SEMI-ANNUAL REPORT
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 period from December 1, 1998 through
May 31, 1999. The report contains commentary by the fund's portfolio manager,
followed by a complete listing of the fund's investments on the last day of the
reporting period, and its financial statements.
Designed for tax-sensitive investors, this money market fund pursues current
income exempt from federal income taxes, 1 while offering the additional
advantages of daily liquidity and stability of principal.2 At the end of the
reporting period, the fund's portfolio was invested in securities issued by
municipalities across the U.S.
Tax-free dividends paid to shareholders during the reporting period totaled
$0.01 per share. At the end of the period, the fund's net assets totaled $505.6
million.
Thank you for putting your ready cash to work earning tax-free income through
Federated Tax-Free Trust. We welcome your comments and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
July 15, 1999
1 Income may be subject to the federal alternative minimum tax, and state and
local taxes.
2 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
An interview with the fund's portfolio manager, Michael Sirianni, Vice
President, Federated Investment Management Company.
WHAT ARE YOUR COMMENTS ON THE ECONOMY AND THE INTEREST RATE ENVIRONMENT DURING
THE SIX-MONTH REPORTING PERIOD?
The economy remained robust over the reporting period, showing continued
strength in the fourth quarter of 1998 and into the first quarter of 1999. At
the same time, overall inflationary pressures were mostly absent in spite of
impressive performance from the economy and historically low unemployment.
Throughout the reporting period, the Federal Reserve Board (the "Fed") focused
on the tight labor market and potential for inflation. The Fed adopted a neutral
bias in monetary policy in the November meeting and maintained the policy until
recently. The Fed changed to a tightening bias in the May meeting, citing the
strong U.S. economy in conjunction with record employment levels, the
improvement in foreign economic prospects, and rebounding U.S. financial
markets.
In addition to economic fundamentals, short-term municipal securities were
strongly influenced by technical factors over the reporting period, notably
calendar year end and income tax payment season. Variable rate demand notes
("VRDNs") started the reporting period in the 3.00% range, but moved sharply
higher to the 4.00% level in December as supply and demand imbalances occurred.
Yields declined in January, due to coupon reinvestment and easing of year end
selling pressure. Yields averaged slightly over 2.80% during February and March
before rising to the 3.50% range in April due to traditional tax season selling
pressure. Over the six-month reporting period, VRDN yields averaged roughly 65%
of taxable rates, making them attractive for investors in the highest federal
tax brackets.
The overall tone of the short-term municipal market was positive. Municipalities
across the country benefited from a strong economy. This fact, coupled with
lower borrowing costs from low long-term rates, reduced short-term issuance. In
fact, annual municipal note issuance was at its lowest level in the last decade.
Lack of supply and heavy demand kept short-term municipal securities, relative
to their taxable counterparts, very expensive.
WHAT WERE YOUR STRATEGIES FOR THE FUND DURING THE REPORTING PERIOD?
The fund's average maturity at the beginning of the reporting period was
approximately 53 days. The fund remained in a 40 to 45-day average maturity
range over the reporting period, a neutral stance, and moved within that range
according to relative value opportunities. We continued to emphasize a barbelled
structure for the portfolio, combining a significant position in 7-day VRDNs
with purchases of longer-term securities with maturities between 6 and 12
months. Once an average maturity range was targeted, we attempted 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 continued to pursue a competitive yield
over time.
AS WE APPROACH MID YEAR, WHAT IS YOUR OUTLOOK GOING FORWARD?
The Fed, certain to be troubled by persistent above-trend growth in an economy
where wage inflation is a primary concern, will likely maintain a tightening
bias. Additionally, they are positioned for the next move to be a preemptive
tightening in late June. In the near term, the short-term municipal market will
reflect this fundamental factor as well as the typical technical factors. These
supply and demand imbalances could very well present attractive investment
opportunities for the fund. We will continue to watch, with great interest,
market developments in order to best serve our municipal clients.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
99.8% 1
ALABAMA-0.4%
$ 2,000,000 Jefferson County, AL, GO
Warrants (Series 1996)
Weekly VRDNs (Bayerische
Landesbank Girozentrale
LOC) $ 2,000,000
ALASKA-1.4%
7,200,000 Alaska State Housing
Finance Corp., Variable
Rate Certificates (Series
F)
Weekly VRDNs (Bank of
America NT and SA, San
Francisco LIQ) 7,200,000
CALIFORNIA-4.2%
4,600,000 New Haven, CA Unified
School District, 3.90%
TRANs, 6/30/1999 4,600,704
8,000,000 San Diego, CA Area Local
Governments, Trust
Receipts (Series A25),
Weekly VRDNs (Bank of New
York, New York LIQ),
Mandatory Tender 9/30/1999 8,000,000
5,550,000 San Leandro, CA Unified
School District, 3.90%
TRANs, 6/30/1999 5,550,849
3,000,000 Stanislaus County, CA
Office of Education, 4.50%
TRANs, 7/30/1999 3,003,968
TOTAL 21,155,521
COLORADO-1.0%
4,880,000 Loveland, CO, IDR (Series 1993S), 3.05% TOBs (Safeway,
Inc.)/(Bankers Trust Co., New York LOC),
Mandatory Tender 6/1/1999 4,880,000
CONNECTICUT-1.0%
5,000,000 2 Connecticut State HFA,
Variable Rate Certificates (Series 1998S), 3.50% TOBs (Bank of
America NT and SA, San Francisco LIQ),
Optional Tender 8/20/1999 5,000,000
DISTRICT OF COLUMBIA-1.8%
1,710,000 District of Columbia,
(Series B), 7.00% Bonds
(FSA INS), 6/1/1999 1,710,000
7,190,000 District of Columbia,
Variable Rate Demand/Fixed
Rate Revenue Bonds
(Series 1997) Weekly VRDNs
(Children's Defense
Fund)/(FMB Bank LOC) 7,190,000
TOTAL 8,900,000
FLORIDA-8.9%
2,995,000 ABN AMRO MuniTOPS
Certificates Trust
(Florida Non-AMT) Series
1998-8,
Weekly VRDNs (Dade County,
FL Water & Sewer
System)/(FGIC INS)/(ABN
AMRO Bank N.V., Amsterdam
LIQ) 2,995,000
25,325,000 ABN AMRO MuniTOPS
Certificates Trust
(Florida Non-AMT) Series
1998-9, Weekly VRDNs
(Florida State Board of
Education Capital
Outlay)/(FSA INS)/(ABN
AMRO Bank N.V., Amsterdam
LIQ) 25,325,000
4,000,000 Florida Housing Finance
Corp., MERLOTS (Series
1998B) Weekly VRDNs
(MBIA INS)/(First Union
National Bank, Charlotte,
NC LIQ) 4,000,000
8,695,000 Orange County, FL HFA,
Variable Rate Certificates
(Series 1997G) Weekly
VRDNs (GNMA COL)/(Bank of
America NT and SA, San
Francisco LIQ) 8,695,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
FLORIDA-CONTINUED
$ 4,000,000 Seminole County, FL Health
Facility Authority IDA,
(Series 1991) Weekly VRDNs
(Florida Living Nursing
Center)/(Nationsbank,
N.A., Charlotte LOC) $ 4,000,000
100,000 St. Petersburg, FL HFA,
Refunding Revenue and
Revenue Bonds (Series
1997) Weekly VRDNs
(Manorah Manor)/(SunTrust
Bank, Central Florida LOC) 100,000
TOTAL 45,115,000
GEORGIA-2.0%
5,000,000 2 Bibb County, GA, PT-199,
3.30% TOBs (Georgia State
GTD)/(Bayerische
Vereinsbank AG Munich
LIQ), Optional Tender
5/11/2000 5,000,000
5,025,000 Burke County, GA
Development Authority,
PCRBs (Series 1998A),
3.15% CP (Oglethorpe Power
Corp. Vogtle
Project)/(AMBAC
INS)/(Rabobank Nederland,
Utrecht LIQ), Mandatory
Tender 7/28/1999 5,025,000
TOTAL 10,025,000
ILLINOIS-8.7%
10,000,000 ABN AMRO MuniTOPS Certificates Trust (Multistate Non-AMT)
Series 1998-14, Weekly VRDNs (Cook County, IL)/(FGIC INS)/(ABN
AMRO
Bank N.V., Amsterdam LIQ) 10,000,000
1,200,000 Chicago, IL Metropolitan
Water Reclamation
District, Capital
Improvements, 6.80% Bonds
(United States Treasury
PRF), 1/1/2000 (@102) 1,249,055
4,500,000 2 Chicago, IL Public Building Commission, PT- 155, 3.10% TOBs
(Chicago, IL Board of Education)/(MBIA INS)/(Bayerische
Hypotheken-Und Wechsel Bank AG LIQ), Optional
Tender 10/21/1999 4,500,000
4,995,000 2 Chicago, IL, Variable Rate
Certificates (Series 1998M), 3.70% TOBs (FGIC INS)/ (Bank of
America NT and SA, San Francisco LIQ),
Optional Tender 8/4/1999 4,995,000
12,900,000 Illinois Health Facilities
Authority Weekly VRDNs
(OSF Health Care Systems) 12,900,000
10,410,000 Metropolitan Pier &
Exposition Authority, IL,
(1998 FR/RI-A69) Daily
VRDNs (McCormick
Place)/(FGIC INS)/(Bank of
New York, New York LIQ) 10,410,000
TOTAL 44,054,055
IOWA-1.2%
6,000,000 Iowa School Corporations,
(1998-99 Series A), 4.50%
TRANs (FSA INS), 6/25/1999 6,003,235
LOUISIANA-0.7%
2,000,000 Louisiana PFA, East Baton
Rouge Parish School Board
(Series A), 3.35% TRANs
(Louisiana State),
10/25/1999 2,000,000
1,600,000 Louisiana PFA, Monroe City
School Board (Series C),
3.35% TRANs (Louisiana
State), 10/25/1999 1,600,000
TOTAL 3,600,000
MAINE-0.2%
1,000,000 Maine Municipal Bond Bank,
(Series E), 5.80%,
11/1/1999 1,010,851
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
MARYLAND-6.0%
$ 3,000,000 Baltimore County, MD
Metropolitan District,
(995 Series), 3.00% CP
(Westdeutsche Landesbank
Girozentrale LIQ),
Mandatory Tender 9/10/1999 $ 3,000,000
890,000 Maryland EDC, Variable
Rate Demand/Fixed Rate
Refunding Revenue Bonds
(1997 Issue) Weekly VRDNs
(Jenkins Memorial Nursing
Home, Inc. Facility)/
(FMB Bank LOC) 890,000
3,115,000 Maryland Health & Higher
Educational Facilities
Authority, Facility
Authority
Revenue Bonds (Series
1998) Weekly VRDNs
(Woodbourne Foundation,
Inc.)/(FMB Bank LOC) 3,115,000
7,612,500 Maryland Health & Higher
Educational Facilities
Authority, Variable Rate
Revenue Bonds Weekly VRDNs
(Capitol College)/(FMB
Bank LOC) 7,612,500
1,000,000 Maryland State, (Series
1998) PA-256 Weekly VRDNs
(Merrill Lynch Capital
Services, Inc. LIQ) 1,000,000
10,900,000 Montgomery County, MD, EDR
Weekly VRDNs
(U.S. Pharmacopeial
Convention
Facility)/(Chase Manhattan
Bank N.A., New York LOC) 10,900,000
3,595,000 Prince George County, MD,
(1997 Issue) Weekly VRDNs
(Mona Branch Avenue Ltd.
Partnership)/(FMB Bank
LOC) 3,595,000
TOTAL 30,112,500
MICHIGAN-4.4%
1,800,000 ABN AMRO MuniTOPS
Certificates Trust
(Michigan Non-AMT) Series
1998-11, Weekly VRDNs
(DeWitt, MI Public
Schools)/(FSA INS)/(ABN
AMRO Bank N.V., Amsterdam
LIQ) 1,800,000
12,000,000 Michigan State Hospital
Finance Authority, (Series
A) Weekly VRDNs (OSF Health
Care Systems) 12,000,000
3,700,000 Michigan State Housing
Development Authority,
(Series 1991) Weekly VRDNs
(Forest Hills
Apartments)/(National
Australia Bank, Ltd.,
Melbourne LOC) 3,700,000
5,000,000 Wayne Westland Community
Schools, MI, Floater
Certificates Series 1998-
67 Weekly VRDNs (FGIC
INS)/(Morgan Stanley, Dean
Witter Municipal Funding,
Inc. LIQ) 5,000,000
TOTAL 22,500,000
MINNESOTA-8.1%
2,800,000 Hennepin Co. MN, (Series
1995C) Weekly VRDNs 2,800,000
10,000,000 Minneapolis, MN, (Series
1993) Weekly VRDNs (Market
Square Real Estate,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 10,000,000
15,000,000 Rochester, MN Health Care
Facility Authority Weekly
VRDNs (Mayo
Foundation)/(Rabobank
Nederland, Utrecht LIQ) 15,000,000
9,000,000 Rochester, MN Health Care
Facility Authority Weekly
VRDNs (Mayo
Foundation)/(Rabobank
Nederland, Utrecht LIQ) 9,000,000
4,000,000 St. Paul, MN Port
Authority, (Series 1991)
Weekly VRDNs (West Gate
Office)/(U.S. Bank, N.A.,
Minneapolis LOC) 4,000,000
TOTAL 40,800,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
MISSOURI-3.5%
$ 5,000,000 Missouri State
Environmental Improvement
& Energy Authority, PCRBs
(Series 1985B), 3.15% CP
(Union Electric
Co.)/(Westdeutsche
Landesbank Girozentrale
LOC), Mandatory Tender
6/10/1999 $ 5,000,000
4,750,000 Missouri State HEFA,
(Series K), 4.25% TRANs
(St. Louis, MO School
District), 9/13/1999 4,757,803
3,115,000 Missouri State HEFA,
Health Facilities Revenue
Bonds (Series 1996A)
Weekly VRDNs (Deaconess
Long Term Care of
Missouri)/(Bank One, Texas
N.A. LOC) 3,115,000
4,950,000 2 Missouri State HEFA, PT-
191, 3.25% TOBs (Health
Midwest)/(MBIA INS)/(Banco
Santander, S.A. LIQ),
Optional Tender 5/11/2000 4,950,000
TOTAL 17,822,803
MULTI STATE-6.7% 8,093,736 ABN AMRO Chicago Corp.
1997-1 LeaseTOPS Trust
Weekly VRDNs (Lasalle
National Bank, Chicago
LIQ)/(Lasalle National
Bank, Chicago LOC) 8,093,736
11,887,000 Clipper Tax-Exempt Trust
(Non-AMT Multistate),
(Series A) Weekly VRDNs
(MBIA INS) (State Street
Bank and Trust Co. LIQ) 11,887,000
13,782,040 Equity Trust I, (1996
Series) Weekly VRDNs
(Bayerische Hypotheken-Und
Wechsel Bank AG LOC) 13,782,040
TOTAL 33,762,776
NEW MEXICO-1.0%
5,000,000 New Mexico Mortgage
Finance Authority, (1999
Issue 2), 3.05% Bonds
(Trinity Funding Co. INV),
8/3/1999 5,000,000
NEW YORK-1.5%
5,000,000 New York City, NY, UT GO (Series F), 4.10% Bonds,
8/1/1999 5,002,433
2,500,000 Triborough Bridge & Tunnel
Authority, NY, Trust
Receipts (Series 1998
FR/RI-A1) Weekly VRDNs
(Bayerische Hypotheken-und
Vereinsbank AG LIQ) 2,500,000
TOTAL 7,502,433
NORTH CAROLINA-4.9%
20,000,000 Martin County, NC IFA,
(Series 1993) Weekly VRDNs
(Weyerhaeuser Co.) 20,000,000
5,000,000 North Carolina State, (Series 1998A) PA-342 Weekly VRDNs
(Merrill Lynch Capital Services, Inc.
LIQ) 5,000,000
TOTAL 25,000,000
OHIO-3.4%
7,790,000 Clark County, OH, (Series
1998 Health Facilities)
Weekly VRDNs (Ohio Masonic
Home)/(Allied Irish Banks
PLC LOC) 7,790,000
5,055,000 Erie County, OH,
Adjustable Rate Demand
Health Care Facilities
Bonds (Series 1996A)
Weekly VRDNs (Providence
Care Center)/(Fifth Third
Bank of
Northwestern OH LOC) 5,055,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
OHIO-CONTINUED
$ 3,000,000 Scioto County, OH Hospital
Authority Weekly VRDNs
(AMBAC Financial Group,
Inc. INS)/(First National
Bank of Chicago LIQ) $ 3,000,000
1,500,000 South-Western City School
District, OH, 3.00% BANs
(AMBAC Financial
Group, Inc. INS), 12/1/1999 1,500,000
TOTAL 17,345,000
OKLAHOMA-1.1%
2,440,000 Muskogee, OK Industrial
Trust, (Series 1985)
Weekly VRDNs (Muskogee
Mall Limited
Partnership)/(Nationsbank,
N.A., Charlotte LOC) 2,440,000
3,310,000 Muskogee, OK Industrial
Trust, (Series 1985)
Weekly VRDNs (Warmack
Muskogee Ltd.
Partnership)/(Nationsbank,
N.A., Charlotte LOC) 3,310,000
TOTAL 5,750,000
PENNSYLVANIA-5.9%
24,000,000 Erie County, PA Hospital
Authority Weekly VRDNs
(St. Vincent Health
System)/(Mellon Bank N.A.,
Pittsburgh LOC) 24,000,000
1,000,000 Lancaster County, PA
Hospital Authority, Health
Center Revenue Bonds
(Series 1996) Weekly VRDNs
(Masonic Homes) 1,000,000
5,000,000 Philadelphia, PA, 4.25%
TRANs, 6/30/1999 5,002,354
TOTAL 30,002,354
SOUTH CAROLINA-0.4%
2,000,000 Florence County, SC Public
Facility Corp., Law
Enforcement Project-Civic
Center, 7.60% Bonds
(Florence County,
SC)/(United States
Treasury PRF), 3/1/2000
(@101) 2,082,517
SOUTH DAKOTA-1.2%
6,000,000 South Dakota Housing
Development Authority,
(Series 1999C),
3.20% BANs, 4/7/2000 6,000,000
TEXAS-8.8%
5,360,000 2 ABN AMRO MuniTOPS Certificates Trust (Multi- State Non-AMT)
Series 1998-26, 3.35% TOBs (Grapevine-Colleyville, TX
ISD)/(Texas Permanent School Fund Guarantee Program GTD)/(ABN
AMRO Bank N.V., Amsterdam LIQ), Optional
Tender 11/17/1999 5,360,000
3,528,000 2 ABN AMRO MuniTOPS
Certificates Trust
(Multistate Non-AMT)
Series 1998-24, 3.25% TOBs
(Barbers Hill, TX
ISD)/(Texas Permanent
School Fund Guarantee
Program GTD)/(ABN AMRO
Bank N.V., Amsterdam LIQ),
Optional Tender 11/10/1999 3,528,000
10,890,000 Aldine, TX ISD (Series
1997) SGB-30 Weekly VRDNs
(Texas Permanent School
Fund Guarantee Program
GTD)/(Societe Generale,
Paris LIQ) 10,890,000
3,325,000 Dallas, TX, (Series C),
3.70% TOBs, Optional
Tender 6/15/1999 3,325,000
2,080,000 Houston, TX, (Series C),
5.50% Bonds, 4/1/2000 2,119,769
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
TEXAS-CONTINUED
$ 4,945,000 2 Round Rock ISD, TX, (PT-
1138), 3.25% TOBs (Texas
Permanent School Fund
Guarantee Program
GTD)/(Merrill Lynch
Capital Services, Inc.
LIQ), Optional Tender
12/9/1999 $ 4,945,000
5,500,000 San Antonio, TX Water
Authority, Capital
Appreciation Bonds,
0/3.251%
(United States Treasury
PRF), 5/1/2000 (@42.652) 2,277,706
2,175,000 TX Pooled Tax Exempt Trust,
Certificates of
Participation (Series
1996) Weekly VRDNs (Bank
One, Texas N.A. LOC) 2,175,000
10,000,000 Texas State, 4.50% TRANs,
8/31/1999 10,029,736
TOTAL 44,650,211
VIRGINIA-7.3%
17,500,000 ABN AMRO MuniTOPS
Certificates Trust
(Virginia Non-AMT) Series
1998-21, Weekly VRDNs
(Norfolk, VA Water
Revenue)/(FSA INS)/(ABN
AMRO Bank N.V., Amsterdam
LIQ) 17,500,000
12,000,000 Fairfax County, VA IDA,
1998 Trust Receipts FR/RI-
A35 Weekly VRDNs (Fairfax
Hospital System)/(National
Westminster Bank, PLC,
London LIQ)/(United States
Treasury PRF) 12,000,000
7,400,000 Virginia Resources
Authority, Water and Sewer
(Series 1997) Weekly VRDNs
(Henrico County,
VA)/(Crestar Bank of
Virginia, Richmond LIQ) 7,400,000
TOTAL 36,900,000
WASHINGTON-0.9%
1,500,000 Washington Health Care
Facilities Authority,
(Series A), 4.25% Bonds
(Virginia Mason Medical
Center)/(MBIA INS),
8/15/1999 1,502,964
2,775,000 Washington State, Motor
Vehicle Fuel Tax (1997-B),
5.00% Bonds, 7/1/1999 2,779,134
TOTAL 4,282,098
WEST VIRGINIA-2.2%
6,720,000 Cabell County Commission,
WV, Life Care Facilities
Multi-Option Revenue Bonds
(Series 1995) Weekly VRDNs
(Foster
Foundation)/(Huntington
National Bank, Columbus,
OH LOC) 6,720,000
2,980,000 Oak Hill, WV, (Series 1991A) Weekly VRDNs (Fayette Plaza)/(ABN
AMRO
Bank N.V., Amsterdam LOC) 2,980,000
1,160,000 West Virginia Water
Development Authority,
Loan Program 11-B-FSA
Certificates, 7.50% Bonds
(United States Treasury
PRF), 11/1/1999 (@102) 1,202,965
TOTAL 10,902,965
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
WISCONSIN-1.0%
$ 3,300,000 Wisconsin HEFA, Revenue
Bonds (Series 1994) Weekly
VRDNs (Felician Health
Care, Inc. Project)/(First
National Bank of Chicago
LOC) $ 3,300,000
1,645,000 Wisconsin HEFA, Revenue
Bonds (Series 1998), 3.10%
Bonds (Marquette
University, WI)/(MBIA
INS), 6/1/1999 1,645,000
TOTAL 4,945,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 3 $ 504,304,319
</TABLE>
1 The fund 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 Services, Inc., or F-1+, F-1 and F-2
by Fitch IBCA, 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
fund 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, 1999, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.0% 0%
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's Board of Trustees. At May 31, 1999, these
securities amounted to $38,278,000, which represents 7.57% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($505,585,232) at May 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation AMT -Alternative Minimum
Tax BANs -Bond Anticipation Notes COL -Collateralized CP -Commercial Paper EDC
- -Economic Development Commission EDR -Economic Development Revenue FGIC
- -Financial Guaranty Insurance Company FSA -Financial Security Assurance GNMA
- -Government National Mortgage Association GO -General Obligation GTD -Guaranty
HEFA -Health and Education Facilities Authority HFA -Housing Finance Authority
IDA -Industrial Development Authority IDR -Industrial Development Revenue IFA
- -Industrial Finance Authority INS -Insured INV -Investment Agreement ISD
- -Independent School District LIQ -Liquidity Agreement LOC -Letter of Credit MBIA
- -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series PCRB
- -Pollution Control Revenue Bonds PFA -Public Facility Authority PLC -Public
Limited Company PRF -Prerefunded SA -Support Agreement 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
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at amortized
cost and value $ 504,304,319
Cash 507,524
Income receivable 4,535,317
TOTAL ASSETS 509,347,160
LIABILITIES:
Payable for investments
purchased $ 2,340,000
Income distribution
payable 1,372,837
Accrued expenses 49,091
TOTAL LIABILITIES 3,761,928
Net assets for 505,615,231
shares outstanding $ 505,585,232
NET ASSETS CONSIST OF:
Paid in capital $ 505,607,371
Accumulated net realized
loss on investments (87,472)
Undistributed net
investment income 65,333
TOTAL NET ASSETS $ 505,585,232
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$505,585,232 / 505,615,231
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,172,079
EXPENSES:
Investment advisory fee $ 1,125,159
Administrative personnel
and services fee 212,092
Custodian fees 15,982
Transfer and dividend
disbursing agent fees and
expenses 18,609
Directors'/Trustees' fees 7,994
Auditing fees 7,470
Legal fees 6,947
Portfolio accounting fees 51,310
Shareholder services fee 703,224
Share registration costs 7,335
Printing and postage 13,989
Insurance premiums 26,819
Miscellaneous 5,472
TOTAL EXPENSES 2,202,402
WAIVERS:
Waiver of investment
advisory fee $ (366,684)
Waiver of shareholder
services fee (562,579)
TOTAL WAIVERS (929,263)
Net expenses 1,273,139
Net investment income 7,898,940
Net realized loss on
investments (11,051)
Change in net assets
resulting from operations $ 7,887,889
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 7,898,940 $ 17,911,917
Net realized gain (loss) on
investments (11,051) 11,456
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 7,887,889 17,923,373
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (7,898,940) (17,911,917)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 851,841,178 1,890,281,389
Net asset value of shares
issued to shareholders in
payment of
distributions declared 520,217 1,421,172
Cost of shares redeemed (864,651,783) (2,009,346,623)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (12,290,388) (117,644,062)
Change in net assets (12,301,439) (117,632,606)
NET ASSETS:
Beginning of period 517,886,671 635,519,277
End of period $ 505,585,232 $ 517,886,671
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<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 0.01 0.03 0.03 0.03 0.04 0.02
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01) (0.03) (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
TOTAL RETURN 1 1.42% 3.21% 3.31% 3.18% 3.57% 2.43%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.45% 2 0.45% 0.45% 0.45% 0.45% 0.45%
Net investment income 2.81% 2 3.17% 3.25% 3.12% 3.51% 2.38%
SUPPLEMENTAL DATA:
Net assets, end of
period
(000 omitted) $505,585 $517,887 $635,519 $747,785 $807,369 $1,215,547
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Tax-Free Trust (the "Fund") 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 Fund 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 Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses 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 Fund'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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $76,421, which will reduce the Fund'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 Fund 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
2005 14,032
2006 31,190
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand future. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees. The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Act.
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, 1999, capital paid-in aggregated $505,607,371.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
Shares sold 851,841,178 1,890,281,389
Shares issued to
shareholders in payment of
distributions declared 520,217 1,421,172
Shares redeemed (864,651,783) (2,009,346,623)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (12,290,388) (117,644,062)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser will waive, to the
extent of its advisory fee, the amount, if any, by which the Fund's aggregate
annual operating expenses exceed 0.45% of average daily net assets of the Fund.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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 FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended May 31, 1999, the Fund 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 $431,145,000 and $347,255,624,
respectively.
GENERAL
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund'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 Fund'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 Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
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 and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Tresurer
LESLIE K. ROSS
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 investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Tax-Free Trust
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1999
[Graphic]
Federated
Federated Tax-Free Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 314282104
8070103 (7/99)
[Graphic]
