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,
1997 through May 31, 1998. The report contains commentary by the portfolio
manager, followed by a complete list of the trust's investments on the last day
of the reporting period, and the financial statements.
Designed for tax-sensitive investors, this money market fund pursues current
income exempt from federal income taxes,* along 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 reporting period, the trust's net assets
stood at $516.8 million.
Thank you for putting your ready cash to work pursuing tax-free income through
Federated Tax-Free Trust. We welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1998
* Income may be subject to the federal alternative minimum tax, and state and
local taxes.
** 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.
INVESTMENT REVIEW
An interview with the trust's portfolio manager, Michael Sirianni, Assistant
Vice President, Federated Management.
Q. What is your review of the economic and interest rate environment during the
trust's six-month reporting period?
A. The economy remained robust over the reporting period, posting a rate of
growth over 3.00% in the fourth quarter of 1997 and continued its above average
growth into the first quarter of 1998 posting a 4.80% growth rate. At the same
time, overall inflationary pressures remained somewhat tame in spite of the
impressive performance from the economy and historically low unemployment
numbers. Tight labor markets with consequences of wage inflation continued to
occupy the thoughts of the Federal Reserve Board ("the Fed") throughout much of
the reporting period. However, the reporting period coincided with the
realization of an unsteady economic picture in the Pacific Rim. The Asian crisis
and uneasiness of world stock markets eliminated any rate tightening intentions
the Fed may have had during fourth quarter of 1997. The Fed policy continued to
remain on hold the first quarter of 1998, with economic indicators giving
somewhat mixed signals. Labor markets continued to show signs of strength with
unemployment at or near historical lows. The key concern for the Fed in the
first quarter and going forward into 1998 is whether the Asian crisis can
sufficiently cool any overheating condition within the U.S. economy. Signs that
the Fed is positioned to act quickly appeared at the end of the reporting
period. The first quarter of 1998 ended with the Fed shifting bias from a
neutral to a tightening stance. The reason for the more hawkish stance is that
the Fed is clearly concerned with sustained growth in GDP in the 4.00% range.
Movements in short-term Treasury securities, particularly Treasury bills, were
strongly influenced by technical factors over the period. A reduction in the
overall size of Treasury bills due to improvement in the federal budget deficit
kept these securities well-bid and trading well below the 5.50% federal funds
target rate for most of the reporting period. In addition, a periodic
flight-to-quality to these securities from investors seeking a safe haven from
the turmoil overseas also drove their yields lower.
Reflecting aggressive demand for treasury bills, yields on one-year tax-free
municipal notes were attractive for most of the reporting period, averaging
roughly 68% treasury bills. One-year municipal notes, for example, began the
reporting period close to 3.75%. Yields fell to the 3.60% range in January, and
to 3.50% in February due to supply constraints and fears that the as-yet-unknown
impact of the financial troubles in Asian on the domestic economy might be worse
than previously thought. Yields then rose to close the reporting period in the
3.70% range as domestic economic growth continued.
In addition to economic fundamentals, short-term municipal securities were
strongly influenced by technical factors over this period, notably calendar year
end and income tax payment season. Variable rate demand notes (VRDNs), which
comprise more than 50% of the trust's assets, started the period in the 3.80%
range, but moved sharply higher in December to above the 4.00% level as supply
and demand imbalances occurred. Yields then declined in January, as coupon
payments looked to reinvest and year-end selling pressures eased, VRDNs yields
fell drastically ending the period below where they began, to the 3.30% range.
Yields only averaged a little over 3.10% during February and March before rising
to the 4.00% range in April due to traditional tax season selling pressures.
Over the six-month reporting period, VRDN yields averaged roughly 66% of taxable
rates making them attractive for investors at the 36% or higher federal tax
brackets.
Q. What was your strategy for the trust?
A. The trust's average maturity at the beginning of the period was approximately
45 days. The trust remained close to a 35-45 average maturity range over the
reporting period, a neutral stance, and moved within that range according to
relative value opportunities. We continue to emphasize a barbelled structure for
the portfolio, combining a significant position in seven-day VRDNs with
purchases of longer-term securities with maturities between six and twelve
months. 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 municipals to taxable instruments, such as
treasury securities. This portfolio structure continues to pursue a competitive
yield over time.
Q. How has the trust performed?
A. The seven-day net yield* for the trust's Shares on May 31,1998, was 3.41%
compared to 3.51% six months ago. The latest yield was the equivalent of a 5.65%
taxable yield for investors in the highest federal bracket. Over the reporting
period, the tax-exempt yield averaged 3.24%, which is equivalent to a pre-tax
yield of 5.36% for those same investors.**
Q. As we approach mid year, what is your outlook for the remainder of 1998?
A. The jury is still out on the extent of the impact that the crisis in Asian
economies will have on U.S. growth. As a result, the Fed, although certain to be
troubled by persistent above-trend growth in an environment where labor markets
are tight, will likely remain on hold until the effect is better known. Much of
this should be revealed over the second and third quarters, and if the drag on
the U.S. economy does not materialize, expectations of a need for Fed rate
increase will most likely rebuild. In the near term, however, market movements
will as likely reflect technical factors as fundamental ones. These
supply/demand imbalances could very well present attractive investment
opportunities for the trust. We will continue to watch, with great interest,
market developments in order to best serve our municipal clients.
* 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.
** Performance quoted represents past performance and is not indicative of
future results. Yield will vary. Yields quoted for money market funds most
closely reflect the fund's current earnings.
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Federated Tax-Free Trust (the "Trust") was
held on April 30, 1998. On March 6,1998, the record date for Shareholders
eligible to vote at the meeting, there were 631,769,553 total outstanding
shares. The following items were considered by shareholders of the Trust and the
results of their voting were as follows:
AGENDA ITEM 1: To elect five trustees.
SHARES VOTED SHARES VOTED
FOR WITHHELD
Thomas G. Bigley 366,895,584 419,985
John T. Conroy, Jr. 366,895,584 419,985
Peter E. Madden 366,895,584 419,985
John E. Murray, Jr. 366,895,584 419,985
Nicholas P. Constantakis 366,895,584 419,985
AGENDA ITEM 2: To approve or disapprove an amendment in the trust's
Fundamental investment policy on diversification of its investments.
The results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAIN NON-VOTE
353,180,587 8,161,649 5,973,317 16
AGENDA ITEM 3: To approve or disapprove amending and changing from Fundamental
to an operating policy the trust's policy regarding the maturity Of money market
securities in which it will invest.
The results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAIN NON-VOTE
352,857,683 8,473,471 5,984,399 16
AGENDA ITEM 4: To approve or disapprove amending and changing from Fundamental
to an operating policy the trust's ability to invest in Restricted securities.
The results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAIN NON-VOTE
354,262,061 4,513,064 8,540,428 16
AGENDA ITEM 5: To approve or disapprove removing the trust's fundamental
Investment policy on investing in new issuers.
The results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAIN NON-VOTE
352,945,248 8,733,033 5,637,272 16
AGENDA ITEM 6: To approve or disapprove removing the trust's fundamental
Investment policy on investing in options.
The results of shareholders voting were as follows:
SHARES VOTED SHARES VOTED SHARES BROKER
FOR AGAINST ABSTAIN NON-VOTE
345,070,023 16,952,073 5,293,458 15
PORTFOLIO OF INVESTMENTS
FEDERATED TAX-FREE TRUST
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.7%
ALABAMA--1.5%
$ 7,500,000 Jefferson County, AL, GO Warrants (Series 1996) Weekly VRDNs $ 7,500,000
(Bayerische Landesbank Girozentrale LOC)
ALASKA--1.1%
5,700,000 Alaska State Housing Finance Corp., General Mortgage Revenue 5,700,000
Bonds (Series 1997A) Weekly VRDNs (Bank of America NT and SA,
San Francisco LIQ)
ARIZONA--3.1%
4,900,000 Apache County, AZ IDA, 1983 (Series A) Weekly VRDNs (Tucson 4,900,000
Electric Power Co.)/(Toronto- Dominion Bank LOC)
5,780,000 Glendale, AZ IDA, Variable Rate Senior Living Facilities 5,780,000
Revenue Bonds Weekly VRDNs (Friendship Retirement
Corporation)/(Norwest Bank Minnesota, NA LOC)
3,500,000 Maricopa County, AZ School District No. 6, (Series 1997A), 3,501,412
4.40% TANs, 6/30/1998
2,000,000 Tempe, AZ School District No. 213, (Series 1997A), 4.40% 2,000,807
TANs, 6/30/1998
Total 16,182,219
CALIFORNIA--2.9%
10,000,000 Los Angeles County, CA, 4.50% TRANs, 6/30/1998 10,004,971
2,500,000 Placer, CA Union High School District, (Series 1997), 4.45% 2,503,656
TRANs, 9/10/1998
2,200,000 Western Placer, CA Unified School District, 4.45% TRANs, 2,203,217
9/10/1998
Total 14,711,844
COLORADO--1.0%
5,270,000 Loveland, CO, IDR (Series 1993S), 3.80% TOBs (Safeway, 5,270,000
Inc.)/(Bankers Trust Co., New York LOC), Mandatory Tender
6/1/1998
DISTRICT OF COLUMBIA--3.4%
5,000,000 District of Columbia, (Series 1998C), 5.00% TRANs (Union
Bank 5,018,434 of Switzerland, Zurich LOC), 9/30/1998
5,000,000 District of Columbia, (Series B), 4.50% TRANs (Morgan 5,010,039
Guaranty Trust Co., New York and Union Bank of Switzerland,
Zurich LOCs), 9/30/1998
7,350,000 District of Columbia, Variable Rate Demand/Fixed Rate Revenue 7,350,000
Bonds (Series 1997) Weekly VRDNs (Children's Defense
Fund)/(First National Bank of Maryland, Baltimore LOC)
Total 17,378,473
FLORIDA--6.2%
6,510,000 Fort Lauderdale, FL Performing Arts Center Authority Weekly 6,510,000
VRDNs (SunTrust Bank, Central Florida LOC)
17,500,000 Highlands County, FL Health Facilities, (Series 1996A 17,500,000
Accounts Receivable) Weekly VRDNs (Adventist Health
System)/(CAPMAC Holdings, Inc. INS)/(First National Bank of
Chicago LIQ)
</TABLE>
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 4,000,000 Highlands County, FL Health Facilities, Variable Rate Demand $ 4,000,000
Revenue Bonds (Series 1996A) Weekly VRDNs (Adventist Health
System)/(SunTrust Bank, Central Florida LOC)
3,975,000 Putnam County, FL Development Authority, PCR Bonds (Pooled
3,975,000 Series 1984S) Weekly VRDNs (Seminole Electric
Cooperative, Inc (FL))/(National Rural Utilities
Cooperative Finance Corp.
LOC)
Total 31,985,000
GEORGIA--1.7%
3,000,000 Marietta, GA Housing Authority, Multifamily Housing Revenue 3,000,000
Refunding Bonds (Series 1996) Weekly VRDNs (Winterset
Apartments Project)/(Wachovia Bank of NC, NA, Winston-Salem
LOC)
6,000,000 Monroe County, GA Development Authority IDRB, Pollution 6,000,000
Control Revenue Bonds (First Series 1997) Daily VRDNs
(Georgia Power Co.)/(Georgia Power Co. GTD)
Total 9,000,000
ILLINOIS--5.4%
4,755,105 ABN AMRO Chicago Corp. 1997-1 LeaseTOPS Trust Weekly VRDNs 4,755,105
(Lasalle National Bank, Chicago LIQ)/(Lasalle National Bank,
Chicago LOC)
4,500,000 (b)Chicago, IL Public Building Commission, PT-155, 3.75% TOBs 4,500,000
(Chicago, IL Board of Education)/(MBIA INS)/(Bayerische
Hypotheken-Und Wechsel-Bank Ag LIQ), Optional Tender
1/14/1999
1,000,000 Illinois Development Finance Authority Weekly VRDNs (Lyric 1,000,000
Opera of Chicago)/(Caisse Nationale De Credit Agricole,
Paris, Harris Trust & Savings Bank, Chicago, NBD Bank,
Michigan and Northern Trust Co., Chicago, IL LOCs)
12,900,000 Illinois Health Facilities Authority Weekly VRDNs (OSF Health 12,900,000
Care Systems)
4,810,000 Illinois Housing Development Authority, (1997 Subseries B-1), 4,810,000
4.10% TOBs, Mandatory Tender 7/7/1998
Total 27,965,105
INDIANA--2.4%
5,000,000 Indiana Bond Bank, Advance Funding Program Notes (Series 1998 5,012,345
A-2), 4.00% TANs (Lasalle National Bank, Chicago LOC),
1/20/1999
7,600,000 Indianapolis, IN Local Public Improvement Bond Bank, (Series 7,603,486
1997E), 4.25% TANs (Indianapolis, IN), 7/9/1998
Total 12,615,831
LOUISIANA--1.1%
5,635,000 New Orleans, LA, Class A Certificates (Series 1998-1)
Weekly 5,635,000 VRDNs (AMBAC INS)/(Bank of New York, New
York LIQ)
MARYLAND--5.9%
940,000 Maryland EDC, Variable Rate Demand/Fixed Rate Refunding 940,000
Revenue Bonds (1997 Issue) Weekly VRDNs (Jenkins Memorial
Nursing Home, Inc. Facility)/(First National Bank of
Maryland, Baltimore LOC)
</TABLE>
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MARYLAND--CONTINUED
$ 10,000,000 Maryland Health & Higher Educational Facilities Authority, $ 10,000,000
Pooled Loan Program Revenue Notes, 3.70% CP (John Hopkins
University)/(Nationsbank, NA, Charlotte LIQ), Mandatory
Tender 8/12/1998
9,300,000 Maryland Health & Higher Educational Facilities Authority, 9,300,000
Series 1997 Weekly VRDNs (Augsburg Lutheran Home of MD.,
Inc.)/(First National Bank of Maryland, Baltimore LOC)
7,775,000 Maryland Health & Higher Educational Facilities Authority, 7,775,000
Variable Rate Demand/Fixed Rate Revenue Bonds Weekly VRDNs
(Capitol College)/(First National Bank of Maryland, Baltimore
LOC)
2,640,000 Queen Annes County, MD Economic Development Revenue, (Series 2,640,000
1994), 3.80% TOBs (Safeway, Inc.)/(Bankers Trust Co., New
York LOC), Mandatory Tender 6/1/1998
Total 30,655,000
MASSACHUSETTS--4.7%
13,810,000 Clipper Tax Exempt Trust (Non-AMT Multistate), (Series A) 13,810,000
Weekly VRDNs (MBIA INS)/(State Street Bank and Trust Co. LIQ)
10,500,000 Commonwealth of Massachusetts, (1997 Series B) Weekly VRDNs 10,500,000
(Landesbank Hessen-Thueringen, Frankfurt LIQ)
Total 24,310,000
MICHIGAN--2.7%
4,800,000 Kalamazoo, MI Economic Development Corp., 1995 Limited 4,800,000
Obligation Revenue Refunding Bonds Weekly VRDNs (Wyndham
Project, MI)/(First of America Bank - Illinois LOC)
280,000 Michigan State Hospital Finance Authority, (Series A) Weekly 280,000
VRDNs (OSF Health Care Systems)
3,600,000 Michigan State Housing Development Authority, (Series 1991) 3,600,000
Weekly VRDNs (Forest Hills Apartments)/(National Australia
Bank, Ltd., Melbourne LOC)
5,000,000 Michigan State, GO UT, 4.50% TRANs, 9/30/1998 5,014,053
Total 13,694,053
MINNESOTA--4.5%
21,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs 21,000,000
(Mayo Foundation)/(Rabobank Nederland, Utrecht LIQ)
2,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs 2,000,000
(Mayo Foundation)/(Rabobank Nederland, Utrecht LIQ)
Total 23,000,000
MISSOURI--3.7%
5,000,000 Missouri State Environmental Improvement & Energy Authority, 5,000,000
PCR Bonds Series 1985B, 3.65% CP (Union Electric
Co.)/(Westdeutsche Landesbank Girozentrale LOC), Mandatory
Tender 8/25/1998
</TABLE>
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MISSOURI--CONTINUED
$ 14,180,000 Missouri State HEFA, Health Facilities Revenue Bonds (Series $ 14,180,000
1996A) Weekly VRDNs (Deaconess Long Term Care of
Missouri)/(Bank One, Texas NA LOC)
Total 19,180,000
MULTI STATE--2.7%
13,782,040 Equity Trust I, (1996 Series) Weekly VRDNs (Bayerische 13,782,040
Hypotheken-Und Wechsel-Bank AG LOC)
NEVADA--1.2%
6,000,000 Las Vegas Valley, NV Water District, (Series A), 3.60% CP 6,000,000
(Union Bank of Switzerland, Zurich and Westdeutsche
Landesbank Girozentrale LOCs), Mandatory Tender 7/13/1998
NORTH CAROLINA--5.9%
20,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs 20,000,000
(Weyerhaeuser Co.)
10,550,000 NCNB Pooled Tax-Exempt Trust, (Series 1990A) Weekly VRDNs 10,550,000
(NCNB Tax Exempt Trust 1990a)/(Nationsbank, NA, Charlotte
LOC)
Total 30,550,000
OHIO--5.4%
4,500,000 Clermont County, OH, Adjustable Rate Hospital Facilities 4,500,000
Revenue Bonds (Series 1996) Weekly VRDNs (Mercy Health
Systems)/(Westdeutsche Landesbank Girozentrale LIQ)
1,260,000 Marion County, OH Hospital Authority, (Series 1991) Weekly 1,260,000
VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One,
Ohio, NA LOC)
11,000,000 Montgomery County, OH Health Facilities Authority, (Series 11,000,000
1998B), 3.60% CP (Miami (OH) Valley Hospital), Mandatory
Tender 7/16/1998
1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs 1,000,000
(Timken Co.)/(Credit Suisse First Boston LOC)
6,000,000 Ohio State Water Development Authority, PCR Refunding
Bonds 6,000,000 (Series 1997) Weekly VRDNs (Philip Morris
Cos., Inc.)
4,275,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series 4,275,000
1995) Weekly VRDNs (Medical Center Hospital Project)/(Fifth
Third Bank, Cincinnati LOC)
Total 28,035,000
OKLAHOMA--1.2%
2,540,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly VRDNs 2,540,000
(Muskogee Mall Limited Partnership)/(Boatmen's National Bank
of St. Louis LOC)
3,510,000 Muskogee, OK Industrial Trust, (Series 1985) Weekly VRDNs 3,510,000
(Warmack Musskogee Ltd. Partnership)/(Boatmen's National Bank
of St. Louis LOC)
Total 6,050,000
OREGON--1.2%
6,000,000 Oregon State Housing and Community Services Department, 6,000,000
Mortgage Revenue Bonds (1998 Series C), 3.75% BANs, 5/13/1999
</TABLE>
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--9.3%
$ 10,095,000 Dauphin County, PA General Authority, (Education and Health $ 10,095,000
Loan Program, Series 1997) Weekly VRDNs (AMBAC INS)/(Chase
Manhattan Bank NA, New York LIQ)
700,000 Dauphin County, PA General Authority, (Series A of 1997) 700,000
Weekly VRDNs (Allhealth Pooled Financing Program)/(FSA
INS)/(Credit Suisse First Boston LIQ)
9,500,000 Doylestown Hospital Authority, PA, Doylestown Hospital 9,500,000
Revenue Bonds Weekly VRDNs (AMBAC INS)/(PNC Bank, NA LIQ)
14,000,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs 14,000,000
(FGIC INS)/(FGIC Securities Purchase, Inc. LIQ)
8,000,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent 8,000,000
Health System)/(Mellon Bank NA, Pittsburgh LOC)
6,000,000 North Penn Health, Hospital and Education Authority, PA, 6,000,000
Hospital Revenue Bonds (Series 1998) Weekly VRDNs (North Penn
Hospital, PA)/(First Union National Bank, Charlotte, NC LOC)
Total 48,295,000
SOUTH CAROLINA--1.5%
7,960,000 South Carolina State Public Service Authority, 3.60% CP (Bank 7,960,000
of America NT and SA, San Francisco, Bank of Nova Scotia,
Toronto, Commerzbank AG, Frankfurt and Toronto- Dominion Bank
LIQs), Mandatory Tender 7/14/1998
SOUTH DAKOTA--0.5%
2,685,000 South Dakota Housing Development Authority, (Series I), 3.90% 2,685,000
TOBs, Mandatory Tender 8/13/1998
TENNESSEE--3.2%
2,500,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust 2,500,000
Bank, Atlanta LOC)
14,000,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken 14,000,000
Hospital)/(Nationsbank of Tennessee LOC)
Total 16,500,000
TEXAS--9.4%
3,660,000 Dallas, TX, (Series C), 3.95% TOBs, Optional Tender
6/15/1998 3,660,000 15,400,000 Harris County, TX HFDC, Hospital
Revenue Bonds (Series 1997) 15,400,000
Daily VRDNs (Methodist Hospital, Harris County, TX)
6,930,000 Matagorda County, TX Navigation District Number One, CDC 6,930,000
(Series 1997D) Weekly VRDNs (Houston Light & Power Co.)/(FGIC
INS)/(CDC Municipal Products, Inc. LIQ)
5,000,000 North Central Texas HFDC, Flexible Rate Hospital Revenue 5,000,000
Bonds (Series 1991A), 3.60% CP (Methodist Hospitals of
Dallas)/(MBIA INS)/(Rabobank Nederland, Utrecht LIQ),
Mandatory Tender 7/14/1998
2,760,000 TX Pooled Tax Exempt Trust, Certificates of Participation 2,760,000
(Series 1996) Weekly VRDNs (Bank One, Texas NA LOC)
15,000,000 Texas State, (Series A), 4.75% TRANs, 8/31/1998 15,032,752
Total 48,782,752
</TABLE>
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
WEST VIRGINIA--1.9%
$ 7,000,000 Cabell County Commission, WV, Life Care Facilities $ 7,000,000
Multi-Option Revenue Bonds (Series 1995) Weekly VRDNs (Foster
Foundation)/(Huntington National Bank, Columbus, OH LOC)
3,000,000 Oak Hill, WV, Variable Rate Industrial Development Refunding 3,009,730
Revenue Bonds (Series 1991A), 4.95% TOBs (Fayette Plaza)/(ABN
AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 10/1/1998
Total 10,009,730
WISCONSIN--5.0%
8,600,000 Waukesha, WI School District, 4.10% TRANs, 8/21/1998 8,603,666
7,600,000 Wisconsin Health and Educational Facilities Authority, 7,600,000
Revenue Bonds (Series 1994) Weekly VRDNs (Felician Health
Care, Inc. Project)/(Lasalle National Bank, Chicago LOC)
5,000,000 Wisconsin State, (Series A), 5.75% Bonds, 5/1/1999 5,091,107
4,500,000 Wisconsin State, Series G, 6.75% Bonds (United States 4,665,600
Treasury PRF), 5/1/1999 (@101)
Total 25,960,373
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 515,392,420
</TABLE>
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ('NRSROs') or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard &
Poor's, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1, and F-2
by Fitch Investors Service, Inc. are all considered rated in one of the two
highest short-term rating categories. Securities rated in the highest short-term
rating category (and unrated securities of comparable quality) are identified as
First Tier securities. Securities rated in the second highest short-term rating
category (and unrated securities of comparable quality) are identified as Second
Tier securities. The Trust follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in different
rating categories should be identified as a First or Second Tier security. At
May 31, 1998, the portfolio securities were rated as follows:
TIER RATING BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.0% 0%
(b) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At May 31, 1998, these securities amounted to
$4,500,000, which represents 0.9% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($516,772,306) at May 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation AMT --Alternative Minimum
Tax BANs --Bond Anticipation Notes CAPMAC --Capital Municipal Assurance
Corporation CP --Commercial Paper EDC --Economic Development Commission FGIC
- --Financial Guaranty Insurance Company FSA --Financial Security Assurance GO
- --General Obligation GTD --Guaranty HEFA --Health and Education Facilities
Authority HFDC --Health Facility Development Corporation IDA --Industrial
Development Authority IDR --Industrial Development Revenue IDRB --Industrial
Development Revenue Bond IFA --Industrial Finance Authority INS --Insured LIQ
- --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors
Assurance PCR --Pollution Control Revenue PRF --Prerefunded 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)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED TAX-FREE TRUST
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 515,392,420
Cash 602,154
Income receivable 4,895,308
Prepaid expenses 8,855
Total assets 520,898,737
LIABILITIES:
Payable for investments purchased $ 2,540,000
Income distribution payable 1,562,354
Accrued expenses 24,077
Total liabilities 4,126,431
NET ASSETS for 516,790,354 shares outstanding $ 516,772,306
NET ASSETS CONSIST OF:
Paid in capital $ 516,782,495
Accumulated net realized loss on investments (10,189)
Total Net Assets $ 516,772,306
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$516,772,306 / 516,790,354 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED TAX-FREE TRUST
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 10,738,284
EXPENSES:
Investment advisory fee $ 1,165,737
Administrative personnel and services fee 219,741
Custodian fees 14,974
Transfer and dividend disbursing agent fees and expenses 17,819
Directors'/Trustees' fees 10,431
Auditing fees 8,279
Legal fees 5,514
Portfolio accounting fees 49,765
Shareholder services fee 728,586
Share registration costs 12,397
Printing and postage 5,514
Insurance premiums 6,787
Taxes 8,554
Miscellaneous 4,939
Total expenses 2,259,037
Waivers--
Waiver of investment advisory fee $ (343,764)
Waiver of shareholder services fee (582,868)
Total waivers (926,632)
Net expenses 1,332,405
Net investment income 9,405,879
Net realized gain on investments 12,356
Change in net assets resulting from operations $ 9,418,235
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED TAX-FREE TRUST
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 9,405,879 $ 23,599,871
Net realized gain (loss) on investments 12,356 (14,032)
Change in net assets resulting from operations 9,418,235 23,585,839
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (9,405,879) (23,599,871)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,044,840,209 2,258,839,187
Net asset value of shares issued to shareholders in payment 610,281 1,764,863
of distributions declared
Cost of shares redeemed (1,164,209,817) (2,372,855,710)
Change in net assets resulting from share transactions (118,759,327) (112,251,660)
Change in net assets (118,746,971) (112,265,692)
NET ASSETS:
Beginning of period 635,519,277 747,784,969
End of period $ 516,772,306 $ 635,519,277
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
FEDERATED TAX-FREE TRUST
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02 0.03 0.03 0.04 0.02 0.02
LESS DISTRIBUTIONS
Distributions from net
investment income (0.02) (0.03) (0.03) (0.04) (0.02) (0.02)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(A) 1.63% 3.31% 3.18% 3.57% 2.43% 2.18%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45%* 0.45% 0.45% 0.45% 0.45% 0.46%
Net investment income 3.23%* 3.25% 3.12% 3.51% 2.38% 2.16%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $516,772 $635,519 $747,785 $807,369 $1,215,547 $1,346,791
</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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED TAX-FREE TRUST
MAY 31, 1998 (UNAUDITED)
ORGANIZATION
Federated Tax-Free Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an 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.
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.
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, 1997, the Trust, for federal tax purposes, had a capital loss
carryforward of $45,231, 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
2005 14,032
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at May 31, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Chicago, IL Public Building Commission 1/23/93 4,500,000
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.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). At May 31, 1998, capital paid-in aggregated $516,782,495.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
Shares sold 1,044,840,209 2,258,839,187
Shares issued to shareholders in payment of 610,281 1,764,863
distributions declared
Shares redeemed (1,164,209,817) (2,372,855,710)
Net change resulting from share transactions (118,759,327) (112,251,660)
</TABLE>
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 Investors, Inc. 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, 1998, 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 $676,196,482 and $673,970,089,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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.
[Graphic]
Federated Tax-Free Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS
MAY 31, 1998
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314282104
8070103 (7/98)
