PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Tax-Free Trust, which covers the six-month reporting period from December 1,
1996, through May 31, 1997. The report contains commentary by the portfolio
manager, followed by a complete listing of the fund's investments on the
last day of the reporting period, and the financial statements.
This money market fund pursues current income exempt from federal income
taxes with the additional advantages of daily liquidity and stability of
principal.* At the end of the reporting period, the trust's portfolio was
invested in securities issued by municipalities across the U.S.
Tax-free dividends paid to shareholders during the reporting period totaled
$0.02 per share.** At the end of the period, the trust's net assets stood at
$689.4 million.
Thank you for selecting Federated Tax-Free Trust as a daily cash investment.
We welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1997
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment
in the fund is not insured or guaranteed by the U.S. government.
** Income may be subject to the federal alternative minimum tax and state
and local taxes.
INVESTMENT REVIEW
Q Can you comment on the economy and the interest rate environment over the
semi-annual reporting period?
A Although it did not occur until near the end of the reporting period for
the trust, the Federal Reserve Board (the Fed) brought about the first
change in monetary policy in over a year. On March 25, 1997, the Fed voted
to raise the federal funds target rate from 5.25% to 5.50%, in the face of
stronger than expected demand. The move was viewed as being preemptive
against the threat of future inflationary pressures brought about by tight
labor market conditions. Until that point, movements in interest rates
reflected shifting market sentiment about the need for the Fed to move to a
more restrictive policy. The second quarter of 1996 was characterized by
much stronger than expected growth, fueled by consumer spending and housing.
Signs of moderating growth began to emerge in the third quarter, temporarily
allaying the market's fears about inflation, but then picked up once again
through the fourth quarter of 1996 and into early 1997. With inflation still
appearing to be benign, the market tolerated the pace of growth over this
period. However, Fed Chairman Alan Greenspan's testimony before Congress in
late February 1997, marked a turning point for the short-term government
market, indeed the bond and equity markets as well, as his relatively
hawkish statements revealed fears at the Fed that the transitory factors
that had been keeping inflation under control in the face of fairly robust
growth may be coming to an end. The ensuing weeks brought continued evidence
of persistent strength, and ended in the Fed's action at the Federal Open
Market Committee in late March 1997.
For most of the reporting period, movements in short-term interest rates
bounced back and forth as sentiment regarding the need for a more
restrictive policy swayed back and forth. Rates traded within a range over
the fourth quarter and into early 1997 -- with the six-month Treasury bill
moving between 5.20% to 5.40%, as a friendly inflation picture provided some
comfort to market participants. Finally, rates began to rise in late
February 1997, and by the time of the Fed tightening in late March 1997, the
market had built in much of the expectations regarding the move. In April
1997, the financial markets continued to focus on the likelihood of an
additional tightening in May 1997, causing short-term yields to rise
further. Yields on the six-month Treasury bill rose sharply over this
interim period, moving from a low of 5.20% in mid-February to a high of
5.68% in late April before falling back to 5.40% by the end of reporting
period.
Q What were your strategies for managing the trust during the semi-annual
reporting period?
A The trust's average maturity at the beginning of the reporting period was
approximately 53 days. The target remained 50 to 55 days through the third
and fourth quarters of 1996. As signs of strength in the economy became more
apparent, and as expectation of an imminent Fed tightening grew in the first
quarter of 1997, we lowered the average maturity target range of the trust
from between 50 and 55 days to between 40 and 45 days. By allowing the
average maturity of the portfolio to roll inward from the 50- to 55-day
range to a target range of 40 to 45 days, we were able to take advantage of
higher interest rates going forward.
Once an average maturity range is targeted, the portfolio attempts to
maximize performance through ongoing relative value analysis. Relative value
analysis includes the comparison of the richness or cheapness of municipal
securities to one another as well as municipal securities to taxable
instruments, such as Treasury securities. The trust's portfolio remained
barbelled in structure, which combined a significant portion in seven-day
variable rate demand notes and short maturity commercial paper with
purchases of longer term, six- to twelve-month fixed-rate notes. This
portfolio structure continued to pursue a competitive yield over time.
Q How has the trust performed during the six-month reporting period from
December 1, 1996, through May 31, 1997?
A The trust's average yield has remained relatively stable over the majority
of the reporting period since the Fed did not change their federal funds
rate target until the latter part of the reporting period. The seven-day net
yield for the trust on May 30, 1997, was 3.48% compared to 3.10% six months
ago with the increase in yield coming at the end of the reporting period.*
The latest yield was a taxable equivalent yield of a 5.76% for investors in
the highest federal tax bracket.
Q
Looking through 1997, what is your outlook for short-term rates?
A Although the Fed decided to hold short-term interest rates steady at its
May meeting, our expectations are that the Fed will find reason to tighten
monetary policy further in 1997. It is also anticipated that the overall
tightening cycle will not be long in terms of magnitude or duration. We
would look to see moderately higher short-term interest rates throughout the
course of the year, but not to the extent evidenced in the last tightening
cycle in 1994. Therefore, we will likely continue in our modestly defensive
stance for the portfolio until market conditions indicate otherwise.
* Performance quoted represents past performance and is not indicative of
future results. Yield will vary. The seven-day net yield is calculated
daily, based on the income dividends for the seven days ending on the date
of calculation and then compounded and annualized.
FEDERATED TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- 101.5%
ALABAMA -- 5.1%
$ 715,000 Anniston, AL, IDB, (Series 1989-A) Weekly VRDNs (Union Foundry
Co.)/(Amsouth Bank N.A., Birmingham LOC) $ 715,000
2,325,000 Birmingham, AL IDA, Revenue Refunding Bonds Weekly VRDNs
(S.P. Hotel Company)/(Amsouth Bank N.A., Birmingham LOC) 2,325,000
13,100,000 Birmingham, AL Medical Clinic Board Daily VRDNs (University of
Alabama Health System)/(Morgan Guaranty Trust Co.,
New York LOC) 13,100,000
2,000,000 Birmingham, AL, (Series 1995) Weekly VRDNs (Regions Bank,
Alabama LOC) 2,000,000
4,600,000 Birmingham, AL, GO (Series 1992A) Weekly VRDNs (Regions Bank,
Alabama LOC) 4,600,000
3,000,000 Chatom, AL, IDB PCR, 3.75% CP (Alabama Electric Co-op, Inc.)/
(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory
Tender 7/15/1997 3,000,000
7,500,000 Jefferson County, AL, GO Warrants (Series 1996) Weekly VRDNs
(Bayerische Landesbank Girozentrale LOC) 7,500,000
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 35,240,000
ALASKA -- 0.8%
5,700,000 Alaska State Housing Finance Corp., General Mortgage Revenue
Bonds (Series 1997A) Weekly VRDNs (Bank of America NT and SA,
San Francisco LIQ) 5,700,000
ARIZONA -- 0.8%
5,780,000 Glendale, AZ IDA, Variable Rate Senior Living Facilities Revenue
Bonds Weekly VRDNs (Friendship Retirement Corporation)/
(Norwest Bank Minnesota, Minneapolis LOC) 5,780,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
ARKANSAS -- 0.5%
$ 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 -- 5.4%
5,000,000 Alameda Unified School District, CA, 4.375% TRANs, 7/1/1997 5,002,176
8,000,000 California School Cash Reserve Program Authority, (Series A), 4.75%
TRANs (MBIA INS), 7/2/1997 8,005,887
14,000,000 California Statewide Communities Development Authority, (1996
Series A), 4.75% TRANs (FSA INS), 6/30/1997 14,008,396
5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A), 4.75%
TRANs (FSA INS), 6/30/1997 5,002,728
5,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75%
TRANs, 6/30/1997 5,002,592
Total 37,021,779
COLORADO -- 2.1%
9,000,000 Denver (City & County), CO, Airport System Subordinate Revenue
Bonds (Series 1991C) Weekly VRDNs (Toronto-Dominion Bank LOC) 9,000,000
5,640,000 Loveland, CO, IDR (Series 1993S), 3.90% TOBs (Safeway, Inc.)/
(Bankers Trust Co., New York LOC), Mandatory Tender 6/2/1997 5,640,000
Total 14,640,000
CONNECTICUT -- 0.3%
1,930,000 Connecticut State Transportation Infrastructure Authority Weekly
VRDNs (Connecticut State)/(Commerzbank AG, Frankfurt LOC) 1,930,000
DISTRICT OF COLUMBIA -- 1.1%
7,500,000 District of Columbia, Variable Rate Demand/Fixed Rate Revenue
Bonds (Series 1997) Weekly VRDNs (Children's Defense Fund)/
(First National Bank of Maryland, Baltimore LOC) 7,500,000
FLORIDA -- 5.9%
2,500,000 Alachua County, FL Health Facilities Authority, Health Facilities
Revenue Bonds (Series 1996B) Weekly VRDNs (Shands Teaching
Hospital and Clinics, Inc.)/(MBIA INS)/(SunTrust Bank, Central
Florida LIQ) 2,500,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
FLORIDA -- CONTINUED
$ 8,000,000 Florida HFA Weekly VRDNs (Cornerstone Imaging, Inc.)/(PNC Bank,
N.A. LOC) $ 8,000,000
14,000,000 Highlands County, FL Health Facilities, (Series 1996B Accounts
Receivable) Weekly VRDNs (Adventist Health System)/(Capital
Markets Assurance Corp. INS)/(Canadian Imperial Bank of
Commerce, Toronto LIQ) 14,000,000
6,000,000 Highlands County, FL Health Facilities, Variable Rate Demand
Revenue Bonds (Series 1996A) Weekly VRDNs (Adventist Health
System)/(SunTrust Bank, Central Florida LOC) 6,000,000
1,900,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds
Weekly VRDNs (Sutton Place Ltd. Project)/(Nationsbank, N.A.,
Charlotte LOC) 1,900,000
8,090,000 Orange County, FL, Health Facilities Authority Weekly VRDNs
(Mayflower Retirement Community)/(Rabobank Nederland, Utrecht
LOC) 8,090,000
Total 40,490,000
GEORGIA -- 3.2%
2,685,000 Fulco, GA Hospital Authority Weekly VRDNs (Piedmont Hospital)/
(SunTrust Bank, Atlanta LOC) 2,685,000
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 N.A., 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 N.A., Atlanta LOC) 3,000,000
6,300,000 Rockdale County, GA Hospital Authority, Revenue Anticipation
Certificates (Series 1994) Weekly VRDNs (Rockdale Hospital)/
(SunTrust Bank, Atlanta LOC) 6,300,000
Total 21,985,000
ILLINOIS -- 6.9%
10,000,000 Chicago, IL, GO Tender Notes (Series 1997), 3.65% TOBs (Morgan
Guaranty Trust Co., New York LOC), Mandatory Tender 2/5/1998 10,000,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
ILLINOIS -- CONTINUED
$ 500,000 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) $ 500,000
17,900,000 Illinois Health Facilities Authority Weekly VRDNs (OSF Health Care
Systems) 17,900,000
19,300,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1997)
Weekly VRDNs (Rehabilitation Institute of Chicago)/(Bank of
America Illinois LOC) 19,300,000
Total 47,700,000
INDIANA -- 2.6%
8,500,000 Indiana Bond Bank, Series A-2, 4.25% TANs (Norwest Bank
Minnesota, Minneapolis LOC), 1/21/1998 8,528,957
2,900,000 Indianapolis, IN Local Public Improvement Bond Bank, (Series E),
4.125% TANs, 7/10/1997 2,901,805
4,675,000 Indianapolis, IN Local Public Improvement Bond Bank, (Series F),
4.125% TANs, 7/10/1997 4,677,910
1,415,000 Marion, IN, Adjustable Rate EDRB's (Series 1997) Weekly VRDNs
(Synectic Partnership)/(Lasalle National Bank, Chicago LOC) 1,415,000
Total 17,523,672
IOWA -- 1.2%
5,970,000 Indianola, IA Health Care Facility, Refunding Revenue Bonds (Series
1992) Weekly VRDNs (The Village Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 5,970,000
2,500,000 Iowa Higher Education Loan Authority, Revenue Bonds Weekly
VRDNs (MBIA INS)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LIQ) 2,500,000
Total 8,470,000
KENTUCKY -- 1.5%
10,000,000 Kentucky Interlocal School Transportation Association, (Series A),
4.05% TRANs, 6/30/1997 10,000,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
MARYLAND -- 5.6%
$ 1,000,000 Baltimore County, MD Port Facility Monthly VRDNs (Occidental
Petroleum Corp.)/(Morgan Guaranty Trust Co., New York LOC) $ 1,000,000
800,000 Baltimore County, MD, (Series 1992) Weekly VRDNs (Sheppard &
Enoch Pratt Hospital Facility)/(Societe Generale, Paris LOC) 800,000
1,000,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, Inc.)/(Barclays
Bank PLC, London LOC) 1,000,000
13,555,000 Maryland Health & Higher Educational Facilities Authority, Revenue
Bonds (Series 1994) Weekly VRDNs (University Physicians, Inc.)/
(First National Bank of Maryland, Baltimore LOC) 13,555,000
9,300,000 Maryland Health & Higher Educational Facilities Authority, Series
1997 Weekly VRDNs (Augsburg Lutheran Home of MD., Inc.)/
(First National Bank of Maryland, Baltimore LOC) 9,300,000
4,000,000 Montgomery County, MD, EDR Weekly VRDNs (Howard Hughes
Medical Center) 4,000,000
5,510,000 Queen Annes County, MD Economic Development Revenue, (Series
1994), 3.90% TOBs (Safeway, Inc.)/(Bankers Trust Co., New York
LOC), Mandatory Tender 6/2/1997 5,510,000
3,500,000 Washington Suburban Sanitation District, MD, (1996 Series) Weekly
VRDNs (Westdeutsche Landesbank Girozentrale LIQ) 3,500,000
Total 38,665,000
MASSACHUSETTS -- 0.7%
4,973,000 North Andover, MA, 4.00% BANs, 1/22/1998 4,982,247
MICHIGAN -- 2.9%
5,100,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs
(OSF Health Care Systems) 5,100,000
1,000,000 Michigan State Housing Development Authority, Rental Housing
Revenue Bonds (1994 Series C) Weekly VRDNs (Credit Suisse, Zurich
LOC) 1,000,000
14,000,000 Michigan State, 4.50% TRANs, 9/30/1997 14,046,548
Total 20,146,548
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- 5.8%
$ 2,100,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding
Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA INS)/
(Credit Local de France LIQ) $ 2,100,000
10,000,000 Minneapolis, MN, (Series 1993) Weekly VRDNs (Market Square Real
Estate, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 10,000,000
3,500,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly
VRDNs (Bayerische Vereinsbank AG, Munich LIQ) 3,500,000
13,500,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo
Foundation) 13,500,000
11,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo
Foundation) 11,000,000
Total 40,100,000
MISSOURI -- 2.7%
13,370,000 Missouri State Environmental Improvement & Energy Authority,
Pollution Control Revenue Bonds Series 1985B, 3.65% CP (Union
Electric Co.)/(Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 6/12/1997 13,370,000
5,000,000 Missouri State Environmental Improvement & Energy Authority,
Pollution Control Revenue Bonds Series 1985B, 3.90% CP (Union
Electric Co.)/(Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 10/9/1997 5,000,000
Total 18,370,000
NEW MEXICO -- 1.7%
12,000,000 New Mexico State Highway Commission, Adjustable Tender
Subordinate Lien Tax Revenue Highway Bonds (Series 1996) Weekly
VRDNs (FSA INS)/(Canadian Imperial Bank of Commerce, Toronto
LIQ) 12,000,000
NEW YORK -- 4.5%
12,000,000 New York City Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds (Series 1995A) Daily VRDNs (FGIC INS)/
(FGIC Securities Purchase, Inc. LIQ) 12,000,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 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 $ 15,009,132
4,000,000 New York State Energy Research & Development Authority, (Series
1985A), 3.60% TOBs (Long Island Lighting Co.)/(Deutsche Bank, AG
LOC), Optional Tender 3/1/1998 4,000,000
Total 31,009,132
NORTH CAROLINA -- 4.9%
20,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs
(Weyerhaeuser Co.) 20,000,000
14,115,000 NCNB Pooled Tax-Exempt Trust, (Series 1990A) Weekly VRDNs
(NCNB Tax Exempt Trust 1990a)/(Nationsbank, N.A., Charlotte LOC) 14,115,000
Total 34,115,000
OHIO -- 2.4%
1,000,000 Columbus, OH Sewer System, Revenue Bonds (Series 1994) Weekly
VRDNs 1,000,000
3,700,000 Hamilton County, OH Health System Weekly VRDNs (West Park
Community)/(Fifth Third Bank, Cincinnati LOC) 3,700,000
1,390,000 Marion County, OH Hospital Authority, (Series 1991) Weekly VRDNs
(Marion County, OH Pooled Hospital Program)/(Bank One, Columbus,
N.A. LOC) 1,390,000
3,500,000 Montgomery County, OH Health Facilities Authority, (Series 1995)
Weekly VRDNs (Sisters of Charity Health Care System)/(Toronto-
Dominion Bank LIQ) 3,500,000
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs
(Timken Co.)/(Credit Suisse, Zurich LOC) 1,000,000
5,000,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs
(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) 5,000,000
1,150,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Medical Center Hospital Project)/(Fifth Third Bank,
Cincinnati LOC) 1,150,000
Total 16,740,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
OKLAHOMA -- 3.9%
$ 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
3,610,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly VRDNs (Warmack
Musskogee Limited Partnership)/(Boatmen's National Bank of
St. Louis LOC) 3,610,000
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
10,940,000 Tulsa, OK International Airport, Variable Rate Certificates (Series
1997B-2) Weekly VRDNs (MBIA INS)/(Bank of America NT and SA,
San Francisco LIQ) 10,940,000
Total 27,190,000
PENNSYLVANIA -- 0.9%
6,100,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health
System)/(Mellon Bank N.A., Pittsburgh LOC) 6,100,000
RHODE ISLAND -- 2.4%
16,400,000 Rhode Island State, GO Tax Anticipations Notes (1996 Series A), 3.95%
CP, Mandatory Tender 6/24/1997 16,400,000
TENNESSEE -- 4.2%
17,000,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust
Bank, Atlanta LOC) 17,000,000
2,185,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
(Series 1985B), 3.95% TOBs (Vanderbilt University), Optional Tender
5/1/1998 2,185,000
4,855,000 Shelby County, TN Health Education & Housing Facilities Board,
(Series C), 4.05% TOBs (Methodist Health System, Inc.)/(MBIA INS)/
(Sanwa Bank Ltd., Osaka LIQ), Optional Tender 8/1/1997 4,855,000
4,600,000 Tennessee State, Adjustable Bond Anticipation Note (Series A) Weekly
VRDNs (Tennessee Consolidated Retirement System LIQ) 4,600,000
Total 28,640,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
TEXAS -- 14.2%
$ 3,990,000 Dallas, TX, (Series C), 3.75% TOBs, Optional Tender 6/15/1997 $ 3,990,000
8,000,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist
Hospital, Harris County, TX) 8,000,000
11,600,000 Harris County, TX HFDC, Hospital Revenue Bonds (Series 1997) Daily
VRDNs (Methodist Hospital, Harris County, TX) 11,600,000
20,600,000 Harris County, TX School Health Care, 3.75% CP (Sisters of Charity
of The Incarnate Word)/(Toronto-Dominion Bank LIQ), Mandatory
Tender 6/30/1997 20,600,000
7,000,000 Matagorda County, TX Navigation District Number One, (Series 1997D)
Weekly VRDNs (Houston Light & Power Co.)/(FGIC INS)/(CDC
Municipal Products, Inc. LIQ) 7,000,000
17,000,000 Midland Independent School District, TX, Variable Rate Unlimited Tax
School Building Bonds (Series 1997), 3.91% TOBs (Texas Permanent
School Fund Guarantee Program GTD)/(Union Bank of Switzerland,
Zurich LIQ), Mandatory Tender 1/15/1998 17,001,003
10,000,000 Plano ISD, TX, Variable Rate Unlimited Tax School Building Bonds,
(Series 1997), 3.86% TOBs (Texas Permanent School Fund Guarantee
Program GTD)/(Union Bank of Switzerland, Zurich LIQ), Mandatory
Tender 2/5/1998 10,000,000
4,440,000 TX Pooled Tax Exempt Trust, Certificates of Participation (Series 1996)
Weekly VRDNs (Bank One, Texas N.A. LOC) 4,440,000
15,500,000 Texas State, 4.75% TRANs, 8/29/1997 15,528,896
Total 98,159,899
UTAH -- 1.2%
8,500,000 Intermountain Power Agency, UT, 3.50% TOBs (Swiss Bank Corp. New
York LOC), Optional Tender 9/15/1997 8,500,000
VERMONT -- 1.2%
8,000,000 Vermont IDA Weekly VRDNs (Wallace Computer, Inc.)/(Wachovia
Bank of NC, N.A., Winston-Salem LOC) 8,000,000
WEST VIRGINIA -- 0.6%
4,355,000 West Virginia University Board of Regents, 3.80% TOBs (Morgan
Guaranty Trust Co., New York LOC), Optional Tender 2/1/1998 4,355,000
</TABLE>
Federated Tax-Free Trust
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS -- CONTINUED
WISCONSIN -- 1.1%
$ 7,800,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds
(Series 1994) Weekly VRDNs (Felician Health Care, Inc. Project)/
(Lasalle National Bank, Chicago LOC) $ 7,800,000
WYOMING -- 0.6%
3,705,000 Wyoming Community Development Authority, (Series 1986C), 3.60%
TOBs (First National Bank of Chicago LIQ), Optional Tender 6/1/1997 3,705,000
OTHER -- 2.6%
13,782,040 Equity Trust I, (1996 Series) Weekly VRDNs (Bayerische Hypotheken-
Und Wechsel-Bank Ag LOC) 13,782,040
4,022,810 LaSalle National Bank Leasetops Trust, Series 1995A Leasetops
Certificates Weekly VRDNs (Lasalle National Bank, Chicago LIQ)/
(Lasalle National Bank, Chicago LOC) 4,022,810
Total 17,804,850
TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $ 700,028,127
</TABLE>
(a) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($689,409,490) at May 31, 1997.
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
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
HEFA -- Health and Education Facilities Authority
HFA -- Housing Finance Authority
HFDC -- Health Facility Development Corporation
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDR -- Industrial Development Revenue
IFA -- Industrial Finance Authority
INS -- Insured
ISD -- Independent School District
LIQ -- Liquidity Agreement
LOCs -- Letter(s) 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
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 700,028,127
Cash 202,679
Income receivable 6,975,639
Total assets 707,206,445
LIABILITIES:
Payable for investments purchased $ 15,541,828
Income distribution payable 2,147,687
Accrued expenses 107,440
Total liabilities 17,796,955
NET ASSETS for 689,427,645 shares outstanding $ 689,409,490
NET ASSETS CONSIST OF:
Paid in capital $ 689,419,786
Accumulated net realized loss on investments (10,296)
Total Net Assets $ 689,409,490
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$689,409,490 / 689,427,645 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 13,858,830
EXPENSES:
Investment advisory fee $ 1,522,907
Administrative personnel and services fee 287,449
Custodian fees 45,687
Transfer and dividend disbursing agent fees and expenses 27,412
Directors'/Trustees' fees 9,282
Auditing fees 8,554
Legal fees 2,912
Portfolio accounting fees 55,900
Shareholder services fee 951,817
Share registration costs 20,930
Printing and postage 6,552
Insurance premiums 4,550
Taxes 11,466
Miscellaneous 5,824
Total expenses 2,961,242
Waivers --
Waiver of investment advisory fee $ (464,860)
Waiver of shareholder services fee (761,454)
Total waivers (1,226,314)
Net expenses 1,734,928
Net investment income 12,123,902
Net realized loss on investments (1,783)
Change in net assets resulting from operations $ 12,122,119
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,123,902 $ 25,430,813
Net realized (loss) on investments (1,783) (6,253)
Change in net assets resulting from operations 12,122,119 25,424,560
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (12,123,902) (25,430,813)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,223,182,792 2,635,145,132
Net asset value of shares issued to shareholders in payment of
distributions declared 732,680 2,446,492
Cost of shares redeemed (1,282,289,168) (2,697,169,818)
Change in net assets resulting from share transactions (58,373,696) (59,578,194)
Change in net assets (58,375,479) (59,584,447)
NET ASSETS:
Beginning of period 747,784,969 807,369,416
End of period $ 689,409,490 $ 747,784,969
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<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
INCOME FROM
INVESTMENT OPERATIONS
Net investment
income 0.02 0.03 0.04 0.02 0.02 0.03 0.04 0.06 0.06 0.05
LESS DISTRIBUTIONS
Distributions from
net investment income (0.02) (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.06) (0.06) (0.05)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 1.60% 3.18% 3.57% 2.43% 2.18% 2.88% 4.49% 5.68% 6.03% 4.87%
RATIOS TO AVERAGE
NET ASSET
Expenses 0.46%* 0.45% 0.45% 0.45% 0.46% 0.46% 0.46% 0.45% 0.45% 0.45%
Net investment
income 3.18%* 3.12% 3.51% 2.38% 2.16% 2.84% 4.40% 5.54% 5.86% 4.74%
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $689,409 $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
</TABLE>
* Computed on an annualized basis.
(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)
FEDERATED TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (UNAUDITED)
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 to
provide dividend 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 uses the amortized cost method to value
its portfolio securities in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At November 30, 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 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $11,840
2003 $ 1,341
2004 $18,018
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 Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). At May 31, 1997, capital paid-in aggregated $689,427,645.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
Shares sold 1,223,182,792 2,635,145,132
Shares issued to shareholders in payment of distributions declared 732,680 2,446,492
Shares redeemed (1,282,289,168) (2,697,169,818)
Net change resulting from share transactions (58,373,696) (59,578,194)
</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 aggregate normal operating expenses of the Trust, including the
gross investment advisory fee but excluding interest, taxes, brokerage
commissions, expenses of registering and qualifying the Trust and its shares
under federal and state laws, expenses of withholding taxes, and
extraordinary expenses for such fiscal year or portion there of exceed 0.45%
of the average daily net assets of the Trust for such period. This does not
include reimbursement of the Trust of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities.
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 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 May 31, 1997, 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 $730,975,000 and $670,615,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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 mutual funds involves risk, including
possible loss of principal. Although money market funds seek to maintain a
stable net asset value of $1.00 per share, there is no assurance that they
will be able to do so.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED TAX-FREE TRUST
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Cusip 314282104
8070103 (7/97)
[Graphic]
