MANAGEMENT DISCUSSION AND ANALYSIS
Federated Intermediate Municipal Trust
Annual Report for Fiscal Year Ended May 31, 1999
MARKET OVERVIEW
WHAT IS YOUR ANALYSIS OF THE MUNICIPAL MARKET OVER THE 12-MONTH REPORTING
PERIOD?
Demand for municipal bonds was impacted by "rate shock" from individual
investors which occurred when long term yields on municipal bonds were at or
below the 5.00% threshold. Institutional demand, which includes arbitrageurs,
property and casualty insurers and corporations, was relatively mixed with some
institutions actually being net sellers over the reporting period. Municipal
bond insurance continued to be a significant influence on the market. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector revealed specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors were
also vulnerable to credit deterioration as a result of the continuing effects of
deregulation.
FEDERAL INTERMEDIATE MUNICIPAL TRUST IS A HIGH QUALITY MUNICIPAL BOND FUND THAT
HAD A WEIGHTED AVERAGE QUALITY OF AA AT THE END OF THE REPORTING PERIOD. WHAT
ROLE DOES CREDIT ANALYSIS PLAY IN MANAGING THE FUND?
The fund uses a very credit intensive approach to select securities. We have
pulled together a team of experienced analysts who perform extensive research on
every issue. The analysts who work on this fund have an average of 13 years of
analytical experience. Each analyst also has relevant work experience in some of
the sectors that they follow. Each issue is independently reviewed by our
analysts regardless of whether or not it has received a rating from one of the
rating agencies. This review involves discussions with the issuer, borrower,
investment bankers, and other involved parties. When appropriate, the analyst
makes an on-site visit. After the research is complete, the analyst's
recommendation is reviewed by our credit committee, which consists of senior
department personnel, including portfolio managers and other analysts. If the
committee agrees that the security meets our standards, we buy it. After we
purchase an issue, we continue to follow it. In addition to following broad
sector trends, the credit staff reviews all of our securities on at least an
annual basis; many are reviewed more frequently - quarterly or even monthly.
When we see signs of changing situations, we alter our holdings accordingly.
FUND STRATEGY
The fund's goal is to provide a high level of tax-free income to our
shareholders, while also complying with the credit quality, duration management
and diversification policies which are in place. As interest rates rose over the
reporting period we took the opportunity to both generate tax loss carry
forwards and "coupon-up" within the fund's holdings of municipal bonds. Tax loss
carry forwards can be used to offset any capital gains which are realized in the
future and can be used to minimize or eliminate any distribution of capital
gains to shareholders. Couponing- up is the process of improving the book yield
on the fund's holdings which allows us to maintain or improve the dividend
stream that is passed on to the shareholders.
FUND PERFORMANCE
For the 12-month reporting period ended May 31, 1999, the fund produced a total
return of 3.59%. The 30-day current net yield on May 31, 1999 was 4.08%. 1
MARKET OUTLOOK
AS WE ENTER 1999, WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
The municipal bond market is undergoing some fundamental changes which are being
driven by new technology. The municipal bond markets use of these new
technologies will lead to better dissemination of information and potentially
greater market efficiency. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and
eventually, Internet trading of municipal bonds.
Looking forward, the volume of municipal issuance in 1999 is expected to be
around $230 billion with a potential increase in refunding volume in what may be
a lower interest rate environment. Municipal bond insurance may become less
prevalent as bond insurers pull away from certain sectors of the market and
toughen underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the market place may contribute to additional
credit spread widening in the coming few months.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. However, the market does not expect any
material interruptions in the supply of necessary municipal services. Still,
there remains the potential for some state functions to suffer temporary
disruptions.
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
LAST MEETING OF SHAREHOLDERS
A Special Meeting of Trust shareholders was held on March 23, 1999. As of
January 22, 1999, the record date for shareholder voting at the meeting, there
were 22,262,612 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Trustees. 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 15,044,931 677,893
John T. Conroy, Jr. 15,051,930 670,894
John F. Cunningham 15,051,930 670,894
Peter E. Madden 15,051,930 670,894
Charles F. Mansfield, Jr. 15,051,930 670,894
John E. Murray, Jr., J.D., S.J.D. 15,051,930 670,894
John S. Walsh 15,051,930 670,894
</TABLE>
1 The following Trustees continued their terms as Trustees of the Trust:
John F. Donahue, Lawrence D. Ellis, M.D., Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Arthur Andersen LLP as the Trust's independent public
auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
15,304,995 351,946 65,882
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To amend the Fund's fundamental investment policy on diversification of its
investments.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,616,079 665,354 1,130,207 311,184
</TABLE>
(b) To make non-fundamental, and to amend, the Fund's policy regarding acquiring
securities to exercise control of an issuer.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,522,467 703,081 1,130,207 367,069
</TABLE>
(c) To make non-fundamental, and to amend, the Fund's policy to permit the Fund
to invest in the securities of other investment companies.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,689,765 707,398 1,130,207 195,454
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding borrowing to
permit the purchase of securities while borrowings are outstanding.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,311,564 839,380 1,130,207 411,673
</TABLE>
AGENDA ITEM 4
To eliminate certain fundamental investment policies:
(a) To remove the Fund's investment policy on investing in new issuers.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,504,376 717,675 1,130,206 370,567
</TABLE>
(b) To remove the Fund's investment policy regarding concentration.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,424,550 750,409 1,130,207 417,658
</TABLE>
(c) To remove the Fund's investment policy on investing in oil, gas, and
minerals.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,419,998 800,304 1,130,207 372,315
</TABLE>
AGENDA ITEM 5
To approve an amendment and restatement to the Trust's Declaration of Trust to
permit the board of Trustees to liquidate assets of the Trust without
shareholder approval.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
13,530,769 683,176 1,130,208 378,671
</TABLE>
INSTITUTIONAL SHARES
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE MUNICIPAL TRUST
[Graphic]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED MAY 31, 1999
<S> <C>
1 Year 3.59%
5 Years 5.22%
10 Years 6.29%
</TABLE>
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Intermediate Municipal Trust (the "Fund") from May 31, 1989 to May 31,
1999, compared to the Lehman Brothers 7-Year General Obligation Municipal Bond
Index ("LB7YRGOMBI")2 and the Lipper Intermediate Municipal
Debt Funds Average ("LIMDFA").3
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated July
31, 1999, and, together with financial statements contained therein, constitutes
the Fund's annual report.
1 Represents a hypothetical investment of $25,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LB7YRGOMBI and LIMDFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average.
2 The LB7YRGOMBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
3 The LIMDFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses and other fees that the SEC
requires to be reflected in a fund's performance.
[Graphic]
Federated
Federated Intermediate Municipal Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 458810108
G00289-01 (7/99)
[Graphic]
INTERMEDIATE MUNICIPAL TRUST
The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Shares of
Federated Intermediate Municipal Trust (the "Fund") are represented by a solid
line. The Lipper Intermediate Municipal Debt Funds Average ("LIMDFA") is
represented by a broken line and the Lehman Brothers 7 Year General Obligations
Municipal Bond Index ("LB7YRGOMBI") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a $25,000
hypothetical investment in the Shares of the Fund, the LIMDFA and the
LB7YRGOMBI. The "x" axis reflects computation periods from 5/31/1989 to
5/31/1999. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Shares as
compared to the LIMDFA and the LB7YRGOMBI. The ending values were $46,014,
$47,216, and $50,214, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Shares Average Annual Total Return for
the one-year, five-year and ten-year periods ended 5/31/1999. The total returns
were 3.59%, 5.22%, and 6.29%, respectively.
