N.A. LOC) 2,540,000
---------------------------------------------------------------
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs
(Timken Co.)/(Credit Suisse, Zurich LOC) 1,000,000
---------------------------------------------------------------
</TABLE>
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
OHIO--CONTINUED
---------------------------------------------------------------
$ 1,250,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series
1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth
Third Bank, Cincinnati LOC) $ 1,250,000
---------------------------------------------------------------
5,500,000 University of Cincinnati, OH, General Receipts (Series N),
3.75% BANs, 3/20/1997 5,507,148
--------------------------------------------------------------- ------------
Total 18,682,148
--------------------------------------------------------------- ------------
OKLAHOMA--2.2%
---------------------------------------------------------------
2,640,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly VRDNs
(Muskogee Mall Limited Partnership)/(Boatmen's National Bank of
St. Louis LOC) 2,640,000
---------------------------------------------------------------
3,810,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly VRDNs
(Warmack Musskogee Limited Partnership)/(Boatmen's National
Bank of St. Louis LOC) 3,810,000
---------------------------------------------------------------
10,000,000 Oklahoma State Industrial Authority, Flexible Rate Hospital
Revenue Bonds (Series 1990B) Weekly VRDNs (Baptist Medical
Center, OK)/ (Credit Suisse, Zurich and Morgan Guaranty Trust
Co., New York LIQs) 10,000,000
--------------------------------------------------------------- ------------
Total 16,450,000
--------------------------------------------------------------- ------------
PENNSYLVANIA--1.8%
---------------------------------------------------------------
3,000,000 Allegheny County, PA HDA, Hosp Revenue Bonds (Series B 1995)
Weekly VRDNs (Allegheny General Hospital)/(Morgan Guaranty
Trust Co., New York LOC) 3,000,000
---------------------------------------------------------------
7,000,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia
Electric Co.)/(FGIC INS), Mandatory Tender 1/9/1997 7,000,000
---------------------------------------------------------------
3,000,000 Delaware County, PA PCR, 3.60% CP (Philadelphia Electric Co.)/
(FGIC INS), Mandatory Tender 1/16/1997 3,000,000
---------------------------------------------------------------
500,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent
Health System)/(Mellon Bank NA, Pittsburgh LOC) 500,000
--------------------------------------------------------------- ------------
Total 13,500,000
--------------------------------------------------------------- ------------
PUERTO RICO--1.6%
---------------------------------------------------------------
12,000,000 Puerto Rico Government Development Bank, 3.35% CP, Mandatory
Tender 12/13/1996 12,000,000
--------------------------------------------------------------- ------------
</TABLE>
22
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
RHODE ISLAND--0.3%
---------------------------------------------------------------
$ 2,200,000 Rhode Island Housing & Mortgage Finance Corp, (Series 19-C),
3.45% TOBs (Societe Generale, Paris INV), Mandatory Tender
1/30/1997 $ 2,200,000
--------------------------------------------------------------- ------------
TENNESSEE--3.9%
---------------------------------------------------------------
17,000,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/ (SunTrust
Bank, Atlanta LOC) 17,000,000
---------------------------------------------------------------
2,305,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
(Series 1985B), 3.70% TOBs (Vanderbilt University), Optional
Tender 5/1/1997 2,305,000
---------------------------------------------------------------
4,855,000 Shelby County, TN Health Education & Housing Facilities Board,
(Series C), 4.05% TOBs (Methodist Health System, Inc.)/(MBIA
Insurance Corporation INS)/(Sanwa Bank Ltd, Osaka LIQ),
Optional Tender 8/1/1997 4,855,000
---------------------------------------------------------------
5,120,000 Tennessee State School Board Authority, (Series 1996A) Weekly
VRDNs (Union Bank of Switzerland, Zurich LIQ) 5,120,000
--------------------------------------------------------------- ------------
Total 29,280,000
--------------------------------------------------------------- ------------
TEXAS--3.3%
---------------------------------------------------------------
3,990,000 Dallas, TX, (Series C), 3.75% TOBs, Optional Tender 6/15/1997 3,990,000
---------------------------------------------------------------
5,000,000 TX Pooled Tax Exempt Trust, Certificates of Participation
(Series 1996) Weekly VRDNs (Bank One, Texas N.A. LOC) 5,000,000
---------------------------------------------------------------
15,500,000 Texas State, 4.75% TRANs, 8/29/1997 15,587,984
--------------------------------------------------------------- ------------
Total 24,577,984
--------------------------------------------------------------- ------------
VERMONT--1.1%
---------------------------------------------------------------
8,000,000 Vermont IDA Weekly VRDNs (Wallace Computer, Inc.)/(Wachovia
Bank of NC, NA, Winston-Salem LOC) 8,000,000
--------------------------------------------------------------- ------------
VIRGINIA--1.0%
---------------------------------------------------------------
7,800,000 Roanoke, VA IDA, Hospital Revenue Bonds (Series 1995C) Weekly
VRDNs (Carillion Health System)/(Morgan Guaranty Trust Co., New
York LIQ) 7,800,000
--------------------------------------------------------------- ------------
</TABLE>
23
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <C> <S> <C>
WEST VIRGINIA--0.6%
---------------------------------------------------------------
$ 4,740,000 West Virginia University Board of Regents, 3.50% TOBs (Morgan
Guaranty Trust Co., New York LOC), Optional Tender 2/1/1997 $ 4,740,000
--------------------------------------------------------------- ------------
WISCONSIN--1.9%
---------------------------------------------------------------
6,000,000 Milwaukee, WI, (Series 1996-A), 3.50% RANs, 2/27/1997 6,007,001
---------------------------------------------------------------
8,000,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds (Series 1994) Weekly VRDNs (Felician Health Care, Inc.
Project)/(Lasalle National Bank, Chicago LOC) 8,000,000
--------------------------------------------------------------- ------------
Total 14,007,001
--------------------------------------------------------------- ------------
WYOMING--0.9%
---------------------------------------------------------------
2,500,000 Sweetwater County, WY IDA, PCR Refunding Bonds (Series 1994)
Daily VRDNs (Pacificorp)/(AMBAC INS)/(Bank of New York,
New York LIQ) 2,500,000
---------------------------------------------------------------
4,590,000 Wyoming Community Development Authority, (Series 1986C), 3.70%
TOBs (First National Bank of Chicago LIQ), Optional Tender
12/1/1996 4,590,000
--------------------------------------------------------------- ------------
Total 7,090,000
--------------------------------------------------------------- ------------
OTHER--2.5%
---------------------------------------------------------------
13,782,040 Equity Trust I, (1996 Series) Weekly VRDNs (Bayerische
Hypotheken-Und Wechsel-Bank Ag LOC) 13,782,040
---------------------------------------------------------------
4,999,567 LaSalle National Bank Leasetops Trust, Series 1995A Leasetops
Certificates Weekly VRDNs (Lasalle National Bank, Chicago LIQ)/
(Lasalle National Bank, Chicago LOC) 4,999,567
--------------------------------------------------------------- ------------
Total 18,781,607
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $748,900,701
--------------------------------------------------------------- ------------
</TABLE>
(a) Also represents cost for federal tax purposes amounts to 748,722,137.
Note: The categories of investments are shown as a percentage of net assets
($747,784,969) at November 30, 1996.
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
CDA --Community Development Administration
CP --Commercial Paper
EDR --Economic Development Revenue
EDRB --Economic Development Revenue Bonds
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
GTD --Guaranty
HDA --Hospital Development Authority
HEFA --Health and Education Facilities Authority
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDR --Industrial Development Revenue
IFA --Industrial Finance Authority
INS --Insured
INV --Investment Agreement
LIQ --Liquidity Agreement
LOCs --Letters of Credit
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
PLC --Public Limited Company
RANs --Revenue Anticipation Notes
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
TRANs --Tax and Revenue Anticipation Notes
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $748,900,701
- --------------------------------------------------------------------------------
Cash 861,437
- --------------------------------------------------------------------------------
Income receivable 5,584,201
- --------------------------------------------------------------------------------
Receivable for shares sold 7,651
- -------------------------------------------------------------------------------- ------------
Total assets 755,353,990
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $5,665,571
- -------------------------------------------------------------------
Income distribution payable 1,793,383
- -------------------------------------------------------------------
Accrued expenses 110,067
- ------------------------------------------------------------------- ----------
Total liabilities 7,569,021
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 747,801,341 shares outstanding $747,784,969
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $747,793,482
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (8,513)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $747,784,969
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
$747,784,969 / 747,801,341 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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $29,135,781
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 3,255,470
- --------------------------------------------------------------------
Administrative personnel and services fee 615,257
- --------------------------------------------------------------------
Custodian fees 92,479
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 57,071
- --------------------------------------------------------------------
Directors'/Trustees' fees 18,025
- --------------------------------------------------------------------
Auditing fees 16,350
- --------------------------------------------------------------------
Legal fees 5,854
- --------------------------------------------------------------------
Portfolio accounting fees 122,469
- --------------------------------------------------------------------
Shareholder services fee 2,034,669
- --------------------------------------------------------------------
Share registration costs 20,418
- --------------------------------------------------------------------
Printing and postage 12,723
- --------------------------------------------------------------------
Insurance premiums 8,421
- --------------------------------------------------------------------
Taxes 22,496
- --------------------------------------------------------------------
Miscellaneous 11,486
- -------------------------------------------------------------------- -----------
Total expenses 6,293,188
- --------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------
Waiver of investment advisory fee $ (960,485)
- ------------------------------------------------------
Waiver of shareholder services fee (1,627,735)
- ------------------------------------------------------ -----------
Total waivers (2,588,220)
- -------------------------------------------------------------------- -----------
Net expenses 3,704,968
- ----------------------------------------------------------------------------------- -----------
Net investment income 25,430,813
- -----------------------------------------------------------------------------------
Net realized loss on investments (6,253)
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $25,424,560
- ----------------------------------------------------------------------------------- -----------
</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,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 25,430,813 $ 36,296,822
- ------------------------------------------------------------
Net realized gain (loss) on investments ($18,018 and $1,341
net losses, respectively, as computed for federal tax
purposes) (6,253) 9,580
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from operations 25,424,560 36,306,402
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income (25,430,813) (36,296,822)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 2,635,145,132 3,371,354,462
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 2,446,492 2,688,363
- ------------------------------------------------------------
Cost of shares redeemed (2,697,169,818) (3,782,230,461)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions (59,578,194) (408,187,636)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets (59,584,447) (408,178,056)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 807,369,416 1,215,547,472
- ------------------------------------------------------------ --------------- ---------------
End of period $ 747,784,969 $ 807,369,416
- ------------------------------------------------------------ --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
(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. The investment objective of the Trust is divided
income exempt from federal regular income tax while seeking relative stability
of principal.
(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's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
expiring capital loss carryforwards. The following reclassifications have
been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS
----------------- --------------
<S> <C>
($7,859) $7,859
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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, 1996, the Trust, for federal tax purposes, had a capital
loss carryforward of $31,199, 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
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
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 $11,840
2003 $ 1,341
2004 $18,018
</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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1996, capital paid-in aggregated $747,801,369. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1996 1995
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 2,635,145,132 3,371,354,462
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,446,492 2,688,363
- -------------------------------------------------------------
Shares redeemed (2,697,169,818) (3,782,230,461)
- ------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (59,578,194) (408,187,636)
- ------------------------------------------------------------- -------------- --------------
</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 the Trust's average daily net assets. The Adviser will waive,
to the extent of its advisory fee, the amount, if any, by which the Trust's
aggregate annual operating expenses exceed 0.45% of average daily net assets of
the Trust.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
FEDERATED TAX-FREE TRUST
- --------------------------------------------------------------------------------
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 average daily net assets of the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Trust. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the 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, 1996, 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 $1,560,705,000 and $1,094,545,000, 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,
1996, and the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended November 30, 1996 and
1995, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
November 30, 1996 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Tax-Free
Trust as of November 30, 1996, 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.
Pittsburgh, Pennsylvania
January 14, 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 & P.O. Box 8600
Trust Co. Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------------
Independent Public Accountants
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, 1997
LOGO
Cusip 314282104
8010414A (1/97)
