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,
1997, 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated August 31, 1997
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 5
Trust Information 5
Management of the Trust 5
Distribution of Institutional Shares 6
Administration of the Trust 6
Net Asset Value 7
Investing in Institutional Shares 7
Share Purchases 7
Minimum Investment Required 7
What Shares Cost 7
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
Redeeming Institutional Shares 8
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 9
Shareholder Information 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Performance Information 10
Other Classes of Shares 11
Financial Highlights -- Institutional Service Shares 12
Financial Statements 13
Report of Independent
Public Accountants Inside Back Cover
</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>
<S> <C> <C>
Management Fee (after waiver)(1) 0.26%
12b-1 Fee None
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses 0.46%
</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 shareholder services fee has been reduced to reflect the
waiver of the shareholder services fee. The shareholder service
provider can terminate this waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
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.
EXAMPLE
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.
<TABLE>
<S> <C>
1 Year $ 5
3 Years $ 15
5 Years $ 26
10 Years $ 58
</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.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
the inside back cover.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.44 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57 0.54
Net realized and
unrealized
gain (loss) on
investments 0.02 (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09) (0.05)
Total from 0.46 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48 0.49
investment
operations
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.44) (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57) (0.54)
NET ASSET
VALUE, END
OF PERIOD $10.26 $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19
TOTAL RETURN(A) 4.59% 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84% 4.89%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46% 0.47%
Net investment
income 4.30% 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59% 5.25%
SUPPLEMENTAL DATA
Net assets, end of
period
(000 omitted) $210,169 $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978 $315,154
Portfolio
turnover 50% 20% 33% 36% 15% 42% 40% 69% 55% 63%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1997, 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. 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 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 0.40% 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 0.45% 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.
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.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 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. Mr. Kozemchak is a Chartered Financial Analyst and received his M.S.
in Industrial Administration from Carnegie Mellon University in 1987.
Mary Jo Ochson has been the Trust's portfolio manager since January 1997.
Ms. Ochson joined Federated Investors in 1982 and has been a Senior Vice
President of the Trust's investment adviser since January 1996. From 1988
through 1995, Ms. Ochson served as a Vice president of the Trust's
investment adviser. Ms. Ochson is a Chartered Financial Analyst and received
her M.B.A. in Finance from the University of Pittsburgh.
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
$110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
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.
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
FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% 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 0.25% 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, Martin
Luther King 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, Donnelly & Meck, 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.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on
the inside back cover.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.24 $10.28 $10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments 0.02 (0.04) 0.13 (0.20)
Total from investment operations 0.44 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.42) (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.26 $10.24 $10.28 $10.15
TOTAL RETURN(B) 4.33% 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.72% 0.71% 0.72%*
Net investment income 4.05% 3.90% 3.69% 3.65%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,758 $6,209 $5,223 $31,459
Portfolio turnover 50% 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.
(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, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- 97.4%
ALABAMA -- 2.7%
$ 4,000,000 Alabama State, UT GO Refunding Bonds, 5.55%, 9/1/1997 AA $ 4,011,640
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,887,315
Total 5,898,955
ALASKA -- 1.0%
2,000,000 Anchorage, AK, Hospital Refunding Revenue Bonds, 6.50% (Sisters of
Providence)/(Original Issue Yield: 6.75%), 10/1/1999 AA- 2,084,620
CALIFORNIA -- 12.4%
4,000,000 California State, UT GO Bonds, 10.00%, 4/1/1998 A+ 4,182,160
7,500,000 California State, UT GO Bonds, 6.50%, 11/1/1997 A+ 7,567,350
1,500,000 California Statewide Communities Development Authority, Certificates of
Participation, 4.80% (Queen of Angels-Hollywood Presbyterian Medical Center),
1/1/2000 A 1,506,030
12,500,000 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 13,725,250
Total 26,980,790
COLORADO -- 2.1%
4,375,000 Arvada, CO Urban Renewal Authority, Revenue Refunding Bonds (Series 1997A),
5.25% (MBIA INS), 9/1/2002 AAA 4,508,306
CONNECTICUT -- 2.8%
6,000,000 Commissioner of Housing of the State of Connecticut, Multifamily Housing
Revenue Bonds, 5.00% TOBs (Town Colony Project)/(National Australia Bank, Ltd.,
Melbourne LOC), Mandatory Tender 4/1/2001 Aa3 6,003,300
GEORGIA -- 0.9%
2,000,000 Atlanta, GA, Airport Facilities Revenue Refunding Bonds (Series 1996), 5.25%
(Hartsford Atlanta International Airport)/(AMBAC INS), 1/1/1999 AAA 2,033,040
HAWAII -- 7.1%
5,000,000 Hawaii State, UT GO Bonds, Series CN, 6.25% (FGIC INS), 3/1/2002 AAA 5,359,000
5,500,000 Hawaii State, UT GO Refunding Bonds (Series BV), 5.40%
(Original Issue Yield: 5.45%), 11/1/1997 AA 5,527,775
4,500,000 Honolulu, HI City & County, UT GO Bonds (Series B), 4.80%
(Original Issue Yield: 4.90%), 6/1/1998 AA 4,536,495
Total 15,423,270
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- 6.2%
$ 1,500,000 Illinois Health Facilities Authority, Adjustable Rate Revenue Bonds, Series
1991B,
5.00% (Highland Park Hospital)/(FGIC INS), 10/1/2000 AAA $ 1,527,360
1,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds (Series A),
4.80%
(Advocate Health Care Network)/(Original Issue Yield: 4.90%), 8/15/2002 AA 997,070
2,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds (Series A),
5.00%
(Advocate Health Care Network), 8/15/2003 AA 2,006,160
2,900,000 Illinois State Sales Tax, Revenue Bonds (Series V), 5.625%, 6/15/1998 AAA 2,946,748
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), 9/1/2000 AAA 3,068,880
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA- 3,077,010
Total 13,623,228
INDIANA -- 1.8%
3,900,000 Indiana Health Facilty Financing Authority, Hospital Revenue Bonds (Series
1996A), 4.75% (Clarian Health Partners, Inc.)/(Original Issue Yield: 4.85%),
2/15/2002 AA 3,899,805
KENTUCKY -- 0.5%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%, 3/1/2000 A+ 1,176,691
LOUISIANA -- 5.2%
4,000,000 Louisiana PFA, Health & Education Capital Facilities Revenue Bonds (Series A),
5.00% TOBs (AMBAC INS), Mandatory Tender 6/1/2002 AAA 4,031,040
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), 6.00% (FGIC INS), AAA 7,343,280
8/1/2000
Total 11,374,320
MICHIGAN -- 1.9%
1,000,000 Michigan State Building Authority, Revenue Bonds (Series II), 6.25% (AMBAC
INS)/(Original Issue Yield: 6.35%), 10/1/2000 AAA 1,058,680
3,000,000 Michigan Underground Storage Tank Financial Assurance Authority, Revenue
Refunding Bonds (Series I), 5.00% (AMBAC INS), 5/1/2001 AAA 3,062,190
Total 4,120,870
MISSOURI -- 1.0
2,000,000 Springfield, MO State Highway Improvement Corp., Transportation Revenue Bonds
(Series 1997), 5.25% (AMBAC INS), 8/1/2001 AAA 2,061,740
NEVADA -- 6.4%
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 8,555,930
5,000,000 Nevada State Highway Improvement Authority, Motor Vehicle Fuel Tax Revenue
Bonds, 7.00%, 4/1/1999 AA 5,235,050
Total 13,790,980
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
NEW HAMPSHIRE -- 3.8%
$ 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 $ 8,172,550
NEW JERSEY -- 6.8%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,375,410
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C), 6.50%, 1/15/2002 AA+ 7,285,950
Total 14,661,360
NEW MEXICO -- 2.7%
4,000,000 Albuquerque, NM, GO UT Bonds (Series A & B), 4.60%, 7/1/1998 AA 4,029,800
1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility Revenue Bonds
(Series 1996), 5.00%, 6/1/2003 A 1,813,484
Total 5,843,284
NEW YORK -- 2.4%
5,000,000 New York City Municipal Water Finance Authority, Water & Sewer System Revenue
Bonds (Series A), 7.20%, 6/15/1999 A- 5,268,850
OHIO -- 6.1%
1,000,000 Cincinnati City School District, OH, Tax Anticipation Notes (Series A), 5.50%
(AMBAC INS), 12/1/2000 AAA 1,038,870
4,000,000 Cincinnati City School District, OH, Tax Anticipation Notes (Series B), 5.50%
(AMBAC INS), 12/1/1999 AAA 4,125,280
3,365,000 Cuyahoga County, OH, Hospital Improvement & Refunding Revenue Bonds
(Series 1997), 5.00% (MetroHealth System, OH)/(MBIA INS), 2/15/2001 AAA 3,425,032
1,000,000 Franklin County, OH, Hospital Facilities Refunding Revenue Bonds (Series
1996B), 4.50% TOBs (U.S. Health Corporation of Columbus)/(Morgan Guaranty Trust Co.,
New York LOC), Mandatory Tender 6/1/2000 Aa1 1,000,780
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds (Series 1996), 5.00%
(ProMedica Healthcare Obligated Group)/(MBIA INS), 11/15/1999 AAA 3,698,534
Total 13,288,496
OKLAHOMA -- 0.5%
1,055,000 Washington Cnty, OK Medical Authority, Hospital Revenue Bonds (Series 1996A),
4.75% (Jane Phillips Medical Center)/(Connie Lee INS)/(Original Issue Yield:
4.90%), 11/1/2001 AAA 1,055,749
OREGON -- 1.9%
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.375% (MBIA INS), 6/1/1999 AAA 2,046,720
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.50% (MBIA INS), 6/1/2000 AAA 2,068,720
Total 4,115,440
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- 3.0%
$ 5,000,000 Commonwealth of Pennsylvania, UT GO Second Series Refunding Bonds, 4.75%,
6/15/1998 AA- $ 5,039,650
1,500,000 Southeastern, PA Transportation Authority, Special Revenue Bonds, 5.25%
(FGIC INS), 3/1/2001 AAA 1,543,440
Total 6,583,090
TEXAS -- 6.7%
2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), 5.10%
(Original Issue Yield: 5.20%), 3/1/2000 AA 2,043,620
2,500,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series 1997A, 5.25%
(Memorial Hospital System)/(MBIA LOC), 6/1/2002 AAA 2,570,725
2,070,000 Lewisville, TX, Combination Contract Revenue & Special Assessment Bonds
(Series 1997), 4.95% TOBs (Wells Fargo Bank, N.A. LOC), Mandatory Tender A+ 2,070,662
11/1/2001
4,440,000 Texas State, UT GO Public Finance Authority (Series B), 8.00%, 10/1/1999 AA 4,806,078
3,000,000 Texas State, UT GO Public Finance Authority (Series C), 6.50%, 10/1/1997 AA 3,020,100
Total 14,511,185
VIRGINIA -- 0.5%
1,000,000 Botetourt County, VA, IDA, Lease Revenue Notes (Series 1997), 4.55%
(Botetourt County, VA), 1/15/2000 NR 998,790
WASHINGTON -- 5.7%
1,680,000 Tacoma, WA, Solid Waste Utility Revenue Refunding Bonds (Series 1997B), 5.50%
(AMBAC INS), 12/1/2002 AAA 1,757,062
3,000,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1998 AA 3,028,440
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1999 AA 7,538,306
Total 12,323,808
WEST VIRGINIA -- 0.7%
1,500,000 Cabell County, WV, Board of Education, Refunding UT GO Bonds, 6.00%, 5/1/2001 A+ 1,576,200
WISCONSIN -- 4.6%
6,500,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series
1996), 5.50% (Gundersen Lutheran)/(FSA INS), 12/1/2000 AAA 6,726,525
3,335,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series
1997), 4.70% (Marshfield Clinic, WI)/(MBIA INS)/(Original Issue Yield: 4.85%),
2/15/2002 AAA 3,334,566
Total 10,061,091
TOTAL SHORT-INTERMEDIATE MUNICIPAL SECURITIES (IDENTIFIED COST $209,193,819) 211,439,808
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 3.7%
PENNSYLVANIA -- 3.7%
$ 8,000,000 New Castle, PA, Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) (AT AMORTIZED COST) AAA $ 8,000,000
TOTAL INVESTMENTS (IDENTIFIED COST $217,193,819)(A) $ 219,439,808
</TABLE>
(a)The cost of investments for federal tax purposes amounts to
$217,193,819. The net unrealized appreciation of investments on a
federal tax basis amounts to $2,245,989 which is comprised of
$2,253,714 appreciation and $7,725 depreciation at June 30, 1997.
* 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
($216,926,516) at June 30, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation FGIC --
Financial Guaranty Insurance Company FSA -- Financial Security
Assurance GO -- General Obligation HFDC -- Health Facility Development
Corporation IDA -- Industrial Development Authority INS -- Insured LIQ
- -- Liquidity Agreement LOC -- Letter of Credit LT -- Limited Tax MBIA
- -- Municipal Bond Investors Assurance PFA -- Public Facility Authority
PRF -- Prerefunded TOBs -- Tender Option Bonds UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $217,193,819) $219,439,808
Income receivable 2,711,755
Receivable for shares sold 1,041,912
Total assets 223,193,475
LIABILITIES:
Payable for investments purchased $4,654,967
Payable for shares redeemed 401,704
Income distribution payable 424,163
Payable to Bank 766,362
Accrued expenses 19,763
Total liabilities 6,266,959
NET ASSETS for 21,151,441 shares outstanding $216,926,516
NET ASSETS CONSIST OF:
Paid in capital $220,637,199
Net unrealized appreciation of investments 2,245,989
Accumulated net realized loss on investments (5,954,420)
Distributions in excess of net investment income (2,252)
Total Net Assets $216,926,516
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$210,168,824 / 20,492,519 shares outstanding $10.26
INSTITUTIONAL SERVICE SHARES:
$6,757,692 / 658,922 shares outstanding $10.26
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM MUNICIPAL TRUST
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 10,319,741
EXPENSES:
Investment advisory fee $ 866,632
Administrative personnel and services fee 163,655
Custodian fees 32,399
Transfer and dividend disbursing agent fees and expenses 51,303
Directors'/Trustees' fees 14,784
Auditing fees 14,938
Legal fees 6,625
Portfolio accounting fees 82,220
Distribution services fee -- Institutional Service Shares 19,226
Shareholder services fee -- Institutional Shares 522,419
Shareholder services fee -- Institutional Service Shares 19,226
Share registration costs 23,909
Printing and postage 23,177
Insurance premiums 4,609
Taxes 3,529
Miscellaneous 6,796
Total expenses 1,855,447
Waivers --
Waiver of investment advisory fee $ (293,339)
Waiver of distribution services fee -- Institutional Service Shares (18,457)
Waiver of shareholder services fee -- Institutional Shares (522,419)
Waiver of shareholder services fee -- Institutional Service Shares (769)
Total waivers (834,984)
Net expenses 1,020,463
Net investment income 9,299,278
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (188,131)
Net change in unrealized appreciation of investments 403,659
Net realized and unrealized gain on investments 215,528
Change in net assets resulting from operations $ 9,514,806
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 9,299,278 $ 8,655,367
Net realized gain (loss) on investments (($170,193) and ($2,597,123),
respectively, as computed
for federal tax purposes) (188,131) (175,989)
Net change in unrealized appreciation/depreciation 403,659 (614,249)
Change in net assets resulting from operations 9,514,806 7,865,129
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (8,989,909) (8,424,725)
Institutional Service Shares (311,621) (230,642)
Change in net assets resulting from distributions to shareholders (9,301,530) (8,655,367)
SHARE TRANSACTIONS --
Proceeds from sale of shares 120,094,181 64,151,068
Net asset value of shares issued to shareholders in payment of 3,735,821 2,372,964
distributions declared
Cost of shares redeemed (102,793,046) (92,993,242)
Change in net assets resulting from share transactions 21,036,956 (26,469,210)
Change in net assets 21,250,232 (27,259,448)
NET ASSETS:
Beginning of period 195,676,284 222,935,732
End of period $ 216,926,516 $195,676,284
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
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.
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.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for expiring capital loss carryforwards. The
following reclassifications have been made to the financial
statements. <TABLE> <CAPTION> INCREASE (DECREASE)
ACCUMULATED
PAID-IN NET REALIZED
CAPITAL GAIN/LOSS
<C> <S>
($1,097,445) $1,097,445
</TABLE>
Net investment income, net realized gains/losses, and net assets were
not affected by this reclassification.
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.
FEDERATED SHORT-TERM MUNICIPAL TRUST
At June 30, 1997, the Trust, for federal tax purposes, had a capital
loss carryforward of $5,760,172, 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 Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
1998 $1,729,378
1999 $ 11,866
2001 $ 62,121
2003 $1,189,491
2004 $2,597,123
2005 $ 170,193
</TABLE>
Additionally, net capital losses of $193,926 attributable to security
transactions incurred after October 31, 1996 are treated as arising on
July 1, 1997 on 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.
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,
1997 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 11,082,005 $ 113,726,010 5,801,109 $ 59,763,022
Shares issued to shareholders in
payment of distributions declared 338,791 3,476,789 210,577 2,168,702
Shares redeemed (9,428,681) (96,745,509) (8,687,459) (89,426,238)
Net change resulting from
Institutional share transactions 1,992,115 $ 20,457,290 (2,675,773) $(27,494,514)
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 619,285 $ 6,368,171 424,713 $ 4,388,046
Shares issued to shareholders in
payment of distributions declared 25,233 259,032 19,833 204,262
Shares redeemed (591,876) (6,047,537) (346,274) (3,567,004)
Net change resulting from
Institutional Service share
transactions 52,642 $ 579,666 98,272 $ 1,025,304
Net change resulting from share
transactions 2,044,757 $ 21,036,956 (2,577,501) $(26,469,210)
</TABLE>
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) exceed
0.45% of average daily net assets of the Trust.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Trust with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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 of 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
average daily net assets of the Trust for the period. The fee paid to
FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Trust. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records for which it receives a
fee. The fee is based on the level of the Trust's average daily net
assets for the period, plus out-of-pocket expenses.
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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended June 30, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $124,943,711
SALES $106,000,313
</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, 1997, 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 12 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, 1997, by
correspondence with the custodian. As to the securities purchased, but
not received, we requested confirmation from brokers and, when replies
were not received, we carried out other alternative auditing
procedures. 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, 1997, 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 the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 25, 1997
INSTITUTIONAL SHARES
Federated Investors Tower
Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
[Graphic]
Federated Short-Term Municipal Trust
Institutional Shares
PROSPECTUS
AUGUST 31, 1997
A No-Load, Open-End, Diversified
Management Investment Company
Federated Securities Corp., Distributor
Cusip 313907107
8072507A-IS (8/97)
[Graphic]
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,
1997, 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated August 31, 1997
TABLE OF CONTENTS
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 4
Investment Risks 5
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Institutional
Service Shares 6
Administration of the Trust 7
Net Asset Value 7
Investing in Institutional Service Shares 7
Share Purchases 7
Minimum Investment Required 7
What Shares Cost 7
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
Redeeming Institutional Service Shares 8
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 9
Shareholder Information 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Performance Information 10
Other Classes of Shares 10
Financial Highlights--Institutional Shares 11
Financial Statements 12
Report of Independent Public Accountants 24
SUMMARY OF TRUST EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
<S> <C> <C>
Management Fee (after waiver)(1) 0.26%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(3) 0.00%
Total Operating Expenses(4) 0.46%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of the
management fee. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the waiver of a portion
of the 12b-1 fee. The distributor can terminate this waiver at any
time at its sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The shareholder services fee has been reduced to reflect the
waiver of a portion of the shareholder services fee. The
shareholder service provider can terminate this waiver at any time
at its sole discretion. The maximum shareholder services fee is
0.25%.
(4) The total operating expenses in the table above are based on
expenses expected during the fiscal year ending June 30, 1998. The
total operating expenses were 0.71% for the fiscal year ended June
30, 1997.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending June 30, 1998.
During the course of this period expenses may be more or less than
the average amount shown.
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.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
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.
1 Year $ 5
3 Years $ 15
5 Years $ 26
10 Years $ 58
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 24.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.24 $10.28 $10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments 0.02 (0.04) 0.13 (0.20)
Total from investment operations 0.44 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.42) (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.26 $10.24 $10.28 $10.15
TOTAL RETURN(B) 4.33% 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.72% 0.71% 0.72%*
Net investment income 4.05% 3.90% 3.69% 3.65%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $6,758 $6,209 $5,223 $31,459
Portfolio turnover 50% 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.
(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, 1997, 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. 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 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 0.40% 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 0.45% 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.
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.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 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. Mr. Kozemchak is a Chartered Financial Analyst and received his M.S.
in Industrial Administration from Carnegie Mellon University in 1987.
Mary Jo Ochson has been the Trust's portfolio manager since January 1997.
Ms. Ochson joined Federated Investors in 1982 and has been a Senior Vice
President of the Trust's investment adviser since January 1996. From 1988
through 1995, Ms. Ochson served as a Vice president of the Trust's
investment adviser. Ms. Ochson is a Chartered Financial Analyst and received
her M.B.A. in Finance from the University of Pittsburgh.
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
$110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
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.
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 0.25% 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
0.25% 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:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King 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 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, Donnelly & Meck, 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.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 24.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19 $10.24
INCOME FROM
INVESTMENT OPERATIONS
Net investment
income 0.44 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57 0.54
Net realized and
unrealized
gain (loss) on
investments 0.02 (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09) (0.05)
Total from
investment
operations 0.46 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48 0.49
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.44) (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57) (0.54)
NET ASSET
VALUE, END
OF PERIOD $10.26 $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19
TOTAL RETURN(A) 4.59% 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84% 4.89%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46% 0.47%
Net investment
income 4.30% 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59% 5.25%
SUPPLEMENTAL DATA
Net assets, end of
period(000
omitted) $210,169 $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978 $315,154
Portfolio turnover 50% 20% 33% 36% 15% 42% 40% 69% 55% 63%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- 97.4%
ALABAMA -- 2.7%
$ 4,000,000 Alabama State, UT GO Refunding Bonds, AA $ 4,011,640
5.55%, 9/1/1997
1,850,000 Alabama State, UT GO Refunding Bonds, AA 1,887,315
5.70%, 9/1/1998
Total 5,898,955
ALASKA -- 1.0%
2,000,000 Anchorage, AK, Hospital Refunding Revenue
Bonds, 6.50% (Sisters of Providence)/
(Original Issue Yield: 6.75%), 10/1/1999 AA- 2,084,620
CALIFORNIA -- 12.4%
4,000,000 California State, UT GO Bonds, 10.00%, A+ 4,182,160
4/1/1998
7,500,000 California State, UT GO Bonds, 6.50%, A+ 7,567,350
11/1/1997
1,500,000 California Statewide Communities
Development Authority, Certificates of
Participation, 4.80% (Queen of
Angels-Hollywood Presbyterian Medical
Center),
1/1/2000 A 1,506,030
12,500,000 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 13,725,250
Total 26,980,790
COLORADO -- 2.1%
4,375,000 Arvada, CO Urban Renewal Authority,
Revenue Refunding Bonds (Series 1997A),
5.25% (MBIA INS), 9/1/2002 AAA 4,508,306
CONNECTICUT -- 2.8%
6,000,000 Commissioner of Housing of the State of
Connecticut, Multifamily Housing Revenue
Bonds, 5.00% TOBs (Town Colony
Project)/(National Australia Bank, Ltd.,
Melbourne
LOC), Mandatory Tender 4/1/2001 Aa3 6,003,300
GEORGIA -- 0.9%
2,000,000 Atlanta, GA, Airport Facilities Revenue
Refunding Bonds (Series 1996), 5.25%
(Hartsford Atlanta International AAA 2,033,040
Airport)/(AMBAC INS), 1/1/1999
HAWAII -- 7.1%
5,000,000 Hawaii State, UT GO Bonds, Series CN, AAA 5,359,000
6.25% (FGIC INS), 3/1/2002
5,500,000 Hawaii State, UT GO Refunding Bonds
(Series BV), 5.40%
(Original Issue Yield: 5.45%), 11/1/1997 AA 5,527,775
4,500,000 Honolulu, HI City & County, UT GO Bonds
(Series B), 4.80%
(Original Issue Yield: 4.90%), 6/1/1998 AA 4,536,495
Total 15,423,270
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- 6.2%
$ 1,500,000 Illinois Health Facilities Authority,
Adjustable Rate Revenue Bonds, Series
1991B,
5.00% (Highland Park Hospital)/(FGIC INS), AAA $ 1,527,360
10/1/2000
1,000,000 Illinois Health Facilities Authority,
Revenue Refunding Bonds (Series A), 4.80%
(Advocate Health Care Network)/(Original AA 997,070
Issue Yield: 4.90%), 8/15/2002
2,000,000 Illinois Health Facilities Authority,
Revenue Refunding Bonds (Series A), 5.00%
(Advocate Health Care Network), 8/15/2003 AA 2,006,160
2,900,000 Illinois State Sales Tax, Revenue Bonds AAA 2,946,748
(Series V), 5.625%, 6/15/1998
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC AAA 3,068,880
INS), 9/1/2000
3,000,000 Illinois State, UT GO Bonds, 5.50%, AA- 3,077,010
8/1/1999
Total 13,623,228
INDIANA -- 1.8%
3,900,000 Indiana Health Facility Financing
Authority, Hospital Revenue Bonds (Series
1996A),
4.75% (Clarian Health Partners, AA 3,899,805
Inc.)/(Original Issue Yield: 4.85%),
2/15/2002
KENTUCKY -- 0.5%
1,155,000 Jefferson County, KY, UT GO Trust A+ 1,176,691
Certificates, 5.25%, 3/1/2000
LOUISIANA -- 5.2%
4,000,000 Louisiana PFA, Health & Education Capital
Facilities Revenue Bonds (Series A),
5.00% TOBs (AMBAC INS), Mandatory Tender AAA 4,031,040
6/1/2002
7,000,000 Louisiana State, Refunding GO Bonds AAA 7,343,280
(Series 1996A), 6.00% (FGIC INS), 8/1/2000
Total 11,374,320
MICHIGAN -- 1.9%
1,000,000 Michigan State Building Authority, Revenue
Bonds (Series II), 6.25% (AMBAC INS)/
(Original Issue Yield: 6.35%), 10/1/2000 AAA 1,058,680
3,000,000 Michigan Underground Storage Tank
Financial Assurance Authority, Revenue
Refunding Bonds (Series I), 5.00% (AMBAC AAA 3,062,190
INS), 5/1/2001
Total 4,120,870
MISSOURI -- 1.0%
2,000,000 Springfield, MO State Highway Improvement
Corp., Transportation Revenue Bonds
(Series 1997), 5.25% (AMBAC INS), 8/1/2001 AAA 2,061,740
NEVADA -- 6.4%
8,500,000 Nevada State Highway Improvement
Authority, Motor Vehicle Fuel Tax Revenue
Bond, 4.75% (Original Issue Yield: 4.90%), AA 8,555,930
4/1/1998
5,000,000 Nevada State Highway Improvement
Authority, Motor Vehicle Fuel Tax Revenue
Bonds, 7.00%, 4/1/1999 AA 5,235,050
Total 13,790,980
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED NEW HAMPSHIRE --
3.8% $ 7,900,000 New Hampshire State Turnpike System,
Revenue Bonds, 8.25% (United States
Treasury PRF)/(Original Issue Yield: AAA $ 8,172,550
8.30%), 11/1/1997 (@102)
NEW JERSEY -- 6.8%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, AA+ 7,375,410
4/15/1999
7,000,000 New Jersey State, UT GO Refunding Bonds AA+ 7,285,950
(Series C), 6.50%, 1/15/2002
Total 14,661,360
NEW MEXICO -- 2.7%
4,000,000 Albuquerque, NM, GO UT Bonds (Series A & AA 4,029,800
B), 4.60%, 7/1/1998
1,820,000 Santa Fe Solid Waste Management Agency,
NM, Facility Revenue Bonds
(Series 1996), 5.00%, 6/1/2003 A 1,813,484
Total 5,843,284
NEW YORK -- 2.4%
5,000,000 New York City Municipal Water Finance
Authority, Water & Sewer System Revenue
Bonds (Series A), 7.20%, 6/15/1999 A- 5,268,850
OHIO -- 6.1%
1,000,000 Cincinnati City School District, OH, Tax
Anticipation Notes (Series A), 5.50%
(AMBAC INS), 12/1/2000 AAA 1,038,870
4,000,000 Cincinnati City School District, OH, Tax
Anticipation Notes (Series B), 5.50%
(AMBAC INS), 12/1/1999 AAA 4,125,280
3,365,000 Cuyahoga County, OH, Hospital Improvement
& Refunding Revenue Bonds
(Series 1997), 5.00% (MetroHealth System, AAA 3,425,032
OH)/(MBIA INS), 2/15/2001
1,000,000 Franklin County, OH, Hospital Facilities
Refunding Revenue Bonds (Series 1996B),
4.50% TOBs (U.S. Health Corporation of
Columbus)/(Morgan Guaranty Trust Co.,
New York LOC), Mandatory Tender 6/1/2000 Aa1 1,000,780
3,630,000 Lucas County, OH, Hospital Revenue
Refunding Bonds (Series 1996), 5.00%
(ProMedica Healthcare Obligated AAA 3,698,534
Group)/(MBIA INS), 11/15/1999
Total 13,288,496
OKLAHOMA -- 0.5%
1,055,000 Washington Cnty, OK Medical Authority,
Hospital Revenue Bonds (Series 1996A),
4.75% (Jane Phillips Medical
Center)/(Connie Lee INS)/(Original Issue
Yield: 4.90%),
11/1/2001 AAA 1,055,749
OREGON -- 1.9%
2,000,000 Oregon State Department of Transportation,
Regional Light Rail Revenue Bond,
Westside Project, 5.375% (MBIA INS), AAA 2,046,720
6/1/1999
2,000,000 Oregon State Department of Transportation,
Regional Light Rail Revenue Bond,
Westside Project, 5.50% (MBIA INS), AAA 2,068,720
6/1/2000
Total 4,115,440
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- 3.0%
$ 5,000,000 Commonwealth of Pennsylvania, UT GO Second
Series Refunding Bonds, 4.75%,
6/15/1998 AA- $ 5,039,650
1,500,000 Southeastern, PA Transportation Authority,
Special Revenue Bonds, 5.25%
(FGIC INS), 3/1/2001 AAA 1,543,440
Total 6,583,090
TEXAS -- 6.7%
2,000,000 Fort Worth, TX, Refunding LT GO Bonds
(Series A), 5.10%
(Original Issue Yield: 5.20%), 3/1/2000 AA 2,043,620
2,500,000 Harris County, TX HFDC, Hospital Revenue
Bonds, Series 1997A, 5.25%
(Memorial Hospital System)/(MBIA LOC), AAA 2,570,725
6/1/2002
2,070,000 Lewisville, TX, Combination Contract
Revenue & Special Assessment Bonds
(Series 1997), 4.95% TOBs (Wells Fargo A+ 2,070,662
Bank, N.A. LOC), Mandatory Tender 11/1/2001
4,440,000 Texas State, UT GO Public Finance AA 4,806,078
Authority (Series B), 8.00%, 10/1/1999
3,000,000 Texas State, UT GO Public Finance AA 3,020,100
Authority (Series C), 6.50%, 10/1/1997
Total 14,511,185
VIRGINIA -- 0.5%
1,000,000 Botetourt County, VA, IDA, Lease Revenue
Notes (Series 1997), 4.55%
(Botetourt County, VA), 1/15/2000 NR 998,790
WASHINGTON -- 5.7%
1,680,000 Tacoma, WA, Solid Waste Utility Revenue
Refunding Bonds (Series 1997B), 5.50%
(AMBAC INS), 12/1/2002 AAA 1,757,062
3,000,000 Washington State, UT GO Bonds (Series B), AA 3,028,440
5.00%, 5/1/1998
7,425,000 Washington State, UT GO Bonds (Series B), AA 7,538,306
5.00%, 5/1/1999
Total 12,323,808
WEST VIRGINIA -- 0.7%
1,500,000 Cabell County, WV, Board of Education, A+ 1,576,200
Refunding UT GO Bonds, 6.00%, 5/1/2001
WISCONSIN -- 4.6%
6,500,000 Wisconsin Health and Educational Facilities
Authority, Revenue Bonds (Series 1996),
5.50% (Gundersen Lutheran)/(FSA INS), AAA 6,726,525
12/1/2000
3,335,000 Wisconsin Health and Educational Facilities
Authority, Revenue Bonds (Series 1997),
4.70% (Marshfield Clinic, WI)/(MBIA AAA 3,334,566
INS)/(Original Issue Yield: 4.85%),
2/15/2002
Total 10,061,091
TOTAL SHORT-INTERMEDIATE MUNICIPAL
SECURITIES (IDENTIFIED COST $209,193,819) 211,439,808
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- 3.7%
PENNSYLVANIA -- 3.7%
$ 8,000,000 New Castle, PA, Area Hospital Authority,
(Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/(PNC Bank, AAA $ 8,000,000
N.A. LIQ) (AT AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 219,439,808
$217,193,819)(A)
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$217,193,819. The net unrealized appreciation of investments on a
federal tax basis amounts to $2,245,989 which is comprised of
$2,253,714 appreciation and $7,725 depreciation at June 30, 1997.
* 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
($216,926,516) at June 30, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation FGIC --
Financial Guaranty Insurance Company FSA -- Financial Security
Assurance GO -- General Obligation HFDC -- Health Facility Development
Corporation IDA -- Industrial Development Authority INS -- Insured LIQ
- -- Liquidity Agreement LOC -- Letter of Credit LT -- Limited Tax MBIA
- -- Municipal Bond Investors Assurance PFA -- Public Facility Authority
PRF -- Prerefunded TOBs -- Tender Option Bonds UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $217,193,819) $ 219,439,808
Income receivable 2,711,755
Receivable for shares sold 1,041,912
Total assets 223,193,475
LIABILITIES:
Payable for investments purchased $ 4,654,967
Payable for shares redeemed 401,704
Income distribution payable 424,163
Payable to Bank 766,362
Accrued expenses 19,763
Total liabilities 6,266,959
NET ASSETS for 21,151,441 shares outstanding $ 216,926,516
NET ASSETS CONSIST OF:
Paid in capital $ 220,637,199
Net unrealized appreciation of investments 2,245,989
Accumulated net realized loss on investments (5,954,420)
Distributions in excess of net investment income (2,252)
Total Net Assets $ 216,926,516
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$210,168,824 / 20,492,519 shares outstanding $10.26
INSTITUTIONAL SERVICE SHARES:
$6,757,692 / 658,922 shares outstanding $10.26
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM MUNICIPAL TRUST
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 10,319,741
EXPENSES:
Investment advisory fee $ 866,632
Administrative personnel and services fee 163,655
Custodian fees 32,399
Transfer and dividend disbursing agent fees and expenses 51,303
Directors'/Trustees' fees 14,784
Auditing fees 14,938
Legal fees 6,625
Portfolio accounting fees 82,220
Distribution services fee -- Institutional Service Shares 19,226
Shareholder services fee -- Institutional Shares 522,419
Shareholder services fee -- Institutional Service Shares 19,226
Share registration costs 23,909
Printing and postage 23,177
Insurance premiums 4,609
Taxes 3,529
Miscellaneous 6,796
Total expenses 1,855,447
Waivers --
Waiver of investment advisory fee $ (293,339)
Waiver of distribution services fee -- Institutional Service Shares (18,457)
Waiver of shareholder services fee -- Institutional Shares (522,419)
Waiver of shareholder services fee -- Institutional Service Shares (769)
Total waivers (834,984)
Net expenses 1,020,463
Net investment income 9,299,278
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (188,131)
Net change in unrealized appreciation of investments 403,659
Net realized and unrealized gain on investments 215,528
Change in net assets resulting from operations $ 9,514,806
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 9,299,278 $ 8,655,367
Net realized gain (loss) on investments (($170,193) and ($2,597,123),
respectively, as computed
for federal tax purposes) (188,131) (175,989)
Net change in unrealized appreciation/depreciation 403,659 (614,249)
Change in net assets resulting from operations 9,514,806 7,865,129
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (8,989,909) (8,424,725)
Institutional Service Shares (311,621) (230,642)
Change in net assets resulting from distributions to shareholders (9,301,530) (8,655,367)
SHARE TRANSACTIONS --
Proceeds from sale of shares 120,094,181 64,151,068
Net asset value of shares issued to shareholders in payment of 3,735,821 2,372,964
distributions declared
Cost of shares redeemed (102,793,046) (92,993,242)
Change in net assets resulting from share transactions 21,036,956 (26,469,210)
Change in net assets 21,250,232 (27,259,448)
NET ASSETS:
Beginning of period 195,676,284 222,935,732
End of period $ 216,926,516 $ 195,676,284
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1997
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.
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.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for expiring capital loss carryforwards. The
following reclassifications have been made to the financial
statements.
INCREASE (DECREASE)
ACCUMULATED
PAID-IN NET REALIZED
CAPITAL GAIN/LOSS
($1,097,445) $1,097,445
Net investment income, net realized gains/losses, and net assets were
not affected by this reclassification.
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, 1997, the Trust, for federal tax purposes, had a capital
loss carryforward of $5,760,172, 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 Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 1,729,378
1999 $ 11,866
2001 $ 62,121
2003 $ 1,189,491
2004 $ 2,597,123
2005 $ 170,193
Additionally, net capital losses of $193,926 attributable to security
transactions incurred after October 31, 1996 are treated as arising on
July 1, 1997 on 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.
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,
1997 1996
INSTITUTIONAL SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C>
Shares sold 11,082,005 $ 113,726,010 5,801,109 $ 59,763,022
Shares issued to shareholders in
payment of distributions declared 338,791 3,476,789 210,577 2,168,702
Shares redeemed (9,428,681) (96,745,509) (8,687,459) (89,426,238)
Net change resulting from
Institutional share
transactions 1,992,115 $ 20,457,290 (2,675,773) $ (27,494,514)
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
INSTITUTIONAL SERVICE SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C>
Shares sold 619,285 $ 6,368,171 424,713 $ 4,388,046
Shares issued to shareholders in
payment of distributions declared 25,233 259,032 19,833 204,262
Shares redeemed (591,876) (6,047,537) (346,274) (3,567,004)
Net change resulting from
Institutional Service share
transactions 52,642 $ 579,666 98,272 $ 1,025,304
Net change)resulting
from share transactions 2,044,757 $ 21,036,956 (2,577,501) $ (26,469,210
</TABLE>
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) exceed
0.45% of average daily net assets of the Trust.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Trust with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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 of 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
average daily net assets of the Trust for the period. The fee paid to
FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Trust. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records for which it receives a
fee. The fee is based on the level of the Trust's average daily net
assets for the period, plus out-of-pocket expenses.
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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended June 30, 1997, were as follows:
PURCHASES $ 124,943,711
SALES $ 106,000,313
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, 1997, 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 11 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, 1997, by
correspondence with the custodian. As to the securities purchased, but
not received, we requested confirmation from brokers and, when replies
were not received, we carried out other alternative auditing
procedures. 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, 1997, 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 the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 25, 1997
FEDERATED SHORT-TERM MUNICIPAL TRUST
Institutional Service Shares
Federated Investors Tower
Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
[Graphic]
Federated Short-Term Municipal Trust
Institutional Service Shares
PROSPECTUS
AUGUST 31, 1997
A No-Load, Open-End, Diversified
Management Investment Company
Federated Securities Corp., Distributor
Cusip 313907206
8072507A-SS (8/97)
[Graphic]
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, 1997. 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, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 313907107
Cusip 313907206
8072507B (8/97)
[Graphic]
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Portfolio Turnover 2
Investment Limitations 2
FEDERATED SHORT-TERM MUNICIPAL TRUST MANAGEMENT
4
Trust Ownership 7
Trustee Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Adviser to the Trust 8
Advisory Fees 9
Other Related Services 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Public Accountants 10
PURCHASING SHARES 10
Distribution Plan (Institutional Service
Shares only) and Shareholder Services
Agreement 10
DETERMINING NET ASSET VALUE 10
Valuing Municipal Securities 10
Use of Amortized Cost 10
REDEEMING SHARES 10
Redemption in Kind 11
MASSACHUSETTS PARTNERSHIP LAW 11
TAX STATUS 11
The Trust's Tax Status 11
TOTAL RETURN 11
YIELD 11
Tax-Equivalent Yield 12
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 13
Economic and Market Information 13
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 14
APPENDIX 15
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, 1997 and 1996, the portfolio turnover
rates were 50% and 20%, 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.
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 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.
FEDERATED SHORT-TERM MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Federated Short-Term Municipal 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 Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
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, 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
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
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired
from the law firm of Miller, Ament, Henny & Kochuba; 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; 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; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; 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 Company.
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 and Secretary of the Funds; Treasurer of some 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; 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 Investment Portfolios;
Federated Investment Trust; 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.; 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 Obligations Trust II; 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;
Wesmark Funds; and World Investment Series, Inc.
TRUST OWNERSHIP
As of August 5, 1997, Officers and Trustees as a group owned 916,522
(4.51%) of the outstanding Institutional Shares of the Trust. As of
the same date, Officers and Trustees owned less than 1% of the
Institutional Service Shares of the Trust.
As of August 5, 1997 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 49,526 Shares (7.25%); National Financial Services For
The Exclusive Benefit of Our Customers, New York, New York, owned
approximately 58,588 Shares (8.58%); John H. Seale, Jaspar, Texas,
owned approximately 66,279 Shares (9.71%);CPB Trust Division Fiduciary
Account 102007, Honolulu, Hawaii, owned approximately 60,388 Shares
(8.84%);FAM & Co., Logansport, Indiana, owned approximately 64,007
Shares (9.37%); and Donaldson Lufkin Jenrette Securities Corporation,
Inc, Jersey City, New Jersey, owned approximately 49,655 Shares
(7.27%); As of August 5, 1997, 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 1,877,423 Shares (9.24%); and ONEDUN #2 First American
Bank Kane City, Dundee, Illinois owned approximately 2,074,700 Shares
(10.21%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley, $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, $1,300.81 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland, $1,300.81 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd, $1,300.81 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,300.81 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson, $0 $-0- for the Trust and
President and Trustee 6 other investment companies in the Fund Complex
Peter E. Madden, $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer, $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Complex
John E. Murray, Jr., $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar, $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,182.39 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended June 30, 1997.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
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, 1997, 1996, and 1995, the Trust's adviser
earned $866,632, $837,213, and $1,084,312, respectively, which were
reduced by $293,339, $266,026, and $346,925, respectively, because of
undertakings to limit the Trust's expenses.
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, 1997, 1996
and 1995, 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, a subsidiary of Federated
Investors, served as the Trust's Administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be
referred to as the "Administrators." For the fiscal years ended June
30, 1997, 1996, and 1995, the Administrators earned $163,655,
$158,326, and $205,206, respectively.
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, 1997 payments in the amount of
$19,226 were made pursuant to the Distribution Plan (Institutional
Service Shares only) of which $18,457 was waived. In addition, for
this period, the Trust paid shareholder service fees in the amount of
$541,645, of which $523,188 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:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* derive less than 30% of its gross income from the sale of securities
held less than three months;
* invest in securities within certain statutory limits; and
* 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, 1997,
were 4.59%, 4.15%, and 4.99%, respectively. The Trust's average annual
total return for Institutional Service Shares for the fiscal year
ended June 30, 1997 and for the period since inception (August 31,
1993, date of initial public offering), to June 30, 1997 was 4.33% and
3.70% respectively.
YIELD
The Trust's yields for the thirty-day period ended June 30, 1997, for
Institutional Shares and Institutional Service Shares were 3.93% and
3.68%, 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, 1997, for Institutional Shares and Institutional Service Shares
were 5.46% and 5.11%, 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.
<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL
FUNDS
FEDERAL INCOME TAX BRACKET:
<CAPTION>
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<C> <C> <C> <C> <C> <C>
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%
</TABLE>
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 Trust 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:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio securities;
* changes in the Trust's expenses or either class of Shares' expenses; and
* 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:
* 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.
* THE LEHMAN BROTHERS 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.
* THE LEHMAN BROTHERS 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.
* THE LEHMAN BROTHERS 1-YEAR G.O. BOND INDEX has a maturity of 1 to 2 years
and includes State and Local General Obligation bonds. Total returns for the
index are calulated semi-monthly.
* 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, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 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 and global
portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 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.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 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 Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--we have over 2,200 broker/ dealer and bank
broker/dealer relationships across the country--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. DALBAR, Inc is recognized as the
industry benchmark for service quality measurement. The marketing
effort to these firms is headed by James F. Getz, President, Federated
Securities Corp.
* 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:
* leading market positions in well-established industries;
* high rates of return on funds employed;
* conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* 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
Institutional Shares and Institutional Service Shares
Annual Report for Fiscal Year Ended June 30, 1997 MANAGEMENT
DISCUSSION AND ANALYSIS
PERFORMANCE
For the 12 months ended June 30, 1997, Federated Short-Term Municipal
Trust produced a total return of 4.59% for the Institutional Shares
(IS) and 4.33% for the Institutional Service Shares (ISS). Against the
Lipper Short-Term Municipal Debt Category the fund's total returns
ranked favorably at 9th out of 29 funds (IS), and 15th out of 29 funds
(ISS).
While these total returns were extremely competitive, the fund is
managed predominately for tax-exempt income, with minimal fluctuation
of principal value. Over the 12-month period, the fund produced income
dividends (exempt from all Federal personal income taxes) totaling
approximately $0.441 per share (IS) and $0.416 per share (ISS). These
dividends are equivalent to annualized tax-free distribution rates of
4.30% (IS) and 4.05% (ISS). For investors at the highest federal tax
bracket of 39.6%, these distribution rates are comparable to taxable
rates of 7.12% (IS) and 6.71% (ISS). As of June 30, 1997, the Trust's
30-day yields were 3.93% (IS) and 3.68% (ISS).
MARKET
The shape and direction of the short-end of the yield curve (5 years
and less) continue to be dictated by the actions of the Federal
Reserve Board (the "Fed") as well as market perceptions regarding
future actions by the Fed. Reacting to an economy that reflects strong
growth, low unemployment, but stable prices, the Fed raised short-term
interest rates at the end of March for the first time in two years.
The Federal Funds rate target was moved from 5.25% to 5.50%. The Fed
was concerned that the robust pace of economic expansion, tight labor
markets, and persistent strong demand could potentially lead to a
resurgence in inflation in the future. The Fed's action was considered
somewhat preemptive against the threat of future inflationary
pressures and the need for more vigorous action in the future.
In general, yields on 3-year AA-rated general obligation municipal
bonds were strongly influenced by changing market perceptions and Fed
interest rate policy. Yields began the period at 4.40% but moved to
4.20% by mid-August. Stronger economic growth prompted a rise to 4.45%
by early September but yields then fell steadily to a period low of
4.05% by the end of November, as market concerns abated over the fall
months. However, in early December sentiment changed as stronger
economic numbers, a nervous equity market, and cautionary statements
by the Federal Reserve exerted upward pressure on interest rates,
causing bond prices to retrace much of their prior gain.
Correspondingly, yields moved higher in December and January rising to
4.35%.
In the first half of February, short-term municipal yields fell once
again to 4.10% as the market discounted the prospects of a strong
economy and its possible effects on future inflation. However, a
reversal in expectations occurred in mid-February as municipal yields
changed direction and the Federal Reserve signaled the possible need
for future tightenings to slow the economy down and lower the
probability of future inflation. In late March, the Federal Reserve
increased the Federal Funds rate target by 25 basis points, but the
market had already begun to "price into the curve" additional
tightenings. Correspondingly, yields moved sharply higher through late
April, reaching a period high of 4.60% before declining again in May
and June to end the period at 4.25%.
STRATEGY
Over the period, three-year municipal bonds exhibited less price
volatility than comparable U.S. Treasury notes while providing a
favorable after-tax income advantage for those investors at marginal
tax rates of 31% or higher. During the 12-month period, yields on
three-year AA municipal bonds as a percentage of Treasuries averaged
69%, but ranged from 66% to 72% -- reflecting moderate 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 narrow between AAA and A rated bonds. The yield spread
between a three-year AAA-rated insured municipal bond and an A-rated
revenue bond is only 15 basis points, which is the average spread over
the past 12 months. Credit spreads will eventually widen from these
levels when the economy slows, and investors once again emphasize
quality in their purchase decisions.
Accordingly, the fund continues to emphasize the highest quality
instruments, with over 85% of the assets invested relatively evenly in
AAA and AA rated issues. The yield curve flattened considerably over
the period as the yield spread between one- and five-year AAA
maturities is currently only 40 basis points as compared to an average
spread of 77 basis points over the one-year period. From a relative
value standpoint, when municipal bonds are compared to comparable
maturity Treasuries, bonds with maturities from 1 to 3 years are now
more fairly priced than bonds with 4- to 5-year maturities.
During the 12-month period, management maintained the weighted average
maturity of the fund between 2.35 and 2.50 years. The average coupon
rate of issues in the portfolio was 5.79% on June 30, 1997, which
declined slightly from one year earlier. The concentration of higher
coupon premium bonds in the portfolio helped to dampen net asset value
volatility over the period. Even though yields fell over the reporting
period, management was able to take advantage of market opportunities
to improve the fund's yield return.
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, 1987, to June 30, 1997, compared to the Lehman
Brothers 1 Year General Obligation Index (LB1YRGOI),+ the Lehman
Brothers 3-Year Government Obligation Index (LB3YRSGOI)+ and the
Lehman Brothers 5-Year Government Obligation Index (LB5YRSGOI).+
[Graphic] See attached Appendix A-2)
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, 1997, 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 LB1YRGOI, the LB3YRSGOI, and the LB5YRSGOI have
been adjusted to reflect reinvestment of dividends on securities in
the indices.
** For this illustration, the LB1YRGOI began performance on July 1,
1993. The index was assigned a beginning value of $34,876, the value
of the fund on June 30, 1993.
+ The LB1YRGOI, the LB3YRSGOI, and the LB5YRSGOI are not adjusted to
reflect sales charges, expenses, or other fees that the Securities and
Exchange Commission requires to be reflected in the Trust's
performance. These indices are unmanaged. The Investment Adviser has
elected to change the benchmark of the Trust by adding the LB1YRGOI in
place of the LB5YRGOI, for the purpose of performance comparisons to
the Trust. The LB1YRGOI is a narrower index which is more
representative of securities typically held by the Trust. The
LB5YRGOI, which measures the total return performance for the
municipal bond market on those municipal bonds with maturities of five
years, will be removed from the next financial report.
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, 1997, compared to the Lehman Brothers 1 Year General
Obligation Index (LB1YRGOI),+ the Lehman Brothers 3-Year Government
Obligation Index (LB3YRSGOI)+ and the Lehman Brothers 5-Year
Government Obligation Index (LB5YRSGOI).+
[Graphic] (see atached Appendix A-1)
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, 1997, 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 LB1YRGOI, the LB3YRSGOI, and the LB5YRSGOI have
been adjusted to reflect reinvestment of dividends on securities in
the indices.
+ The LB1YRGOI, the LB3YRSGOI, and the LB5YRSGOI are not adjusted to
reflect sales charges, expenses, or other fees that the Securities and
Exchange Commission requires to be reflected in the Trust's
performance. These indices are unmanaged. The Investment Adviser has
elected to change the benchmark of the Trust by adding the LB1YRGOI in
place of the LB5YRGOI, for the purpose of performance comparisons to
the Trust. The LB1YRGOI is a narrower index which is more
representative of securities typically held by the Trust. The
LB5YRGOI, which measures the total return performance for the
municipal bond market on those municipal bonds with maturities of five
years, will be removed from the next financial report.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 313907107
Cusip 313907206
8072507ARS (7/97)
[Graphic]
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 1 Year General
Obligation Index (the "LB1YRGOI") is represented by a dotted line. The
Lehman Brothers 3 Year General Obligation Index (the "LB3YRGOI") is
represented by a broken line. The Lehman Brothers 5 Year General
Obligation Index (the "LB5YRGOI") is represented by a broken/dotted
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
LB1YRGOI, the LB3YRGOI and the LB5YRGOI. The "x" axis reflects
computation periods from the start of performance (September 1, 1993,)
to June 30, 1997. The "y" axis reflects the cost of the investment,
ranging from $25,000 to $30,000. The right margin reflects the ending
value of the hypothetical investment in the Trust as compared to the
LB1YRGOI, the LB3YRGOI and the LB5YRGOI.. The ending values are
$28,739, $29,355, $29,021 and $29,137, 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 1 Year General Obligation Index (the
"LB1YRGOI") is represented by a dotted line. The Lehman Brothers 3
Year General Obligation Index (the "LB3YRGOI") is represented by a
broken line. The Lehman Brothers 5 Year General Obligation Index (the
"LB5YRGOI") is represented by a broken/dotted 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 LB1YRGOI, the
LB3YRGOI and the LB5YRGOI. The "x" axis reflects computation periods
from June 30, 1987 to June 30, 1997. The "y" axis reflects the cost of
the investment, ranging from $25,000 to $45,000. The right margin
reflects the ending value of the hypothetical investment in the Trust
as compared to the LB1YRGOI, the LB3YRGOI and the LB5YRGOI.. The
ending values are $40,664, $41,204, $42,143 and $44,981, respectively.
