FEDERATED SHORT-TERM MUNICIPAL TRUST
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares offered by this prospectus represent interests in a
diversified portfolio of securities of Federated Short-Term Municipal Trust
(the "Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. The Trust pursues this investment
objective by investing in a portfolio of municipal securities with a
dollar-weighted average maturity of less than three years.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Trust. Keep this prospectus for future
reference.
The Trust has also filed a Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated August 31, 1996,
with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or make inquiries about the
Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated August 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES 1
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 5
Investment Limitations 6
TRUST INFORMATION 6
Management of the Trust 6
Distribution of Institutional Shares 7
Administration of the Trust 8
NET ASSET VALUE 8
INVESTING IN INSTITUTIONAL SHARES 9
Share Purchases 9
Minimum Investment Required 9
What Shares Cost 9
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SHARES 10
Telephone Redemption 10
Written Requests 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
OTHER CLASSES OF SHARES 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28
ADDRESSES 29
</TABLE>
SUMMARY OF TRUST EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fee (after waiver)(1) 0.27%
12b-1 Fee None
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.47%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of a portion
of the management fee. The maximum management fee is 0.40%.
(2) The maximum shareholder services fee is 0.25%.
(3) Total Trust operating expenses would have been 0.85% absent the waiver
of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in
Institutional Shares" and "Trust Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period $5 $15 $26 $59
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Trust. The Trust also offers another class of
shares called Institutional Service Shares. Institutional Shares and
Institutional Service Shares are subject to certain of the same expenses;
however, Institutional Service Shares are subject to a 12b-1 fee of up to
0.25%. See "Other Classes of Shares."
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24 $10.31
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57 0.54 0.51
Net realized
and unrealized
gain (loss) on
investments (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09) (0.05) (0.07)
Total from
investment
operations 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48 0.49 0.44
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57) (0.54) (0.51)
NET ASSET VALUE
END OF PERIOD $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24
TOTAL RETURN(A) 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84% 4.89% 4.37%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46% 0.47% 0.47%
Net investment
income 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59% 5.25% 4.95%
Expense waiver/
reimbursement(b) 0.25% -- -- -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978 $315,154 $483,279
Portfolio turnover 20% 33% 36% 15% 42% 40% 69% 55% 63% 57%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease for the shareholder services fee is
reflected in both the expense and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's Annual Report for the fiscal year ended June 30, 1996, which can be
obtained free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 8, 1981. On December 15, 1994, the name of
the Trust was changed from Short-Term Municipal Trust to Federated
Short-Term Municipal Trust. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one
portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two
classes of shares of the Trust, known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares (the "Shares") of the Trust.
Shares of the Trust are sold primarily to accounts for which financial
institutions act in a fiduciary or agency capacity, or other accounts where
the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. An investment in the Trust
serves as a convenient means of accumulating an interest in a professionally
managed, diversified portfolio of municipal securities. A minimum initial
investment of $25,000 over a 90-day period is required. The Trust may not be
a suitable investment for retirement plans since it invests in municipal
securities.
Shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Trust.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. Interest income of the Trust that is
exempt from federal regular income tax retains its tax-free status when
distributed to the Trust's shareholders. The Trust attempts to achieve its
investment objective by investing at least 80% of its net assets in a
diversified portfolio of municipal securities or by investing its assets so
that at least 80% of its income will be tax-exempt. While there is no
assurance that the Trust will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.
The investment objective, and the above investment policy, cannot be changed
without approval of shareholders.
INVESTMENT POLICIES
The investment policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Trust invests
are:
* debt obligations issued by or on behalf of any state, territory, or
possession of the United States, including the District of Columbia, or
any political subdivision of any of these, including industrial development
bonds, the interest from which is, in the opinion of bond counsel for the
issuers or in the opinion of officers of the Trust and/or the investment
adviser to the Trust, exempt from federal regular income tax; and
* participation interests, as described below, in any of the above
obligations.
AVERAGE MATURITY. The dollar-weighted average maturity of the Trust's
portfolio of municipal securities will be less than three years. For
purposes of determining the dollar-weighted average maturity of the Trust's
portfolio, the maturity of a municipal security will be its ultimate
maturity, unless it is probable that the issuer of the security will take
advantage of maturity-shortening devices such as a call, refunding, or
redemption provision, in which case the maturity date will be the date on
which it is probable that the security will be called, refunded, or
redeemed. If the municipal security includes the right to demand payment,
the maturity of the security for purposes of determining the Trust's
dollar-weighted average maturity will be the period remaining until the
principal amount of the security can be recovered by exercising the right to
demand payment.
CHARACTERISTICS. The municipal securities in which the Trust invests are:
* rated within the three highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa or A) or by Standard & Poor's
Ratings Group ("S&P") (AAA, AA, or A);
* guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest, such as Tax Exempt Project Notes;
* fully collateralized by an escrow of U.S. government or other securities
acceptable to the Trust's adviser;
* rated at the time of purchase within Moody's highest short-term municipal
securities rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (P-1) or S&P's highest municipal commercial paper rating
(A-1);
* unrated if, at the time of purchase, longer term municipal securities of
the issuer are rated A or better by Moody's or S&P or
* determined by the Trust's investment adviser to be equivalent to municipal
securities which are rated A or better by Moody's or by S&P.
Downgraded securities will be evaluated on a case-by-case basis by the
adviser. The adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. The prices
of fixed income securities fluctuate inversely to the direction of interest
rates. A description of the rating categories is contained in the Appendix
to the Statement of Additional Information.
PARTICIPATION INTERESTS. The Trust may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Trust an
undivided interest in municipal securities. The financial institutions from
which the Trust purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will determine
that participation interests meet the prescribed quality standards for the
Trust.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Trust purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate or interest rate
index or some similar standard, such as the 91-day U.S. Treasury bill rate.
Variable rate municipal securities will be treated as maturing on the date
of the next scheduled adjustment to the interest rate for purposes of
determining the dollar-weighted average maturity of the portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
municipal securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Trust may realize short-term profits
or losses upon the sale of such commitments.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Trust may invest in short-term temporary investments
which may or may not be exempt from federal income tax. Temporary
investments include: tax-exempt variable and floating rate demand notes;
tax-free commercial paper; other temporary municipal securities; obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of domestic branches of U.S. banks; and repurchase agreements
(arrangements in which the organization selling the Trust a security agrees
at the time of sale to repurchase it at a mutually agreed upon time and
price).
There are no rating requirements applicable to temporary investments with
the exception of temporary municipal securities which are subject to the
same rating requirements as all other municipal securities in which the
Trust invests. However, the investment adviser will limit temporary
investments to those it considers to be of comparable quality to the
acceptable investments of the Trust.
Although the Trust is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax.
MUNICIPAL SECURITIES
Municipal securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including:
the general conditions of the money market and the taxable and municipal
bond markets; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to
achieve its investment objective also depends on the continuing ability of
the issuers of municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of interest
and principal when due.
INVESTMENT LIMITATIONS
The Trust will not:
* Invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or
* borrow money or pledge securities except, under certain circumstances, the
Trust may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
The Trust will not:
* commit more than 15% of its net assets to illiquid obligations;
* invest more than 10% of its total assets in securities subject to
restrictions on resale; or
* invest more than 5% of its total assets in industrial development bonds
of issuers that have a record of less than three years of continuous
operations.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser (the "Adviser"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Trust and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Trust.
ADVISORY FEES. The Trust's Adviser receives an annual investment advisory
fee equal to .40% of the Trust's average daily net assets. Under the
investment advisory contract, the Adviser will reimburse the Trust the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its investment advisory fee,
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws and regulations, expenses of withholding taxes, and extraordinary
expenses, exceed .45% of its average daily net assets. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities. The Adviser has also
undertaken to reimburse the Trust for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Jonathan C. Conley has been the Trust's portfolio manager since January
1984. Mr. Conley joined Federated Investors in 1979 and has been a Senior
Vice President of the Trust's investment adviser since 1995. Mr. Conley was
a Vice President of the Trust's investment adviser from 1982 to 1995. Mr.
Conley is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Virginia.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 1, 1996.
Mr. Kozemchak joined Federated Investors in 1987 and has been a Vice
President of the Trust's investment adviser since 1993. Mr. Kozemchak served
as an Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 until 1990 he acted as an investment analyst. Mr.
Kozemchak is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University in 1987.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Trust and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Trust's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees and could result in severe
penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities law may require certain financial institutions such as
depository institutions to register as dealers.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
0.15 % on the first $250 million
0.125 % on the next $250 million
0.10 % on the next $250 million
0.075 % on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Distribution Plan and Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount
of shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Trust's investment adviser or its affiliates.
NET ASSET VALUE
The Trust's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Trust, subtracting the
interest of the Shares in the liabilities of the Trust and those
attributable to Shares, and dividing the remainder by the total number of
Shares outstanding. The net asset value for Shares may differ from that of
Institutional Service Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income
to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SHARES
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the
telephone. The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o
State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Short-Term Municipal Trust Institutional
Shares; Trust Number (this number can be found on the account statement or
by contacting the Trust); Group Number or Wire Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased on
days on which the New York Stock Exchange is closed and on federal holidays
restricting wire transfers. Questions on wire purchases should be directed
to your shareholder services representative at the telephone number listed
on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Short-Term Municipal Trust-Institutional Shares to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by
mail are considered received after payment by check is converted into
federal funds. This is normally the next business day after the check is
received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any financial
intermediary's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. The
minimum investment for an institutional investor will be calculated by
combining all accounts it maintains with the Trust. Accounts established
through a financial intermediary may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on (i) days on which there are not sufficient changes in the value of
the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just
prior to determining net asset value. If an order for Shares is placed on
the preceding business day, Shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street Bank. If the
order for Shares and payment by wire are received on the same day, Shares
begin earning dividends on the next business day. Shares purchased by check
begin earning dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested in additional Shares unless cash payments are
requested by contacting the Trust.
CAPITAL GAINS
Distributions of net realized long-term capital gains realized by the Trust,
if any, will be made at least annually.
REDEEMING INSTITUTIONAL SHARES
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. Redemptions may be made on days on which the Trust computes
its net asset value. Redemption requests must be received in proper form and
can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00
p.m. (Eastern time). The proceeds will normally be wired the following
business day, but in no event more than seven days, to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System. If at any time the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be
promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can
be obtained through Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Trust, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Written Requests," should be
considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Call the Trust for specific instructions before redeeming by
letter. The shareholder will be asked to provide in the request his name,
the Trust name and class of shares, his account number, and the Share or
dollar amount requested. If Share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to
an address other than that on record with the Trust, or a redemption payable
other than to the shareholder of record must have their signatures
guaranteed by:
* a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
* a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
* any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934, as amended.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Trust and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust
may redeem Shares in any account and pay the proceeds to the shareholder if
the account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Trust's net asset
value. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to
meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular portfolio or class, only shares of
that portfolio or class are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of shareholders shall be called for this purpose
by the Trustees upon written request of shareholders owning at least 10% of
the outstanding shares of the Trust entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, dividends representing net interest earned on some
municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum taxable
income is equal to the regular taxable income of the taxpayer increased by
certain "tax preference" items not included in regular taxable income and
reduced by only a portion of the deductions allowed in the calculation of
the regular tax.
Interest on certain "private activity" bonds issued after August 7, 1986, is
treated as a tax preference item for both individuals and corporations.
Unlike traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Trust may purchase
all types of municipal bonds, including private activity bonds. Thus, while
the Trust has no present intention of purchasing any private activity bonds,
should it purchase any such bonds, a portion of the Trust's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Trust
which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Trust dividend, and alternative minimum
taxable income does not include the portion of the Trust's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Trust representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged
to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Trust advertises its total return, yield, and
tax-equivalent yield for Institutional Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income
and capital gain distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by Shares over a thirty-day period by the maximum
offering price per share of Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The tax-equivalent
yield of Shares is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that Shares would have had to earn to equal its
actual yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The Trust is sold without any sales charge or other similar non-recurring
charges.
Total return, yield, and tax-equivalent yield will be calculated separately
for Shares and Institutional Service Shares.
From time to time, advertisements for the Trust may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Trust's performance to certain indices.
OTHER CLASSES OF SHARES
The Trust also offers another class of shares called Institutional Service
Shares.
Institutional Service Shares are sold primarily to retail and private
banking customers of financial institutions at net asset value and are
subject to a minimum initial investment of $25,000.
Institutional Shares and Institutional Service Shares are subject to certain
of the same expenses; however, Institutional Service Shares are distributed
pursuant to a 12b-1 Plan adopted by the Trust whereby the distributor is
paid a fee of up to 0.25% of the Institutional Service Shares' average daily
net assets. Expense differences between Institutional Shares and
Institutional Service Shares may affect the performance of each class.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of
shares of the Trust is sold.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Institutional Service
Shares, investors may call 1-800-341-7400.
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.28 $10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments (0.04) 0.13 (0.20)
Total from investment operations 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.24 $10.28 $10.15
TOTAL RETURN(B) 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72% 0.71% 0.72%*
Net investment income 3.90% 3.69% 3.65%*
Expense waiver/reimbursement(c) 0.25% 0.25% 0.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,209 $5,223 $31,459
Portfolio turnover 20% 33% 36%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public offering) to June 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease for the distribution services fee and
shareholder services fee is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's Annual Report for the fiscal year ended June 30, 1996, which can be
obtained free of charge.
FEDERATED SHORT-TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- 99.0%
ALABAMA -- 3.0%
$ 4,000,000 Alabama State, UT GO Refunding Bonds, 5.55%, 9/1/1997 AA $ 4,081,080
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,907,572
Total 5,988,652
CALIFORNIA -- 18.1%
4,000,000 California State, UT GO Bonds, 10.00%, 4/1/1998 Aa 4,383,440
7,500,000 California State, UT GO Bonds, 6.50%, 11/1/1997 A1 7,759,500
2,000,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.30% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/1998 A 1,991,640
2,000,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.60% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/1999 A 1,980,880
1,500,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.80% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/2000 A 1,485,045
13,000,000 Los Angeles, CA Wastewater System, Revenue Bonds
(Series D), 6.70% (MBIA INS)/(United States Treasury
PRF)/(Original Issue Yield: 6.769%), 12/1/2000 (@102) Aaa 14,318,590
3,310,000 University of California, Hospital Revenue Refunding
Bonds, 8.00% (UCLA Medical Center)/(MBIA INS),
12/1/1998 Aaa 3,593,402
Total 35,512,497
CONNECTICUT -- 2.0%
4,000,000 State of Connecticut Special Assessment Unemployment
Compensation Advance Fund, Refunding Revenue
Bonds, Series 1996A, 4.50% (AMBAC LOC)/(Original
Issue Yield: 4.55%), 11/15/1999 Aaa 3,996,720
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
GEORGIA -- 3.2%
$ 2,000,000 Atlanta, GA, Airport Facilities Revenue Refunding
Bonds (Series 1996), 5.25% (AMBAC INS), 1/1/1999 Aaa $ 2,032,360
4,060,000 Georgia State, UT GO Bonds (Series D), 8.40%, 6/1/1997 Aaa 4,231,332
Total 6,263,692
HAWAII -- 7.9%
5,000,000 Hawaii State, UT GO Bonds (Series BN), 7.10%
(United States Treasury PRF), 6/1/1998 (@101.5) Aaa 5,339,100
5,500,000 Hawaii State, UT GO Refunding Bonds (Series BV),
5.40% (Original Issue Yield: 5.45%), 11/1/1997 AA 5,609,065
4,500,000 Honolulu, HI City & County, UT GO Bonds (Series B),
4.80% (Original Issue Yield: 4.90%), 6/1/1998 AAA 4,548,870
Total 15,497,035
ILLINOIS -- 3.1%
2,900,000 Illinois State Sales Tax, Revenue Bonds (Series V),
5.625%, 6/15/1998 AAA 2,975,690
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA- 3,075,120
Total 6,050,810
LOUISIANA -- 3.8%
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A),
6.00% (FGIC INS), 8/1/2000 Aaa 7,349,440
MICHIGAN -- 3.1%
3,000,000 Michigan Underground Storage Tank Financial
Assurance Authority, Revenue Refunding Bonds
(Series I), 5.00% (AMBAC INS), 5/1/1999 Aaa 3,036,630
3,000,000 Michigan Underground Storage Tank Financial
Assurance Authority, Revenue Refunding Bonds
(Series I), 5.00% (AMBAC INS), 5/1/2001 Aaa 3,031,260
Total 6,067,890
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
MINNESOTA -- 2.6%
$ 5,000,000 Minnesota State, UT GO Refunding Bonds, 4.70%,
8/1/1997 AA+ $ 5,049,750
NEVADA -- 7.1%
8,500,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bond, 4.75% (Original Issue
Yield: 4.90%), 4/1/1998 AA 8,574,375
5,000,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bonds, 7.00%, 4/1/1999 AA 5,306,400
Total 13,880,775
NEW HAMPSHIRE -- 4.3%
7,900,000 New Hampshire State Turnpike System, Revenue Bonds,
8.25% (United States Treasury PRF)/(Original Issue
Yield: 8.30%), 11/1/1997 (@102) Aaa 8,502,928
NEW JERSEY -- 7.6%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,499,100
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C),
6.50%, 1/15/2002 AA+ 7,318,150
Total 14,817,250
NEW MEXICO -- 4.4%
8,650,000 Albuquerque, NM, GO UT Bonds (Series A & B), 4.60%,
7/1/1998 AA 8,715,135
NEW YORK -- 2.7%
5,000,000 New York City Municipal Water Finance Authority,
Water & Sewer System Revenue Bonds (Series A),
7.20%, 6/15/1999 A 5,343,700
OHIO -- 3.7%
3,630,000 Lucas County, OH HFA, Refunding Revenue Bonds
(Series 1996), 5.00% (ProMedica Healthcare Obligated
Group)/(MBIA INS), 11/15/1999 Aaa 3,677,626
3,600,000 Miami Valley Regional Transit Authority, OH, Ltd Tax
GO Bonds, 4.75%, 4/15/1997 A 3,625,416
Total 7,303,042
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
OREGON -- 2.1%
$ 2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bond, Westside Project, 5.375%
(MBIA INS), 6/1/1999 Aaa $ 2,049,320
2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bond, Westside Project, 5.50%
(MBIA INS), 6/1/2000 Aaa 2,064,980
Total 4,114,300
PENNSYLVANIA -- 8.0%
5,000,000 Commonwealth of Pennsylvania, UT GO Second Series
Refunding Bonds, 4.75%, 6/15/1998 AA- 5,048,900
4,375,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Bond, City of Philadelphia Funding
Program, 5.40% (FGIC INS)/(Original Issue Yield:
5.50%), 6/15/1997 Aaa 4,445,350
4,000,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Refunding Bonds, Philadelphia
Funding Program, 5.75% (FGIC INS), 6/15/1999 Aaa 4,128,800
2,000,000 Pennsylvania State Higher Education Facilities
Authority, Health Services Revenue Bonds (Series A),
4.60% (Allegheny Delaware Valley Obligated Group)/
(MBIA INS)/(Original Issue Yield: 4.65%), 11/15/1999 Aaa 1,998,660
Total 15,621,710
TEXAS -- 6.9%
3,000,000 Mesquite, TX Independent School District No. 1, UT GO
Refunding Bonds, 7.00%, 2/15/1997 A+ 3,059,700
2,425,000 Texas State Public Property Finance Corp., Revenue
Refunding Bonds, 4.30% (Mental Health & Retardation,
TX)/(FSA INS), 9/1/1997 Aaa 2,434,894
4,440,000 Texas State, UT GO Public Finance Authority (Series B),
8.00%, 10/1/1999 AA 4,903,492
3,000,000 Texas State, UT GO Public Finance Authority (Series C),
6.50%, 10/1/1997 AA 3,096,330
Total 13,494,416
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
WASHINGTON -- 5.4%
$ 3,000,000 Washington State, UT GO Bonds (Series B), 5.00%,
5/1/1998 AA $ 3,039,540
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%,
5/1/1999 AA 7,513,654
Total 10,553,194
TOTAL SHORT-INTERMEDIATE MUNICIPAL SECURITIES
(IDENTIFIED COST $192,280,606) 194,122,936
SHORT-TERM MUNICIPAL SECURITIES -- 2.6%
PENNSYLVANIA -- 0.3%
600,000 Geisinger Authority, PA Health System, (Series 1992B)
Daily VRDNs AA 600,000
PUERTO RICO -- 0.9%
1,700,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ 1,700,000
TEXAS -- 1.4%
2,800,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs
(Methodist Hospital, Houston, TX) AA 2,800,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) $ 5,100,000
TOTAL INVESTMENTS (IDENTIFIED COST $197,380,606)(A) $ 199,222,936
(a) The cost of investments for federal tax purposes amounts to
$197,380,606. The net unrealized appreciation of investments on a
federal tax basis amounts to $1,842,330 which is comprised of
$1,893,757 appreciation and $51,427 depreciation at June 30, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($195,676,284) at June 30, 1996.
The following acronym(s) are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
HFA -- Housing Finance Authority
HFDC -- Health Facility Development Corporation
INS -- Insured
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified and tax cost $197,380,606) $ 199,222,936
Cash 118,108
Income receivable 2,256,922
Receivable for investments sold 1,618,383
Receivable for shares sold 236,303
Total assets 203,452,652
LIABILITIES:
Payable for investments purchased $ 5,709,695
Payable for shares redeemed 1,547,752
Income distribution payable 494,308
Accrued expenses 24,613
Total liabilities 7,776,368
Net Assets for 19,106,684 shares outstanding $ 195,676,284
NET ASSETS CONSIST OF:
Paid in capital $ 200,697,688
Net unrealized appreciation of investments 1,842,330
Accumulated net realized loss on investments (6,863,734)
Total Net Assets $ 195,676,284
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$189,467,202 / 18,500,404 shares outstanding $10.24
INSTITUTIONAL SERVICE SHARES:
$6,209,082 / 606,280 shares outstanding $10.24
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,653,664
EXPENSES:
Investment advisory fee $ 837,213
Administrative personnel and services fee 158,326
Custodian fees 24,310
Transfer and dividend disbursing agent fees
and expenses 50,103
Directors'/Trustees' fees 13,381
Auditing fees 15,957
Legal fees 4,912
Portfolio accounting fees 77,741
Distribution services fee - Institutional Service Shares 14,775
Shareholder services fee - Institutional Shares 508,483
Shareholder services fee - Institutional Service Shares 14,775
Share registration costs 28,147
Printing and postage 16,909
Insurance premiums 6,711
Taxes 13,761
Miscellaneous 2,076
Total expenses 1,787,580
Waivers --
Waiver of investment advisory fee $ (266,026)
Waiver of distribution services fee -
Institutional Service Shares (13,988)
Waiver of shareholder services fee -
Institutional Shares (508,483)
Waiver of shareholder services fee -
Institutional Service Shares (786)
Total waivers (789,283)
Net expenses 998,297
Net investment income 8,655,367
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (175,989)
Net change in unrealized appreciation (614,249)
(depreciation) of investments
Net realized and unrealized gain on investments (790,238)
Change in net assets resulting from operations $ 7,865,129
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 8,655,367 $ 11,058,131
Net realized gain (loss) on investments ($(2,597,123) and
$1,189,491, respectively, as computed for federal tax
purposes (175,989) (3,533,063)
Net change in unrealized appreciation (depreciation) (614,249) 5,627,330
Change in net assets resulting from operations 7,865,129 13,152,398
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (8,424,725) (10,679,008)
Institutional Service Shares (230,642) (379,123)
Change in net assets resulting from
distributions to shareholders (8,655,367) (11,058,131)
SHARE TRANSACTIONS --
Proceeds from sale of shares 64,151,068 51,547,320
Net asset value of shares issued to
shareholders in payment of distributions declared 2,372,964 2,700,836
Cost of shares redeemed (92,993,242) (181,676,422)
Change in net assets resulting from share transactions (26,469,210) (127,428,266)
Change in net assets (27,259,448) (125,333,999)
NET ASSETS:
Beginning of period 222,935,732 348,269,731
End of period $ 195,676,284 $ 222,935,732
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION
Federated Short-Term Municipal 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 Trust offers two classes of
shares: Institutional Shares and Institutional Service Shares. The
investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. The Trust pursues this investment
objective by investing in a portfolio of municipal securities with a
dollar-weighted average maturity of less than three years.
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 -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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 June 30, 1996, the Trust, for federal tax purposes, had a capital loss
carryforward of $6,687,424, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<C> <C>
1997 $ 1,097,445
1998 $ 1,729,378
1999 $ 11,866
2001 $ 62,121
2003 $ 1,189,491
2004 $ 2,597,123
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
Additionally, net capital losses of $175,989 attributable to security
transactions incurred after October 31, 1995 are treated as arising on July
1, 1996, the first day of the Trust's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 5,801,109 $ 59,763,022 4,823,992 $ 48,787,554
Shares issued to shareholders in payment of
distributions declared 210,577 2,168,702 234,548 2,373,194
Shares redeemed (8,687,459) (89,426,238) (15,099,319) (152,318,952)
Net change resulting from Institutional share
transactions (2,675,773) $ (27,494,514) (10,040,779) $ (101,158,204)
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 424,713 $ 4,388,046 272,110 $ 2,759,766
Shares issued to shareholders in payment of
distributions declared 19,833 204,262 32,358 327,642
Shares redeemed (346,274) (3,567,004) (2,896,311) (29,357,470)
Net change resulting from Institutional
Service share transactions 98,272 $ 1,025,304 (2,591,843) $ (26,270,062)
Net change resulting from share transactions (2,577,501) $ (26,469,210) (12,632,622) $ (127,428,266)
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, 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 (excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Trust and its shares under federal and state laws and
regulations, expenses of withholding taxes, and extraordinary expenses)
exceeded 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 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.
DISTRIBUTION SERVICES FEE -- The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Trust will compensate Federated Securities Corp ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended
to result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to 0.25% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.
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 daily average 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. For the period ended June 30, 1996, the
Institutional Shares did not incur a shareholder services fee. 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 June 30, 1996, the Trust
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $97,900,000 and $90,300,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
FEDERATED SHORT-TERM MUNICIPAL TRUST
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and
in-kind contributions), for the period ended June 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $41,436,333
SALES $63,412,214
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED SHORT-TERM MUNICIPAL TRUST:
We have audited the accompanying statement of assets and liabilities of
Federated Short-Term Municipal Trust (a Massachusetts business trust),
including the schedule of portfolio of investments as of June 30, 1996, and
the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and the financial highlights (see pages 2 and 14 of the prospectus) for each
of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1996, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Federated Short-Term Municipal Trust as of June 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the periods presented in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
August 2, 1996
ADDRESSES
Federated Short-Term Municipal Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
FEDERATED SHORT-TERM
MUNICIPAL TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
Prospectus dated August 31, 1996
Federated Investors
[graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[graphic]
Cusip 313907107
8072507A-IS (8/96)
FEDERATED SHORT-TERM MUNICIPAL TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares offered by this prospectus represent
interests in a diversified portfolio of securities of Federated Short-Term
Municipal Trust (the "Trust"). The Trust is an open-end management
investment company (a mutual fund).
The investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. The Trust pursues this investment
objective by investing in a portfolio of municipal securities with a
dollar-weighted average maturity of less than three years.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Trust. Keep this prospectus
for future reference.
The Trust has also filed a Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated August 31, 1996,
with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or make inquiries about the
Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated August 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 5
Investment Limitations 5
TRUST INFORMATION 6
Management of the Trust 6
Distribution of Institutional
Service Shares 7
Administration of the Trust 8
NET ASSET VALUE 8
INVESTING IN INSTITUTIONAL SERVICE SHARES 9
Share Purchases 9
Minimum Investment Required 9
What Shares Cost 9
Certificates and Confirmations 9
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SERVICE SHARES 10
Telephone Redemption 10
Written Requests 10
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
OTHER CLASSES OF SHARES 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28
ADDRESSES 29
</TABLE>
SUMMARY OF TRUST EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.27%
12b-1 Fee (after waiver)(2) 0.01%
Total Other Expenses 0.44%
Shareholder Services Fee (after waiver)(3) 0.24%
Total Operating Expenses(4) 0.72%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of a portion
of the management fee. The maximum management fee is 0.40%.
(2) The maximum 12b-1 fee is 0.25%.
(3) The maximum shareholder services fee is 0.25%.
(4) Total Trust operating expenses would have been 1.10% absent the waiver
of a portion of the management fee and portions of the 12b-1 and the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service
Shares of the Trust will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Investing in
Institutional Service Shares" and "Trust Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period $7 $23 $40 $89
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Trust. The Trust also offers another
class of shares called Institutional Shares. Institutional Service Shares
and Institutional Shares are subject to certain of the same expenses;
however, Institutional Shares are not subject to a 12b-1 fee. See "Other
Classes of Shares."
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.28 $10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments (0.04) 0.13 (0.20)
Total from investment operations 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.24 $10.28 $10.15
TOTAL RETURN(B) 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72% 0.71% 0.72%*
Net investment income 3.90% 3.69% 3.65%*
Expense waiver/reimbursement(c) 0.25% 0.25% 0.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,209 $5,223 $31,459
Portfolio turnover 20% 33% 36%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public offering) to June 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease for the distribution services fee and
shareholder services fee is reflected in both the expense and net investment
income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's Annual Report for the fiscal year ended June 30, 1996, which can be
obtained free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 8, 1981. On December 15, 1994, the name of
the Trust was changed from Short-Term Municipal Trust to Federated
Short-Term Municipal Trust. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one
portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two
classes of shares of the Trust, known as Institutional Service Shares and
Institutional Shares. This prospectus relates only to Institutional Service
Shares (the "Shares") of the Trust.
Shares of the Trust are sold primarily to retail and private banking
customers of financial institutions as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of municipal
securities. A minimum initial investment of $25,000 over a 90-day period is
required. The Trust may not be a suitable investment for retirement plans
since it invests in municipal securities.
Shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Trust.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. Interest income of the Trust that is
exempt from federal regular income tax retains its tax-free status when
distributed to the Trust's shareholders. The Trust attempts to achieve its
investment objective by investing at least 80% of its net assets in a
diversified portfolio of municipal securities or by investing its assets so
that at least 80% of its income will be tax-exempt. While there is no
assurance that the Trust will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.
The investment objective, and the above investment policy, cannot be changed
without approval of shareholders.
INVESTMENT POLICIES
The investment policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Trust invests
are:
* debt obligations issued by or on behalf of any state, territory, or
possession of the United States, including the District of Columbia, or any
political subdivision of any of these, including industrial development
bonds, the interest from which is, in the opinion of bond counsel for the
issuers or in the opinion of officers of the Trust and/or the investment
adviser to the Trust, exempt from federal regular income tax; and
* participation interests, as described below, in any of the above
obligations.
AVERAGE MATURITY. The dollar-weighted average maturity of the Trust's
portfolio of municipal securities will be less than three years. For
purposes of determining the dollar-weighted average maturity of the Trust's
portfolio, the maturity of a municipal security will be its ultimate
maturity, unless it is probable that the issuer of the security will take
advantage of maturity-shortening devices such as a call, refunding, or
redemption provision, in which case the maturity date will be the date on
which it is probable that the security will be called, refunded, or
redeemed. If the municipal security includes the right to demand payment,
the maturity of the security for purposes of determining the Trust's
dollar-weighted average maturity will be the period remaining until the
principal amount of the security can be recovered by exercising the right to
demand payment.
CHARACTERISTICS. The municipal securities in which the Trust invests are:
* rated within the three highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa or A) or by Standard & Poor's
Ratings Group ("S&P") (AAA, AA, or A);
* guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest, such as Tax Exempt Project Notes;
* fully collateralized by an escrow of U.S. government or other securities
acceptable to the Trust's adviser;
* rated at the time of purchase within Moody's highest short-term municipal
securities rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (P-1) or S&P's highest municipal commercial paper rating
(A-1);
* unrated if, at the time of purchase, longer term municipal securities of
the issuer are rated A or better by Moody's or S&P; or
* determined by the Trust's investment adviser to be equivalent to municipal
securities which are rated A or better by Moody's or by S&P.
Downgraded securities will be evaluated on a case by case basis by the
adviser. The adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. The prices
of fixed income securities fluctuate inversely to the direction of interest
rates. A description of the rating categories is contained in the Appendix
to the Statement of Additional Information.
PARTICIPATION INTERESTS. The Trust may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Trust an
undivided interest in municipal securities. The financial institutions from
which the Trust purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will determine
that participation interests meet the prescribed quality standards for the
Trust.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Trust purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate or interest rate
index or some similar standard, such as the 91-day U.S. Treasury bill rate.
Variable rate municipal securities will be treated as maturing on the date
of the next scheduled adjustment to the interest rate for purposes of
determining the dollar-weighted average maturity of the portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
municipal securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Trust may realize short-term profits
or losses upon the sale of such commitments.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Trust may invest in short-term temporary investments
which may or may not be exempt from federal income tax. Temporary
investments include: tax-exempt variable and floating rate demand notes;
tax-free commercial paper; other temporary municipal securities; obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of domestic branches of U.S. banks; and repurchase agreements
(arrangements in which the organization selling the Trust a security agrees
at the time of sale to repurchase it at a mutually agreed upon time and
price).
There are no rating requirements applicable to temporary investments with
the exception of temporary municipal securities which are subject to the
same rating requirements as all other municipal securities in which the
Trust invests. However, the investment adviser will limit temporary
investments to those it considers to be of comparable quality to the
acceptable investments of the Trust.
Although the Trust is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax.
MUNICIPAL SECURITIES
Municipal securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including:
the general conditions of the money market and the taxable and municipal
bond markets; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to
achieve its investment objective also depends on the continuing ability of
the issuers of municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of interest
and principal when due.
INVESTMENT LIMITATIONS
Investment Limitations
The Trust will not:
* Invest more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government obligations); or
* borrow money or pledge securities except, under certain circumstances, the
Trust may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
The Trust will not:
* commit more than 15% of its net assets to illiquid obligations;
* invest more than 10% of its total assets in securities subject to
restrictions on resale; or
* invest more than 5% of its total assets in industrial development bonds
of issuers that have a record of less than three years of continuous
operations.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser (the "Adviser"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Trust and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Trust.
ADVISORY FEES. The Trust's Adviser receives an annual investment advisory
fee equal to .40% of the Trust's average daily net assets. Under the
investment advisory contract, the Adviser will reimburse the Trust the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its investment advisory fee,
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws and regulations, expenses of withholding taxes, and extraordinary
expenses, exceed .45% of its average daily net assets. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities. The Adviser has also
undertaken to reimburse the Trust for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Jonathan C. Conley has been the Trust's portfolio manager since January
1984. Mr. Conley joined Federated Investors in 1979 and has been a Senior
Vice President of the Trust's investment adviser since 1995. Mr. Conley was
a Vice President of the Trust's investment adviser from 1982 to 1995. Mr.
Conley is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Virginia.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 1, 1996.
Mr. Kozemchak joined Federated Investors in 1987 and has been a Vice
President of the Trust's investment adviser since 1993. Mr. Kozemchak served
as an Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 until 1990 he acted as an investment analyst. Mr.
Kozemchak is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University in 1987.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Trust and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Trust's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees and could result in severe
penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Trust in an
amount computed at an annual rate of up to .25% of the average daily net
asset value of the Shares. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type plan. As such, the Trust makes no payments
to the distributor except as described above. Therefore, the Trust does not
pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Trust,
interest, carrying, or other financing charges in connection with excess
amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from
future payments made by the Trust under the Plan.
In addition, the Trust has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Trust may make payments up to .25% of the average daily net
asset value of its shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which fees will be
paid will be determined from time to time by the Trust and Federated
Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Distribution Plan and Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount
of shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Trust's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Trust, subtracting the
interest of the Shares in the liabilities of the Trust and those
attributable to Shares, and dividing the remainder by the total number of
Shares outstanding. The net asset value for Shares may differ from that of
Institutional Shares due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. Shares may be purchased either by
wire or by mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the
telephone. The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o
State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Short-Term Municipal Trust Institutional
Service Shares; Trust Number (this number can be found on the account
statement or by contacting the Trust); Group Number or Wire Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased on days on which the New York Stock Exchange is closed and on
federal holidays restricting wire transfers. Questions on wire purchases
should be directed to your shareholder services representative at the
telephone number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Short-Term Municipal Trust-Institutional Service Shares to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds. This is normally the next business day after
the check is received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any financial
intermediary's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. The
minimum investment for an institutional investor will be calculated by
combining all accounts it maintains with the Trust. Accounts established
through a financial intermediary may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who
purchase Shares through a financial intermediary may be charged an
additional service fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange Monday through Friday,
except on (i) days on which there are not sufficient changes in the value of
the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just
prior to determining net asset value. If an order for Shares is placed on
the preceding business day, Shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street Bank. If the
order for Shares and payment by wire are received on the same day, Shares
begin earning dividends on the next business day. Shares purchased by check
begin earning dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested in additional Shares unless cash payments are
requested by contacting the Trust.
CAPITAL GAINS
Distributions of net realized long-term capital gains realized by the Trust,
if any, will be made at least annually.
REDEEMING INSTITUTIONAL SERVICE SHARES
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. Redemptions may be made on days on which the Trust computes
its net asset value. Redemption requests must be received in proper form and
can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00
p.m. (Eastern time). The proceeds will normally be wired the following
business day, but in no event more than seven days, to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System. If at any time the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be
promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can
be obtained through Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Trust, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Written Requests," should be
considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Call the Trust for specific instructions before redeeming by
letter. The shareholder will be asked to provide in the request his name,
the Trust name and class of shares, his account number, and the share or
dollar amount requested. If Share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to
an address other than that on record with the Trust, or a redemption payable
other than to the shareholder of record must have their signatures
guaranteed by:
* a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
* a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
* any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934, as amended.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Trust and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust
may redeem Shares in any account and pay the proceeds to the shareholder if
the account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Trust's net asset
value. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to
meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular portfolio or class only shares of
that portfolio or class are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of shareholders shall be called for this purpose
by the Trustees upon written request of shareholders owning at least 10% of
the outstanding shares of the Trust entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, dividends representing net interest earned on some
municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum taxable
income is equal to the regular taxable income of the taxpayer increased by
certain "tax preference" items not included in regular taxable income and
reduced by only a portion of the deductions allowed in the calculation of
the regular tax.
Interest on certain "private activity" bonds issued after August 7, 1986, is
treated as a tax preference item for both individuals and corporations.
Unlike traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Trust may purchase
all types of municipal bonds, including private activity bonds. Thus, while
the Trust has no present intention of purchasing any private activity bonds,
should it purchase any such bonds, a portion of the Trust's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Trust
which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Trust dividend, and alternative minimum
taxable income does not include the portion of the Trust's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.
Dividends of the Trust representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged
to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Trust advertises its total return, yield, and
tax-equivalent yield for Institutional Service Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in Shares of the Trust after reinvesting all income
and capital gain distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by Shares over a thirty-day period by the maximum
offering price per share of Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The tax-equivalent
yield of Shares is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that Shares would have had to earn to equal its
actual yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The Trust is sold without any sales charge or other similar non-recurring
charges.
Total return, yield, and tax-equivalent yield will be calculated separately
for Shares and Institutional Shares.
From time to time, advertisements for the Trust may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Trust's performance to certain indices.
OTHER CLASSES OF SHARES
The Trust also offers another class of shares called Institutional Shares.
Institutional Shares are sold primarily to accounts for which financial
institutions act in a fiduciary or agency capacity, or other accounts where
the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors.
Institutional Service Shares and Institutional Shares are subject to certain
of the same expenses; however, Institutional Shares are sold at net asset
value, distributed without a 12b-1 Plan, and are subject to a minimum
initial investment of $25,000. Expense differences between Institutional
Service Shares and Institutional Shares may affect the performance of each
class.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of
shares of the Trust is sold.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Institutional Shares,
investors may call 1-800-341-7400.
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24 $10.31
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57 0.54 0.51
Net realized and
unrealized
gain (loss) on
investments (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09) (0.05) (0.07)
Total from
investment
operations 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48 0.49 0.44
LESS DISTRIBUTIONS
Distributions
from net
investment income (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57) (0.54) (0.51)
NET ASSET VALUE
END OF PERIOD $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24
TOTAL RETURN(A) 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84% 4.89% 4.37%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46% 0.47% 0.47%
Net investment
income 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59% 5.25% 4.95%
Expense waiver/
reimbursement(b) 0.25% -- -- -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978 $315,154 $483,279
Portfolio
turnover 20% 33% 36% 15% 42% 40% 69% 55% 63% 57%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease for the shareholder services fee is
reflected in both the expense and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's Annual Report for the fiscal year ended June 30, 1996, which can be
obtained free of charge.
FEDERATED SHORT-TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- 99.0%
ALABAMA -- 3.0%
$ 4,000,000 Alabama State, UT GO Refunding Bonds, 5.55%, 9/1/1997 AA $ 4,081,080
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,907,572
Total 5,988,652
CALIFORNIA -- 18.1%
4,000,000 California State, UT GO Bonds, 10.00%, 4/1/1998 Aa 4,383,440
7,500,000 California State, UT GO Bonds, 6.50%, 11/1/1997 A1 7,759,500
2,000,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.30% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/1998 A 1,991,640
2,000,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.60% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/1999 A 1,980,880
1,500,000 California Statewide Communities Development
Authority, Certificates of Participation, 4.80% (Queen
of Angels-Hollywood Presbyterian Medical Center),
1/1/2000 A 1,485,045
13,000,000 Los Angeles, CA Wastewater System, Revenue Bonds
(Series D), 6.70% (MBIA INS)/(United States Treasury
PRF)/(Original Issue Yield: 6.769%), 12/1/2000 (@102) Aaa 14,318,590
3,310,000 University of California, Hospital Revenue Refunding
Bonds, 8.00% (UCLA Medical Center)/(MBIA INS),
12/1/1998 Aaa 3,593,402
Total 35,512,497
CONNECTICUT -- 2.0%
4,000,000 State of Connecticut Special Assessment Unemployment
Compensation Advance Fund, Refunding Revenue
Bonds, Series 1996A, 4.50% (AMBAC LOC)/(Original
Issue Yield: 4.55%), 11/15/1999 Aaa 3,996,720
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
GEORGIA -- 3.2%
$ 2,000,000 Atlanta, GA, Airport Facilities Revenue Refunding
Bonds (Series 1996), 5.25% (AMBAC INS), 1/1/1999 Aaa $ 2,032,360
4,060,000 Georgia State, UT GO Bonds (Series D), 8.40%, 6/1/1997 Aaa 4,231,332
Total 6,263,692
HAWAII -- 7.9%
5,000,000 Hawaii State, UT GO Bonds (Series BN), 7.10%
(United States Treasury PRF), 6/1/1998 (@101.5) Aaa 5,339,100
5,500,000 Hawaii State, UT GO Refunding Bonds (Series BV),
5.40% (Original Issue Yield: 5.45%), 11/1/1997 AA 5,609,065
4,500,000 Honolulu, HI City & County, UT GO Bonds (Series B),
4.80% (Original Issue Yield: 4.90%), 6/1/1998 AAA 4,548,870
Total 15,497,035
ILLINOIS -- 3.1%
2,900,000 Illinois State Sales Tax, Revenue Bonds (Series V),
5.625%, 6/15/1998 AAA 2,975,690
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA- 3,075,120
Total 6,050,810
LOUISIANA -- 3.8%
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A),
6.00% (FGIC INS), 8/1/2000 Aaa 7,349,440
MICHIGAN -- 3.1%
3,000,000 Michigan Underground Storage Tank Financial
Assurance Authority, Revenue Refunding Bonds
(Series I), 5.00% (AMBAC INS), 5/1/1999 Aaa 3,036,630
3,000,000 Michigan Underground Storage Tank Financial
Assurance Authority, Revenue Refunding Bonds
(Series I), 5.00% (AMBAC INS), 5/1/2001 Aaa 3,031,260
Total 6,067,890
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
MINNESOTA -- 2.6%
$ 5,000,000 Minnesota State, UT GO Refunding Bonds, 4.70%,
8/1/1997 AA+ $ 5,049,750
NEVADA -- 7.1%
8,500,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bond, 4.75% (Original Issue
Yield: 4.90%), 4/1/1998 AA 8,574,375
5,000,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bonds, 7.00%, 4/1/1999 AA 5,306,400
Total 13,880,775
NEW HAMPSHIRE -- 4.3%
7,900,000 New Hampshire State Turnpike System, Revenue Bonds,
8.25% (United States Treasury PRF)/(Original Issue
Yield: 8.30%), 11/1/1997 (@102) Aaa 8,502,928
NEW JERSEY -- 7.6%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,499,100
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C),
6.50%, 1/15/2002 AA+ 7,318,150
Total 14,817,250
NEW MEXICO -- 4.4%
8,650,000 Albuquerque, NM, GO UT Bonds (Series A & B), 4.60%,
7/1/1998 AA 8,715,135
NEW YORK -- 2.7%
5,000,000 New York City Municipal Water Finance Authority,
Water & Sewer System Revenue Bonds (Series A),
7.20%, 6/15/1999 A 5,343,700
OHIO -- 3.7%
3,630,000 Lucas County, OH HFA, Refunding Revenue Bonds
(Series 1996), 5.00% (ProMedica Healthcare Obligated
Group)/(MBIA INS), 11/15/1999 Aaa 3,677,626
3,600,000 Miami Valley Regional Transit Authority, OH, Ltd Tax
GO Bonds, 4.75%, 4/15/1997 A 3,625,416
Total 7,303,042
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
OREGON -- 2.1%
$ 2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bond, Westside Project, 5.375%
(MBIA INS), 6/1/1999 Aaa $ 2,049,320
2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bond, Westside Project, 5.50%
(MBIA INS), 6/1/2000 Aaa 2,064,980
Total 4,114,300
PENNSYLVANIA -- 8.0%
5,000,000 Commonwealth of Pennsylvania, UT GO Second Series
Refunding Bonds, 4.75%, 6/15/1998 AA- 5,048,900
4,375,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Bond, City of Philadelphia Funding
Program, 5.40% (FGIC INS)/(Original Issue Yield:
5.50%), 6/15/1997 Aaa 4,445,350
4,000,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Refunding Bonds, Philadelphia
Funding Program, 5.75% (FGIC INS), 6/15/1999 Aaa 4,128,800
2,000,000 Pennsylvania State Higher Education Facilities
Authority, Health Services Revenue Bonds (Series A),
4.60% (Allegheny Delaware Valley Obligated Group)/
(MBIA INS)/(Original Issue Yield: 4.65%), 11/15/1999 Aaa 1,998,660
Total 15,621,710
TEXAS -- 6.9%
3,000,000 Mesquite, TX Independent School District No. 1, UT GO
Refunding Bonds, 7.00%, 2/15/1997 A+ 3,059,700
2,425,000 Texas State Public Property Finance Corp., Revenue
Refunding Bonds, 4.30% (Mental Health & Retardation,
TX)/(FSA INS), 9/1/1997 Aaa 2,434,894
4,440,000 Texas State, UT GO Public Finance Authority (Series B),
8.00%, 10/1/1999 AA 4,903,492
3,000,000 Texas State, UT GO Public Finance Authority (Series C),
6.50%, 10/1/1997 AA 3,096,330
Total 13,494,416
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
WASHINGTON -- 5.4%
$ 3,000,000 Washington State, UT GO Bonds (Series B), 5.00%,
5/1/1998 AA $ 3,039,540
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%,
5/1/1999 AA 7,513,654
Total 10,553,194
TOTAL SHORT-INTERMEDIATE MUNICIPAL SECURITIES
(IDENTIFIED COST $192,280,606) 194,122,936
SHORT-TERM MUNICIPAL SECURITIES -- 2.6%
PENNSYLVANIA -- 0.3%
600,000 Geisinger Authority, PA Health System, (Series 1992B)
Daily VRDNs AA 600,000
PUERTO RICO -- 0.9%
1,700,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ 1,700,000
TEXAS -- 1.4%
2,800,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs
(Methodist Hospital, Houston, TX) AA 2,800,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) $ 5,100,000
TOTAL INVESTMENTS (IDENTIFIED COST $197,380,606)(A) $ 199,222,936
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$197,380,606. The net unrealized appreciation of investments on a federal
tax basis amounts to $1,842,330 which is comprised of $1,893,757
appreciation and $51,427 depreciation at June 30, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($195,676,284) at June 30, 1996.
The following acronym(s) are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
HFA -- Housing Finance Authority
HFDC -- Health Facility Development Corporation
INS -- Insured
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified and tax cost $197,380,606) $199,222,936
Cash 118,108
Income receivable 2,256,922
Receivable for investments sold 1,618,383
Receivable for shares sold 236,303
Total assets 203,452,652
LIABILITIES:
Payable for investments purchased $ 5,709,695
Payable for shares redeemed 1,547,752
Income distribution payable 494,308
Accrued expenses 24,613
Total liabilities 7,776,368
Net Assets for 19,106,684 shares $195,676,284
outstanding
NET ASSETS CONSIST OF:
Paid in capital $200,697,688
Net unrealized appreciation of investments 1,842,330
Accumulated net realized loss on investments (6,863,734)
Total Net Assets $195,676,284
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$189,467,202 / 18,500,404 shares outstanding $10.24
INSTITUTIONAL SERVICE SHARES:
$6,209,082 / 606,280 shares outstanding $10.24
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $9,653,664
EXPENSES:
Investment advisory fee $ 837,213
Administrative personnel and services 158,326
fee
Custodian fees 24,310
Transfer and dividend disbursing 50,103
agent fees and expenses
Directors'/Trustees' fees 13,381
Auditing fees 15,957
Legal fees 4,912
Portfolio accounting fees 77,741
Distribution services fee - 14,775
Institutional Service Shares
Shareholder services fee - 508,483
Institutional Shares
Shareholder services fee - 14,775
Institutional Service Shares
Share registration costs 28,147
Printing and postage 16,909
Insurance premiums 6,711
Taxes 13,761
Miscellaneous 2,076
Total expenses 1,787,580
Waivers --
Waiver of investment advisory fee $(266,026)
Waiver of distribution services fee
- Institutional Service Shares (13,988)
Waiver of shareholder services fee
- Institutional Shares (508,483)
Waiver of shareholder services fee
- Institutional Service Shares (786)
Total waivers (789,283)
Net expenses 998,297
Net investment income 8,655,367
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (175,989)
Net change in unrealized appreciation
(depreciation) of investments (614,249)
Net realized and unrealized gain on investments (790,238)
Change in net assets resulting from operations $ 7,865,129
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 8,655,367 $ 11,058,131
Net realized gain (loss) on investments ($(2,597,123) and
$1,189,491, respectively, as computed
for federal tax purposes) (175,989) (3,533,063)
Net change in unrealized appreciation
(depreciation) (614,249) 5,627,330
Change in net assets resulting
from operations 7,865,129 13,152,398
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (8,424,725) (10,679,008)
Institutional Service Shares (230,642) (379,123)
Change in net assets resulting from distributions
to shareholders (8,655,367) (11,058,131)
SHARE TRANSACTIONS --
Proceeds from sale of shares 64,151,068 51,547,320
Net asset value of shares issued to shareholders in
payment of distributions declared 2,372,964 2,700,836
Cost of shares redeemed (92,993,242) (181,676,422)
Change in net assets resulting from share transactions (26,469,210) (127,428,266)
Change in net assets (27,259,448) (125,333,999)
NET ASSETS:
Beginning of period 222,935,732 348,269,731
End of period $195,676,284 $222,935,732
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION
Federated Short-Term Municipal 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 Trust offers two classes of
shares: Institutional Shares and Institutional Service Shares. The
investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax. The Trust pursues this investment
objective by investing in a portfolio of municipal securities with a
dollar-weighted average maturity of less than three years.
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 -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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 June 30, 1996, the Trust, for federal tax purposes, had a capital loss
carryforward of $6,687,424, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<C> <C>
1997 $ 1,097,445
1998 $ 1,729,378
1999 $ 11,866
2001 $ 62,121
2003 $ 1,189,491
2004 $ 2,597,123
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
Additionally, net capital losses of $175,989 attributable to security
transactions incurred after October 31, 1995 are treated as arising on July
1, 1996, the first day of the Trust's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,801,109 $ 59,763,022 4,823,992 $ 48,787,554
Shares issued to shareholders in payment of
distributions declared 210,577 2,168,702 234,548 2,373,194
Shares redeemed (8,687,459) (89,426,238) (15,099,319) (152,318,952)
Net change resulting from Institutional share
transactions (2,675,773) $(27,494,514) (10,040,779) $(101,158,204)
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 424,713 $ 4,388,046 272,110 $ 2,759,766
Shares issued to shareholders in payment of
distributions declared 19,833 204,262 32,358 327,642
Shares redeemed (346,274) (3,567,004) (2,896,311) (29,357,470)
Net change resulting from Institutional
Service share transactions 98,272 $ 1,025,304 (2,591,843) $ (26,270,062)
Net change resulting from share transactions (2,577,501) $(26,469,210) (12,632,622) $(127,428,266)
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, 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 (excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Trust and its shares under federal and state laws and
regulations, expenses of withholding taxes, and extraordinary expenses)
exceeded 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 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.
DISTRIBUTION SERVICES FEE -- The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Trust will compensate Federated Securities Corp ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended
to result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to 0.25% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.
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 daily average 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. For the period ended June 30, 1996, the
Institutional Shares did not incur a shareholder services fee. 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 June 30, 1996, the Trust
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $97,900,000 and $90,300,000, respectively.
FEDERATED SHORT-TERM MUNICIPAL TRUST
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and
in-kind contributions), for the period ended June 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $41,436,333
SALES $63,412,214
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED SHORT-TERM MUNICIPAL TRUST:
We have audited the accompanying statement of assets and liabilities of
Federated Short-Term Municipal Trust (a Massachusetts business trust),
including the schedule of portfolio of investments as of June 30, 1996, and
the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and the financial highlights (see pages 2 and 14 of the prospectus) for each
of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1996, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Federated Short-Term Municipal Trust as of June 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the periods presented in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
August 2, 1996
ADDRESSES
Federated Short-Term Municipal Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
FEDERATED SHORT-TERM
MUNICIPAL TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
Prospectus dated August 31, 1996
[graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[graphic]
Cusip 313907206
8072507A-SS (8/96)
FEDERATED SHORT-TERM MUNICIPAL TRUST
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses for Institutional Shares and Institutional Service
Shares of Federated Short-Term Municipal Trust (the `Trust''), dated
August 31, 1996 This Statement is not a prospectus. You may request a
copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated August 31, 1996
Federated Securities Corp. is the distributor of the Fund(s)
and is a subsidiary of Federated Investors.
Cusip 313907107
Cusip 313907206
8072507B (8/96)
GENERAL INFORMATION ABOUT THE TRUST 2
INVESTMENT OBJECTIVE AND POLICIES 2
Acceptable Investments 2
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
When-Issued and Delayed Delivery Transactions 4
Portfolio Turnover 5
Investment Limitations 5
Diversification of Investments 5
Borrowing Money 6
Pledging Assets 6
Underwriting 6
Investing in Real Estate 7
Investing in Commodities or Minerals 7
Making Loans 7
Selling Short And Buying On Margin 7
Issuing Senior Securities 7
Investing in Issuers Whose Securities are Owned
by Officers and Trustees of the Trust 7
Investing in Restricted Securities 8
Acquiring Securities 8
Investing in New Issuers 8
Investing in Illiquid Securities 8
Investing in Puts, Calls, Straddles, and
Spreads 8
TRUST MANAGEMENT 9
Trust Ownership 18
Trustees' Compensation 18
Trustee Liability 20
INVESTMENT ADVISORY SERVICES 20
Adviser to the Trust 20
Advisory Fees 21
State Expense Limitations 21
Other Related Services 22
BROKERAGE TRANSACTIONS 22
OTHER SERVICES 23
Trust Administration 23
Custodian and Portfolio Accountant 24
Transfer Agent 24
Independent Public Accountants 24
PURCHASING SHARES 24
Distribution Plan (Institutional Service Shares
only) and Shareholder Services Agreement 25
DETERMINING NET ASSET VALUE 26
Valuing Municipal Securities 26
Use of Amortized Cost 26
REDEEMING SHARES 27
REDEMPTION IN KIND 27
MASSACHUSETTS PARTNERSHIP LAW 27
TAX STATUS 28
The Trust's Tax Status 28
TOTAL RETURN 29
YIELD 29
TAX-EQUIVALENT YIELD 30
Tax-Equivalency Table 30
PERFORMANCE COMPARISONS 32
Economic and Market Information 34
ABOUT FEDERATED INVESTORS 35
Mutual Fund Market 36
Institutional Clients 36
Trust Organizations 36
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 37
APPENDIX 37
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated May 8, 1981. The name of the Trust was Federated
Short-Intermediate Municipal Trust prior to August 23, 1993. On August 23,
1993, the shareholders of the Trust voted to change the name of the Trust
to Short-Term Municipal Trust. On December 15, 1994, the name of the Trust
was changed from Short-Term Municipal Trust to Federated Short-Term
Municipal Trust.
Shares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to the above-mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Trust is to provide dividend income which
is exempt from federal regular income tax.
ACCEPTABLE INVESTMENTS
The Trust attempts to achieve its investment objective by investing at
least 80% of its net assets in a diversified portfolio of municipal
securities or by investing its assets so that at least 80% of its income
will be tax exempt. The investment objective and the policy stated above
cannot be changed without the approval of shareholders. The investment
policies described below may be changed without shareholder approval.
CHARACTERISTICS
The municipal securities in which the Trust invests have the
characteristics set forth in the prospectuses. The Trust may use
similar services or ratings other than Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"). If a
security's rating is reduced below the required minimum after the
Trust has purchased it, the Trust is not required to sell the
security, but may consider doing so. If ratings made by Moody's or S&P
change because of changes in those organizations or in their rating
systems, the Trust will try to use comparable ratings as standards in
accordance with the investment policies described in the Shares'
prospectuses.
PARTICIPATION INTERESTS
The financial institutions from which the Trust purchases
participation interests frequently provide or secure from another
financial institution irrevocable letters of credit or guarantees and
give the Trust the right to demand payment of the principal amounts of
the participation interests plus accrued interest on short notice
(usually within seven days). These financial institutions may charge
certain fees in connection with their repurchase commitments,
including a fee equal to the excess of the interest paid on the
municipal securities over the negotiated yield at which the
participation interests were purchased by the Trust. By purchasing
participation interests having a seven day demand feature, the Trust
is buying a security meeting the quality requirements of the Trust and
also is receiving the tax-free benefits of the underlying securities.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many municipal
securities with variable interest rates purchased by the Trust are
subject to repayment of principal (usually within seven days) on the
Trust's demand. For purposes of determining the Trust's average
maturity, the maturities of these variable rate demand municipal
securities (including participation interests) are the longer of the
periods remaining until the next readjustment of their interest rates
or the periods remaining until their principal amounts can be
recovered by exercising the right to demand payment. The terms of
these variable rate demand instruments require payment of principal
and accrued interest from the issuer of the municipal obligations, the
issuer of the participation interests, or a guarantor of either
issuer.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Trust. Settlement dates may be a month
or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. No fees or
other expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Trust sufficient to make payment for the securities to
be purchased are segregated on the Trust's records at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled. The Trust does not intend to engage in when-issued and delayed
delivery transactions to the extent that would cause the segregation of
more than 20% of the total value of its assets.
PORTFOLIO TURNOVER
The Trust will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Trust's investment objective. During the fiscal years ended
June 30, 1996 and 1995, the portfolio turnover rates were 20% and 33%,
respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase the securities of any issuer (except cash
and cash instruments and securities issued or guaranteed by the United
States government, its agencies and instrumentalities) if, as a
result, more than 5 percent of its total assets would be invested in
the securities of such issuer. For purposes of this limitation, each
governmental subdivision, i.e., state, territory, possession of the
United States or any political subdivision of any of the foregoing,
including agencies, authorities, instrumentalities, or similar
entities, or of the District of Columbia, shall be considered a
separate issuer if its assets and revenues are separate from those of
the governmental body creating it and the security is backed only by
its own assets and revenues. In the case of an industrial development
bond, if the security is backed only by the assets and revenues of a
non-governmental user, then such non-governmental user will be deemed
to be the sole issuer. If, however, in the case of an industrial
development bond or governmental issued security, a governmental or
some other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor as well as the
other issuer (as above defined) subject to limited exclusions allowed
by the Investment Company Act of 1940.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then (a) only in amounts not
in excess of 5% of the value of its total assets or (b) in an amount
up to one-third of the value of its total assets, including the amount
borrowed. (This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Trust
to meet redemption requests when the liquidation of portfolio
securities would be inconvenient or disadvantageous.)
While any such borrowings are outstanding, no net purchases of
investment securities will be made by the Trust. If, due to market
fluctuations or other reasons, the value of the Trust's assets falls
below 300% of its borrowings, the Trust will reduce its borrowings
within three business days. To do this, the Trust may have to sell a
portion of its investments at a time when it may be disadvantageous to
do so.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the borrowing.
UNDERWRITING
The Trust will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Trust will not buy or sell real estate, although it may invest in
municipal securities secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES OR MINERALS
The Trust will not buy or sell commodities, commodity contracts, or
oil, gas, or other mineral exploration or development programs.
MAKING LOANS
The Trust will not make loans, but may acquire publicly or nonpublicly
issued municipal securities as permitted by its investment objective,
policies, and limitations.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities, except as permitted by its
investment objective and policies.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Trust will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN RESTRICTED SECURITIES
The Trust will not invest more than 10% of the value of its total
assets in securities which are subject to restrictions on resale under
federal securities laws, except for securities which meet the criteria
for liquidity, as established by the Trustees.
ACQUIRING SECURITIES
The Trust will not acquire voting securities, except as part of a
merger, consolidation, reorganization, or acquisition of assets. The
Trust will not invest in securities issued by any other investment
company or investment trust.
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of its total assets in
industrial development bonds where the payment of principal and
interest are the responsibility of companies with less than three
years of operating history.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities.
INVESTING IN PUTS, CALLS, STRADDLES, AND SPREADS
The Trust will not purchase or sell puts, calls, straddles, spreads,
or any combination thereof except that the Trust may purchase
municipal securities from a broker, dealer, or other person
accompanied by the agreement of such seller to purchase, at the
Trust's option, the municipal security prior to the maturity thereof.
The Trust does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its assets would be invested in the
securities of governmental subdivisions located in any one state,
territory, or possession of the United States.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in violation of such restriction.
The Trust did not borrow money, pledge securities or invest in illiquid
securities or restricted securities in excess of 5% of the value of its
total assets during the last fiscal year and has no present intent to do so
in the coming fiscal year.
For purposes of this limitation, the Trust considers cash instruments and
items to be instruments issued by a U.S. branch of a domestic bank or
savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of the investment.
TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Government Trust , and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; Director or
Trustee of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee of the Funds; formerly, Vice Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Glen R. Johnson *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President, Secretary
and Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an `interested person'' as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint
Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of August 2, 1996 the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Trust: Fidelity
State Street Bank & Trust Co., Dodge City, Kansas, owned approximately
53,574 Shares (8.85%%); National Financial Services For The Exclusive
Benefit of Our Customers, New York, New York, owned approximately 44,689
Shares (7.38%); John H. Seale, Jaspar, Texas, owned approximately 63,652
Shares (10.52%);CPB Trust Division Fiduciary Account 102007, Honolulu,
Hawaii, owned approximately 31,087 Shares (5.14%);and Ron Vanderpol &
Sharon Vanderpol, Bryon Center , Michigan, owned approximately 97,918
Shares (16.18%);
As of August 2, 1996, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Trust: Charles Schwab & Co.,
Inc., San Francisco, California owned approximately 2,158,621 Shares
(11.42%);
TRUST'S RECORDS HE TRUST TRUSTEES' COMPENSATION
- -------
AGGREGATE
NAME , COMPENSATION .....
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST * FROM FUND COMPLEX +
John F. Donahue, $ 0 $-0- for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $1,211.53 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John T. Conroy, $1,323.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
William J. Copeland, $1,323.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
James E. Dowd, $1,323.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,323.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Glen R. Johnson, $ 0 $-0- for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex
Peter E. Madden, $1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Gregor F. Meyer, $1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John E. Murray, Jr., $1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Wesley W. Posvar,$1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,211.53 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended June 30, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management (the `Adviser'').
It is a subsidiary of Federated Investors. All of the securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust or its shareholders for any
losses that may be sustained in the purchase, holding, or sale of any
security, for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. During the fiscal
years ended June 30, 1996, 1995, and 1994, the Trust's adviser earned
$837,213, $1,084,312, and $1,414,365, respectively, which were reduced by
$266,026, $346,925, and $452,665, respectively, because of undertakings to
limit the Trust's expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2.5% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1.5% per year of the
remaining average net assets, the Adviser will reimburse the Trust for its
expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities
Corp.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Trust or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Trust and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended June 30, 1996, 1995 and
1994, the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Trust or
the size of the position obtained or disposed of by the Trust. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described
in the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended June 30, 1996, 1995,
and 1994, the Administrators earned $158,326, $205,206, and $346,714,
respectively. Dr. Henry J. Gailliot, an officer of Federated Management,
the adviser to the Trust, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this service is based
upon the level of the Trust's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent auditors for the Trust are Arthur Andersen LLP ,
Pittsburgh, PA.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectuses under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
With respect to the Institutional Service Shares, by adopting the
Distribution Plan, the Board of Trustees expects that the Trust will be
able to achieve a more predictable flow of cash for investment purposes and
to meet redemptions. This will facilitate more efficient portfolio
management and assist the Trust in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Trust's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended June 30, 1996 payments in the amount of $14,775
were made pursuant to the Distribution Plan (Institutional Service Shares
only) of which $13,988 was waived. In addition, for this period, the Trust
paid shareholder service fees in the amount of $523,258, of which 509,269
was waived.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which the net asset
value is calculated by the Trust are described in each respective
prospectus.
VALUING MUNICIPAL SECURITIES
The Trustees use an independent pricing service to value municipal
securities. The independent pricing service takes into consideration:
yield; stability; risk; quality; coupon rate; maturity; type of issue;
trading characteristics; special circumstances of a security or trading
market; and any other factors or market data it considers relevant in
determining valuations for normal institutional size trading units of debt
securities and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of municipal securities
authorized to be purchased by the Trust with remaining maturities of 60
days or less at the time of purchase shall be their amortized cost value,
unless the particular circumstances of the security indicate otherwise.
Under this method, portfolio instruments and assets are valued at the
acquisition cost as adjusted for amortization of premium or accumulation of
discount rather than at current market value. The Executive Committee
continually assesses this method of valuation and recommends changes where
necessary to assure that the Trust's portfolio instruments are valued at
their fair value as determined in good faith by the Trustees.
REDEEMING SHARES
The Trust redeems Shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are explained
in each respective prospectus under "Redeeming Institutional Shares" or
"Redeeming Institutional Service Shares." Although State Street Bank does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Trust's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to a lesser of $250,000 or 1% of a
class's net asset value during any 90-day period.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of its shareholders for
such acts or obligations of the Trust. These documents require notice of
this disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect
or compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation
of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations
to indemnify shareholders and pay judgments against them from its assets.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Trust must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
TOTAL RETURN
The average annual total return for each class of shares of the Trust is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of
the period is based on the number of shares purchased at the beginning of
the period with $1,000, adjusted over the period by any additional shares,
assuming monthly reinvestment of all dividends and distributions.
The Trust's average annual total returns for Institutional Shares for the
one-year, five-year, and ten-year periods ended June 30, 1996, were 3.82%,
4.51%, and 4.96%, respectively.
The Trust's average annual total return for Institutional Service Shares
for the fiscal year ended June 30, 1996 and for the period since inception
(August 31, 1993, date of initial public offering), to June 30, 1996 was
3.56% and 3.48% respectively.
YIELD
The Trust's yields for the thirty-day period ended June 30, 1996, for
Institutional Shares and Institutional Service Shares were 3.82% and 3.57%,
respectively.
The yield for both classes of shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by either class of shares over a thirty-day
period by the maximum offering price per share of either class on the last
day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Trust because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial intermediaries charge fees in connection with
services provided in conjunction with an investment in either class of
shares, performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
The Trust's tax-equivalent yields for the thirty-day period ended June 30,
1996, for Institutional Shares and Institutional Service Shares were 5.31%
and 4.96%, respectively.
The tax-equivalent yield of the Trust is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Trust would have had
to earn to equal its actual yield, assuming the shareholder is in the 28%
tax-bracket and that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Trust may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal bonds in the
Trust's portfolio generally remains free from federal regular income
tax,* and is often free from state and local taxes as well. As the
table below indicates, a "tax-free" investment is an attractive choice
for investors, particularly in times of narrow spreads between tax-
free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
* Some portion of the Trust's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The performance of both classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Trust's expenses or either class of Shares' expenses;
and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors, such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Trust
uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in offering price over a specific period of time. From time to time,
the Trust will quote its Lipper ranking in the "intermediate municipal
bond funds" category in advertising and sales literature.
o THE LEHMAN BROTHERS STATE 5-YEAR G.O. BOND INDEX is a composite
measure of total return performance for the municipal bond market on
those municipal bonds with maturities of five years. The securities
on this index include ratings categories of A and Aaa. Total returns
are calculated twice monthly as well as for one month, three month,
and twelve month periods. Total returns are also calculated as of the
beginning of the index inception on December 31, 1979.
o THE LEHMAN BROTHERS STATE 3-YEAR G.O. BOND INDEX is a total return
performance benchmark for the short-term general obligation sector of
the tax-exempt bond market. Returns and attributes for the index are
calculated semi-monthly.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deffered compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other invstments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Trust portfolio managers and their views and
anaylsis on how such developments could affect the Trust. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide - including 200 New York Stock Exchange firms -
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has
earned it high ranking in several DALBAR Surveys. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
* SOURCE: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o well-established access to a range of financial markets and assured
sources of alternative liquidity.
P-2--Issuers rated P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FEDERATED SHORT-TERM MUNICIPAL TRUST
ANNUAL REPORT FISCAL YEAR ENDED JUNE 30, 1996
MANAGEMENT DISCUSSION AND ANALYSIS
During the twelve months ended June 30, 1996, the municipal bond
market continued to exhibit the same attributes that had been
predominant at the beginning of the fiscal year. Tight credit spreads,
interest rate volatility, a steep yield curve, and a limited supply of
new issue municipal bonds are all characteristics of the municipal
bond market during this period.
Interest rates in the short-term fixed income markets reflected
considerable volatility, reacting to the market's changing
expectations regarding economic strength and its effect on Federal
Reserve interest rate policy. Yields on three-year "AA" rated general
obligation municipal bonds began the period at 4.40% but in August
began to move sharply lower reaching 3.95% by September 15, 1995.
Yields then traded in a range between 4.00% and 4.20% until February
of 1996 when the market fell to a period low yield of 3.78%. Stronger
economic news then caused yields to move abruptly higher, and they
spiked upward repeatedly on a month-to-month basis until reaching a
peak of 4.64% by mid-June. The short-term municipal market finished
the period with a slight rally as yields stood at 4.42% at June 30,
1996.
In comparison, three-year U.S. Treasury notes were 5.83% on June 30,
1995, reached 5.97% by the end of September, fell steadily to a low of
4.89% in mid-February 1996, but again rose sharply to a period high of
6.60% in mid-June before falling again to 6.30% on June 30, 1996.
Over the period, three-year municipal bonds exhibited less price
volatility than comparable treasury notes while providing a favorable
after-tax income advantage for those investors at marginal tax rates
of 31% or higher. During the twelve-month period, yields on three-year
"AA" municipal bonds as a percentage of treasuries averaged 73%, but
ranged from 68% to 79% reflecting supply and demand imbalances that
exist on the short-end of the maturity spectrum. This yield ratio
helps to illustrate the richness or cheapness of municipal bonds to
treasury bonds from an after-tax income perspective.
Portfolio strategy continues to emphasize credit quality, as yield
spreads remain tight. The yield spread between a three-year "AAA"
rated insured municipal bond and an "A" rated revenue bond is
currently only 10 basis points, which is the average spread over the
past 12 months. Over the past twelve months, assets of the Trust
invested in "AAA" rated issues rose from 35% to 42%, reflecting the
purchase of "AAA" rated insured paper. Assets in "AA" rated issues
fell to 45% from 50% while "A" rated issues declined to 13% from 15%
one year ago.
During the twelve-month period, management shortened the weighted
average maturity and modified duration of the Trust, mostly in the
first half of 1996. Over the period, the average maturity fell from
2.83 years to 2.33 years, while the modified duration declined from
2.52 years to 2.11 years. The average coupon rate of issues in the
portfolio was 5.95% on June 30, 1996, which is unchanged from one year
ago. The average market price for issues in the Trust fell slightly
from 104.74% of face value to 103.56% of face value. As interest rates
rose over the fiscal year, management improved the fund's yield return
by swapping into bonds with better yield characteristics, while also
recognizing minor tax losses that can be used to offset future capital
gains.
Short-maturity municipal bonds (2-5 years in maturity) performed
well over the reporting period as investors shortened their position
on the yield curve and increased their demand for short-term bonds as
a result of concerns over tax reform proposals and the future
direction of interest rates. Strong demand from retail purchasers
combined with a shortage of new issue supply also had an effect on
short-term municipal/treasury yield ratios, making them expensive
relative to long-term bonds.
Federated Short-Term Municipal Trust's performance over the past
fiscal year reflects the Trust's short-term maturity and duration
position relative to its peer group. The Trust's total return for the
twelve-month period ended June 30, 1996, was 3.82% for the
Institutional Shares and 3.56% for Institutional Service Shares*.
These results are attributable to a small decrease in the net asset
value per share of 0.39% (from $10.28 to $10.24), and to income and
reinvestment returns, net of share expenses, of 4.21% and 3.95%,
respectively. The concentration of high coupon premium bonds in the
portfolio helped to dampen net asset value volatility over the period.
However, the Trust is managed predominately for tax-exempt income and
posted 30-day distribution rates of 4.28% for the Institutional Shares
(IS) and 4.03% for the Institutional Service Shares (ISS) as of June
30, 1996. These yields are equivalent to taxable yields of 7.09% (IS)
and 6.67% (ISS), assuming a top marginal tax rate of 39.6%. The 30-day
SEC yield as of June 30, 1996, was 3.82% for the Institutional Shares
and 3.57% for the Institutional Service Shares.
* Performance quoted represents past performance. 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.
FEDERATED SHORT-TERM MUNICIPAL TRUST
(INSTITUTIONAL SERVICE SHARES)
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM MUNICIPAL TRUST
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000
in the Federated Short-Term Municipal Trust (Institutional Service
Shares) (the "Trust") from September 1, 1993 (start of performance) to
June 30, 1996 compared to the Lehman Brothers 3-Year State Government
Obligation Index (LB3YRSGOI)+ and the Lehman Brothers 5-Year
State Government Obligation Index (LB5YRSGOI)+.
[graphic] (see Appendix Attached)
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 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 TRUST'S PROSPECTUS
DATED AUGUST 31, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS
CONTAINED THEREIN, CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends
and distributions. The LB3YRSGOI and the LB5YRSGOI have been adjusted
to reflect reinvestment of dividends on securities in the indices.
+ The LB3YRSGOI and the LB5YRSGOI are not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to
be reflected in the Trust's performance. The indices are unmanaged.
FEDERATED SHORT-TERM MUNICIPAL TRUST
(INSTITUTIONAL SHARES)
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM MUNICIPAL TRUST
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000
in the Federated Short-Term Municipal Trust (Institutional Shares)
(the "Trust") from June 30, 1986 to June 30, 1996 compared to the
Lehman Brothers 3-Year State Government Obligation Index (LB3YRSGOI)+
and the Lehman Brothers 5-Year State Government Obligation Index
(LB5YRSGOI)+.
[graphic] (see Appendix Attached)
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 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 TRUST'S PROSPECTUS
DATED AUGUST 31, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS
CONTAINED THEREIN, CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends
and distributions. The LB3YRSGOI and the LB5YRSGOI have been adjusted
to reflect reinvestment of dividends on securities in the indices.
+ The LB3YRSGOI and the LB5YRSGOI are not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to
be reflected in the Trust's performance. The indices are unmanaged.
Federated Investors
[graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[graphic]
Cusip 313907206
Cusip 313907107
8072507ARS (8/96)
APPENDIX
A-1. The
graphic presentation here displayed consists of a line graph titled
`Growth of $25,000 Invested in Federated Short-Term Municipal Trust
(Institutional Service Shares)'. The corresponding components of the line
graph are listed underneath. The Federated Short-Term Municipal Trust
(Institutional Service Shares) (the `Trust'') is represented by a solid
line. The Lehman Brothers 5-Year State Government Obligation Index (the
`LB5YRSGOI'') is represented by a dotted line. The Lehman Brothers 3-Year
State Government Obligation Index (the `LB3YRSGOI'') is represented by a
broken line. The line graph is a visual representation of a comparison of
change in value of a hypothetical $25,000 investment in the Trust, the
LB5YRSGOI and the LB3YRSGOI. The "x" axis reflects computation periods
from the start of performance (September 1, 1993) to June 30, 1996. The
"y" axis reflects the cost of the investment, ranging from $25,000 to
$28,000. The right margin reflects the ending value of the hypothetical
investment in the Trust as compared to the LB5YRSGOI and the LB3YRSGOI.
The ending values are $27,546, $27,416 and $27,560, respectively.
A-2. The graphic presentation here displayed consists of a line graph
titled `Growth of $25,000 Invested in Federated Short-Term Municipal Trust
(Institutional Shares)'. The corresponding components of the line graph
are listed underneath. The Federated Short-Term Municipal Trust
(Institutional Shares) (the `Trust'') is represented by a solid line. The
Lehman Brothers 5-Year State Government Obligation Index (the
`LB5YRSGOI'') is represented by a dotted line. The Lehman Brothers 3-Year
State Government Obligation Index (the `LB3YRSGOI'') is represented by a
broken line. The line graph is a visual representation of a comparison of
change in value of a hypothetical $25,000 investment in the Trust, the
LB5YRSGOI and the LB3YRSGOI. The "x" axis reflects computation periods
from June 30, 1986 to June 30, 1996. The "y" axis reflects the cost of the
investment, ranging from $25,000 to $46,000. The right margin reflects the
ending value of the hypothetical investment in the Trust as compared to the
LB5YRSGOI and the LB3YRSGOI. The ending values are $40,578, $45,650 and
$42,363, respectively.
