PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Short-Term Municipal Trust for the six-month period ended December 31, 1996.
The report begins with an Investment Review by the fund's portfolio manager,
Jeff Kozemchak. Following his Investment Review are a complete list of
portfolio holdings and the Financial Statements for the fund's Institutional
Shares and Institutional Service Shares.
On behalf of its shareholders, the fund pursues monthly income free from
federal regular income tax through a portfolio of high-quality, short-term
municipal securities.*
During the six-month reporting period, tax-free dividends paid to
shareholders totaled $0.22 per share for Institutional Shares and $0.21 per
share for Institutional Service Shares. Total return was 2.76% for
Institutional Shares and 2.63% for Institutional Service Shares.** The net
asset value of both share classes increased, from $10.24 on the first day of
the period to $10.30 on the last day of the period. Fund net assets
increased to $216.2 million on December 31, 1996.
Thank you for participating in tax-free income opportunities through
Federated Short-Term Municipal Trust. As always, we welcome your questions,
comments, or suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
February 15, 1997
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
INVESTMENT REVIEW
The six-month period ended December 31, 1996, presented a more favorable
market environment for fixed-income investors compared to the first half of
the year. The Federal Reserve Board's (the "Fed") monetary policy remained
on hold and the economy continued to show signs of moderate, non-inflationary
growth. As a result, yields moved steadily lower between early September
and until the early part of December. Market sentiment changed abruptly
when Fed chairman, Alan Greenspan, cautioned against "irrational exuberance"
and rapid escalation in asset values in the equity market and the possible
effects these events might have on the future course of monetary policy.
These statements, combined with reports of stronger employment and wage
gains, caused the market to reverse course and interest rates rose throughout
most of December.
Interest rates in the short-term fixed-income markets reflected several
changes in market expectations over the reporting period. The yield on
three-year "AA" rated general obligation municipal bonds began July at 4.60%
but by early August fell to 4.20%. Throughout August and early September
rates reached an interim high of 4.45% before resuming a downward course to
a period low of 4.05% in early December. The yield at the end of December
was 4.15%.
In comparison, three-year U.S. Treasury note yields reached a period high of
6.62% in early July, fell to 6.10% in early August, increased to 6.56% in
early September, then declined steadily to a low of 5.70% in early December.
Yields increased in December and finished the period at 6.04%.
Over the reporting period, three-year municipal bonds continued to exhibit
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 six-month reporting period, yields on
three-year "AA" municipal bonds as a percentage of U.S. Treasuries averaged
70%, but ranged between 68% and 73%, reflecting price movement in the U.S.
Treasury market relative to municipals as well as municipal supply
variations. These yield ratios illustrate the richness or cheapness of
municipal bonds compared to U.S. Treasury bonds from an after-tax income
perspective.
During the six-month reporting period, portfolio strategy continued to
emphasize credit quality as yield spreads remained fairly narrow. Over the
six-month reporting period, assets of the fund invested in "AAA" rated
issues rose from 42% to 45%, reflecting the purchase of "AAA" rated
insured paper. Assets in "AA" rated issues fell to 44% from 47% while "A"
rated issues remained unchanged at 11%. Because of the relative steepness of
the municipal yield curve compared to U.S. Treasuries, and uncertainty as to
the next Fed interest rate move, management has favored non-callable bonds
maturing in 2-4 years with slight premium protection.
Over the six-month reporting period, net assets in the fund grew by over $20
million or 10%, and management used new cash inflows to maintain the
weighted average maturity and modified duration of the fund at 2.4 years and
2.15 years respectively. The average coupon rate of issues in the portfolio
declined from 5.95% to 5.80% and the average market price for issues in the
fund fell slightly from 103.7% of face value to 103.3% of face value.
Despite the interest rate decline over the reporting period, management
improved the fund's yield by swapping into bonds with better yield
characteristics and offsetting minor capital gains with past losses.
Federated Short-Term Municipal Trust's performance over the reporting period
reflects its short-term maturity and duration position relative to its peer
group. The fund's non-annualized total return for the six-month period ended
December 31, 1996, was 2.76% for the Institutional Shares and 2.63% for
Institutional Service Shares.* These results are attributable to an increase
in the net asset value per share of 0.59% (from $10.24 to $10.30), and to
income and reinvestment returns, net of share expenses, of 2.17% and 2.04%,
respectively. On a total return basis the fund outperformed its peer group,
the Lipper Short Municipal Debt Category+ over the six-month and one-year
periods ended December 31, 1996. For the one-year period ended December 31,
1996, Institutional Shares of the fund produced a total return of 4.01%** and
ranked 7th out of 30 short-term municipal debt funds according to Lipper
Analytical Services.*** For the same period, the Institutional Service Shares
produced a total return of 3.75%** and ranked 13th out of 30 short-term
municipal debt funds according to Lipper Analytical Services.***
However, the fund is managed predominately for tax-exempt income with
minimal fluctuation of principal and posted 30-day distribution rates of
4.26% for the Institutional Shares and 4.01% for the Institutional Service
Shares as of December 31, 1996. These yields are equivalent to
tax-equivalent yields of 7.05% and 6.64%, assuming a top marginal tax rate
of 39.6%. For the six-month period ended December 31, 1996, the fund posted
30-day SEC yields of 3.52% and 3.28% for Institutional Shares and
Institutional Service Shares, respectively.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** For the five-year and ten-year periods ended December 31, 1996, the
Institutional Shares produced average annual total returns of 4.25% and
4.91%, respectively. For the period from August 31, 1993 (date of initial
public offering) to December 31, 1996, the Institutional Service Shares
produced an average annual total return of 3.76%.
*** Past performance does not guarantee future results. Lipper rankings are
based on total return and do not include the effects of sales charges. For
the one-year period ended December 31, 1996, portions of the investment
advisory, distribution services fees and shareholder services fees for
Institutional Service Shares and shareholder services fees for Institutional
Shares were waived. Otherwise total return would have been lower. For the
five-year period ended December 31, 1996, the Institutional Shares of the
fund ranked 4 out of 7 short-term municipal debt funds. For the ten-year
period ended December 31, 1996, the Institutional Shares of the fund ranked
5 out of 5 short-term municipal debt funds.
+ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated. These figures do not
reflect sales charges.
FEDERATED SHORT-TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- 101.1%
ALABAMA -- 2.8%
$ 4,000,000 Alabama State, UT GO Refunding Bonds, 5.55%, 9/1/1997 AA $ 4,055,760
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,905,981
Total 5,961,741
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- 2,104,320
CALIFORNIA -- 13.8%
4,000,000 California State, UT GO Bonds, 10.00%, 4/1/1998 Aa 4,297,200
7,500,000 California State, UT GO Bonds, 6.50%, 11/1/1997 A1 7,681,500
2,000,000 California Statewide Communities Development Authority,
Certificates of Participation, 4.60% (Queen of Angels-
Hollywood Presbyterian Medical Center), 1/1/1999 A 2,002,640
1,500,000 California Statewide Communities Development Authority,
Certificates of Participation, 4.80% (Queen of Angels-
Hollywood Presbyterian Medical Center), 1/1/2000 A 1,502,550
13,000,000 Los Angeles, CA Wastewater System, Revenue Bonds
(Series D), 6.70% (MBIA INS)/(United States Treasury PRF)/
(Original Issue Yield: 6.769%), 12/1/2000 (@102) Aaa 14,411,280
Total 29,895,170
CONNECTICUT -- 1.9%
4,000,000 Connecticut State Special Assessment Unemployment
Compensation Advance Fund, Refunding Revenue Bonds,
Series 1996A, 4.50% (AMBAC LOC)/(Original Issue Yield:
4.55%), 11/15/1999 Aaa 4,042,240
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
GEORGIA -- 2.9%
$ 2,000,000 Atlanta, GA, Airport Facilities Revenue Refunding Bonds
(Series 1996), 5.25% (Hartsford Atlanta International Airport)/
(AMBAC INS), 1/1/1999 Aaa $ 2,045,860
4,060,000 Georgia State, UT GO Bonds (Series D), 8.40%, 6/1/1997 Aaa 4,143,677
Total 6,189,537
HAWAII -- 4.7%
5,500,000 Hawaii State, UT GO Bonds (Series BV), 5.40% (Original
Issue Yield: 5.45%), 11/1/1997 AA 5,585,690
4,500,000 Honolulu, HI City & County, UT GO Bonds (Series B),
4.80% (Original Issue Yield: 4.90%), 6/1/1998 AAA 4,563,540
Total 10,149,230
ILLINOIS -- 10.9%
7,170,000 Cook County, IL, GO Capital Improvement Bonds
(Series 1996), 5.00% (FGIC INS), 11/15/1999 AAA 7,332,114
1,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Series A), 4.70% (Advocate Health Care Network)/(Original
Issue Yield: 4.80%), 8/15/2001 AA 992,910
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 992,080
2,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Series A), 5.00% (Advocate Health Care Network), 8/15/2003 AA 1,999,660
2,900,000 Illinois State Sales Tax, Revenue Bonds (Series V), 5.625%,
6/15/1998 AAA 2,974,414
6,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), 9/1/2000 AAA 6,147,600
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA- 3,092,190
Total 23,530,968
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
INDIANA -- 5.6%
$ 3,900,000 Indiana Health Facility Financing Authority, Hospital
Revenue Bonds (Series 1996A), 4.75% (Clarian Health
Partners, Inc.)/(Original Issue Yield: 4.85%), 2/15/2002 AA $ 3,892,277
6,000,000 Indiana Secondary Market for Education Loans, Inc.,
Revenue Bonds, 4.65% (AMBAC INS), 6/1/2000 Aaa 6,022,320
1,000,000 Trustees of Purdue University, IN, Certificates of Participation
(Series 1996), 4.40%, 7/1/2000 AA- 997,950
1,100,000 Trustees of Purdue University, IN, Certificates of Participation
(Series 1996), 4.55%, 7/1/2001 AA- 1,098,669
Total 12,011,216
KENTUCKY -- 0.5%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%,
3/1/2000 A+ 1,171,713
LOUISIANA -- 3.4%
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), 6.00%
(FGIC INS), 8/1/2000 AAA 7,385,070
MICHIGAN -- 3.3%
1,000,000 Michigan State Building Authority, Revenue Bonds (Series II),
6.25% (AMBAC INS)/(Original Issue Yield: 6.35%), 10/1/2000 Aaa 1,068,040
3,000,000 Michigan Underground Storage Tank Financial Assurance
Authority, Revenue Refunding Bonds (Series I), 5.00%
(AMBAC INS), 5/1/1999 Aaa 3,061,680
3,000,000 Michigan Underground Storage Tank Financial Assurance
Authority, Revenue Refunding Bonds (Series I), 5.00%
(AMBAC INS), 5/1/2001 Aaa 3,069,540
Total 7,199,260
MINNESOTA -- 1.4%
3,000,000 Minnesota State, UT GO Refunding Bonds, 4.70%, 8/1/1997 AA+ 3,022,140
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
NEVADA -- 6.4%
$ 8,500,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bonds, 4.75% (Original Issue
Yield: 4.90%), 4/1/1998 AA $ 8,597,750
5,000,000 Nevada State Highway Improvement Authority, Motor
Vehicle Fuel Tax Revenue Bonds, 7.00%, 4/1/1999 AA 5,299,900
Total 13,897,650
NEW HAMPSHIRE -- 3.9%
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 8,356,541
NEW JERSEY -- 6.9%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,482,020
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C),
6.50%, 1/15/2002 AA+ 7,342,720
Total 14,824,740
NEW MEXICO -- 2.7%
4,000,000 Albuquerque, NM GO UT Bonds (Series A & B), 4.60%,
7/1/1998 AA 4,043,600
1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility
Revenue Bonds (Series 1996), 5.00%, 6/1/2003 NR 1,805,258
Total 5,848,858
NEW YORK -- 2.5%
5,000,000 New York City Municipal Water Finance Authority, Water &
Sewer System Revenue Bonds (Series A), 7.20%, 6/15/1999 A 5,331,250
OHIO -- 6.2%
1,000,000 Cincinnati City School District, OH, Tax Anticipation Notes
(Series A), 5.50% (AMBAC INS), 12/1/2000 Aaa 1,042,980
4,000,000 Cincinnati City School District, OH, Tax Anticipation Notes
(Series B), 5.50% (AMBAC INS), 12/1/1999 AAA 4,148,440
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
OHIO -- CONTINUED
$ 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 $ 999,340
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds
(Series 1996), 5.00% (ProMedica Healthcare Obligated Group)/
(MBIA INS), 11/15/1999 AAA 3,709,098
3,600,000 Miami Valley Regional Transit Authority, OH, LT GO Bonds,
4.75%, 4/15/1997 A 3,613,068
Total 13,512,926
OKLAHOMA -- 0.5%
1,055,000 Washington County, 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 1,055,833
OREGON -- 1.9%
2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bonds, Westside Project, 5.375%
(MBIA INS), 6/1/1999 Aaa 2,060,580
2,000,000 Oregon State Department of Transportation, Regional
Light Rail Revenue Bonds, Westside Project, 5.50%
(MBIA INS), 6/1/2000 Aaa 2,078,320
Total 4,138,900
PENNSYLVANIA -- 5.3%
5,000,000 Commonwealth of Pennsylvania, UT GO Second Series
Refunding Bonds, 4.75%, 6/15/1998 AA- 5,068,350
4,375,000 Pennsylvania Intergovernmental Co-op Authority, Special
Tax Revenue Bond, City of Philadelphia Funding Program,
5.40% (FGIC INS)/(Original Issue Yield: 5.50%), 6/15/1997 Aaa 4,412,406
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 2,000,000 Pennsylvania State Higher Education Facilities Authority,
Health Services Revenue Bonds (Series A), 4.60% (Allegheny
Delaware Valley Obligated Group)/(MBIA INS)/(Original
Issue Yield: 4.65%), 11/15/1999 Aaa $ 2,020,800
Total 11,501,556
TEXAS -- 4.6%
2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), 5.10%
(Original Issue Yield: 5.20%), 3/1/2000 2,050,060
4,440,000 Texas State, UT GO Public Finance Authority (Series B),
8.00%, 10/1/1999 AA 4,883,734
3,000,000 Texas State, UT GO Public Finance Authority (Series C),
6.50%, 10/1/1997 Aa 3,066,660
Total 10,000,454
WASHINGTON -- 4.9%
3,000,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1998 AA 3,046,800
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1999 AA 7,572,683
Total 10,619,483
WISCONSIN -- 3.1%
6,500,000 Wisconsin Health and Education Facilities Authority,
Revenue Bonds (Series 1996), 5.50% (Gundersen Lutheran)/
(FSA INS), 12/1/2000 AAA 6,752,070
TOTAL SHORT-INTERMEDIATE MUNICIPAL SECURITIES
(IDENTIFIED COST $215,562,191) 218,502,866
SHORT-TERM MUNICIPAL SECURITIES -- 0.8%
PENNSYLVANIA -- 0.6%
1,400,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series A of 1996) Daily
VRDNs (Children's Hospital of Philadelphia)/(Morgan
Guaranty Trust Co., New York LIQ) AA 1,400,000
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES -- CONTINUED
PUERTO RICO -- 0.2%
$ 500,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ $ 500,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED COST)
1,900,000
TOTAL INVESTMENTS (IDENTIFIED COST $217,462,191)(A) $220,402,866
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$217,462,191. The net unrealized appreciation of investments on a federal
tax basis amounts to $2,940,675 which is comprised of $2,965,778
appreciation and $25,103 depreciation at December 31, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($216,279,659) at December 31, 1996.
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
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
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)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $217,462,191) $ 220,402,866
Income receivable 2,473,347
Receivable for shares sold 395,526
Prepaid expenses 3,353
Total assets 223,275,092
LIABILITIES:
Payable for investments purchased $ 5,839,137
Payable for shares redeemed 8,885
Income distribution payable 769,316
Payable to Bank 378,095
Total liabilities 6,995,433
Net Assets for 21,004,499 shares outstanding $ 216,279,659
NET ASSETS CONSIST OF:
Paid in capital $ 220,190,616
Net unrealized appreciation of investments 2,940,675
Accumulated net realized loss on investments (6,851,632)
Total Net Assets $ 216,279,659
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$206,814,623 / 20,085,280 shares outstanding $10.30
INSTITUTIONAL SERVICE SHARES:
$9,465,036 / 919,219 shares outstanding $10.30
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,937,953
EXPENSES:
Investment advisory fee $ 419,326
Administrative personnel and services fee 79,226
Custodian fees 11,029
Transfer and dividend disbursing agent fees and expenses 28,408
Directors'/Trustees' fees 6,919
Auditing fees 8,354
Legal fees 2,907
Portfolio accounting fees 38,909
Distribution services fee -- Institutional Service Shares 8,678
Shareholder services fee -- Institutional Shares 253,400
Shareholder services fee -- Institutional Service Shares 8,678
Share registration costs 11,912
Printing and postage 8,627
Insurance premiums 3,549
Taxes 2,081
Miscellaneous 1,309
Total expenses 893,312
Waivers --
Waiver of investment advisory fee $(137,028)
Waiver of distribution services fee -- Institutional Service Shares (8,331)
Waiver of shareholder services fee -- Institutional Shares (253,400)
Waiver of shareholder services fee -- Institutional Service Shares (347)
Total waivers (399,106)
Net expenses 494,206
Net investment income 4,443,747
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 12,102
Net change in unrealized appreciation of investments 1,098,345
Net realized and unrealized gain on investments 1,110,447
Change in net assets resulting from operations $5,554,194
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 4,443,747 $ 8,655,367
Net realized gain (loss) on investments
($12,102 net gain and $(2,597,123) net loss, respectively, as
computed for federal tax purposes) 12,102 (175,989)
Net change in unrealized appreciation (depreciation) 1,098,345 (614,249)
Change in net assets resulting from operations 5,554,194 7,865,129
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (4,304,928) (8,424,725)
Institutional Service Shares (138,819) (230,642)
Change in net assets resulting from distributions to
shareholders (4,443,747) (8,655,367)
SHARE TRANSACTIONS --
Proceeds from sale of shares 51,091,265 64,151,068
Net asset value of shares issued to shareholders in payment of
distributions declared 1,256,426 2,372,964
Cost of shares redeemed (32,854,763) (92,993,242)
Change in net assets resulting from share transactions 19,492,928 (26,469,210)
Change in net assets 20,603,375 (27,259,448)
NET ASSETS:
Beginning of period 195,676,284 222,935,732
End of period $216,279,659 $195,676,284
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
DECEMBER 31, YEAR ENDED JUNE 30,
1996 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 invest-
ment income 0.22 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57 0.54
Net realized
and un-
realized gain
(loss) on
investments 0.06 (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09) (0.05)
Total from
investment
operations 0.28 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48 0.49
LESS DISTRIBUTIONS
Distributions
from net invest-
ment income (0.22) (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57) (0.54)
NET ASSET VALUE,
END OF PERIOD $10.30 $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19
TOTAL RETURN(A) 2.76% 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84% 4.89%
RATIOS TO
AVERAGE
ASSETS
Expenses 0.46%* 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46% 0.47%
Net invest-
ment income 4.25%* 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59% 5.25%
Expense
waiver/reim-
bursement(b) 0.25%* 0.25% -- -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $206,815 $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978 $315,154
Portfolio
turnover 15% 20% 33% 36% 15% 42% 40% 69% 55% 63%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease for the shareholder services fee is
reflected in both the expense and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
DECEMBER 31, YEAR ENDED JUNE 30,
1996 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 0.21 0.40 0.39 0.31
Net realized and unrealized gain (loss) on
investments 0.06 (0.04) 0.13 (0.20)
Total from investment operations 0.27 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.30 $10.24 $10.28 $10.15
TOTAL RETURN(B) 2.63% 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71%* 0.72% 0.71% 0.72%*
Net investment income 4.00%* 3.90% 3.69% 3.65%*
Expense waiver/reimbursement(c) 0.25%* 0.25% 0.25% 0.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $9,465 $6,209 $5,223 $31,459
Portfolio turnover 15% 20% 33% 36%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public offering) to June 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease for the distribution services fee and
shareholder services fee is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
1. ORGANIZATION
Federated Short-Term Municipal Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Trust offers two classes of
shares: Institutional Shares and Institutional Service Shares. The
investment objective of the Trust is to provide dividend income which is
exempt from federal regular income tax.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At June 30, 1996, the Trust, for federal tax purposes, had a capital loss
carryforward of $6,687,424, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
1997 $1,097,445
1998 $1,729,378
1999 $ 11,866
2001 $ 62,121
2003 $1,189,491
2004 $2,597,123
Additionally, net capital losses of $175,989 attributable to security
transactions incurred after October 31, 1995 were treated as arising on
July 1, 1996, the first day of the Trust's taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 4,590,855 $47,143,016 5,801,109 $59,763,022
Shares issued to shareholders in payment of
distributions declared 113,367 1,165,029 210,577 2,168,702
Shares redeemed (3,119,346) (32,042,194) (8,687,459) (89,426,238)
Net change resulting from
Institutional Share transactions 1,584,876 $16,265,851 (2,675,773) $27,494,514)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 383,208 $3,948,249 424,713 $4,388,046
Shares issued to shareholders in payment of
distributions declared 8,895 91,397 19,833 204,262
Shares redeemed (79,164) (812,569) (346,274) (3,567,004)
Net change resulting from
Institutional Service Share transactions 312,939 $3,227,077 98,272 $1,025,304
Net change resulting from
share transactions 1,897,815 $19,492,928 (2,577,501) $(26,469,210)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Trust's average daily net assets. The
Adviser will waive, to the extent of its advisory fee, the amount, if any,
by which the Trust's aggregate annual operating expenses (excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Trust and its shares under federal and state laws and
regulations, expenses of withholding taxes, and extraordinary expenses)
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.
INTERFUND TRANSACTIONS -- During the period ended December 31, 1996, the
Trust engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $40,150,000 and $50,014,740, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:
PURCHASES $ 54,279,513
SALES $ 30,096,915
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Glen R. Johnson
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED
SHORT-TERM
MUNICIPAL
TRUST
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 313907107
Cusip 313907206
8020108 (2/97)
