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 reporting period ended December 31,
1997. The report begins with an investment review by the trust's portfolio
manager, followed by a complete listing of portfolio holdings and the financial
statements for the trust's Institutional Shares and Institutional Service
Shares.
On behalf of its shareholders, the trust 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 2.66% for Institutional Shares
and 2.53% for Institutional Service Shares.** The net asset value of both share
classes increased slightly, from $10.26 on the first day of the reporting period
to $10.31 on the last day of the period. Trust assets totaled $186 million on
December 31, 1997.
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, 1998
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
INVESTMENT REVIEW
PERFORMANCE
For the six month reporting period ended December 31, 1997, Federated Short-Term
Municipal Trust produced non-annualized total returns of 2.66% for the
Institutional Shares and 2.53% for the Institutional Service Shares.* For the
one-year period ended December 31, 1997, Institutional Shares and Institutional
Service Shares produced total returns of 4.49% and 4.23%, respectively.** These
one-year total returns are equivalent to pre-tax equivalent returns of 7.38% for
Institutional Shares, and 6.96% for Institutional Service Shares for investors
in the highest federal tax bracket.
Nonetheless, the trust is managed predominately for tax-exempt income, with
minimal fluctuation of principal value. Accordingly, the largest contribution to
total return will consist of tax-exempt income to the shareholder. Over the
six-month reporting period, the trust produced income dividends exempt from
federal regular income taxes of $0.22 per share for Institutional Shares, and
$0.21 per share for Institutional Service Shares. These dividends are equivalent
to annualized tax-free distribution rates of 4.27% for Institutional Shares, and
4.02% for Institutional Service Shares. For the six-month reporting period ended
December 31, 1997, the trust posted 30-day SEC yields of 3.82% and 3.57% for
Institutional Shares and Institutional Service Shares, respectively.*
MARKET
The shape and direction of the short end of the yield curve (five years and
less) continued to be dictated by the actions of the Federal Reserve Board (the
"Fed") as well as market perceptions regarding future actions by the Fed. During
the second half of 1997, despite having an economy that continued to reflect
strong growth, low unemployment, but stable prices, the Fed refrained from
changing the federal funds target rate. The Fed continues to express caution
regarding the robust pace of economic expansion, tight labor markets, and
persistent strong demand. However, offsetting these concerns has been the
economic crisis in Asia. The Fed's decision to leave the federal funds target
rate unchanged has been strongly influenced by the Asian economic slowdown and
its effects on the U.S. economy. These events have clearly influenced the
movement of short-term municipal bond interest rates over the six-month
reporting period ended December 31, 1997.
Yields on three-year, "AA"-rated, high-quality municipal bonds (a proxy for the
trust) fell over the period. Yields began the reporting period at 4.30% last
July but moved to 4.00% by early August. Stronger economic growth prompted a
rise back to 4.25% by early September, but yields then fell and rose again in
September and October before the effects of the Asian crisis moved them steadily
lower to finish December at 3.95%. Because yields fell over the reporting
period, the trust experienced net asset value (NAV) appreciation, as the NAV
rose from $10.26 per share to $10.31 per share.
STRATEGY
Over the six-month reporting period, three-year municipal bonds exhibited less
price volatility than comparable treasury notes while providing a favorable
after-tax income advantage for those investors at marginal tax rates of 31% or
higher. During the reporting period, yields on three-year "AA" municipal bonds
as a percentage of treasuries averaged close to 70%, but ranged from 68% to 72%.
A higher ratio means that municipal bonds are more attractive from an after-tax
income viewpoint. Yield ratios of 69% or higher show the attractiveness of
municipal bonds for income-oriented investors at federal tax rates of 31% or
above.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** For the five-year and ten-year periods ended December 31, 1997, the
Institutional Shares produced average annual total returns of 4.12% and 5.14%,
respectively. For the period from August 31, 1993 (date of initial public
offering) to December 31, 1997, the Institutional Service Shares produced an
average annual total return of 3.87%.
As we have mentioned in the past, portfolio strategy continues to emphasize
credit quality, as yield spreads remain narrow between "AAA"- and "A"-rated
bonds. Credit spreads will eventually widen from these levels when the economy
slows and investors once again emphasize quality in their purchase decisions.
Accordingly, the trust will continue to emphasize the highest quality
instruments, and has over 88% of its assets invested relatively evenly in "AAA"-
and "AA"-rated issues.
Management continues to add value by purchasing bonds in attractive sectors and
through yield curve management. While the municipal short-term yield curve
(bonds with maturities between one and five years) remains positively sloped
with marginal incremental yield pick-up per year, the treasury curve is
virtually flat from one-year to five-year maturities. From a relative value
standpoint, when municipal bonds are compared to comparable maturity treasuries,
bonds with maturities from four to five years are more attractive because of the
steeper municipal yield curve.
During the six-month reporting period, management extended the weighted average
effective maturity of the trust to 2.76 years from 2.34 years. This was done to
take advantage of the greater price appreciation potential in longer maturity
bonds. The concentration of higher coupon premium bonds in the portfolio helped
to dampen net asset value volatility over the reporting period. Even though
yields fell over the reporting period and prices of bonds rose, management was
able to take advantage of market opportunities to keep the trust's distribution
income yield relatively unchanged.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
DECEMBER 31, 1997 (UNAUDITED)
FUNDNAME
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <C> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES--100.5%
ALABAMA--2.1%
$ 1,000,000 Alabama State Docks Department, Docks Facilities AAA $ 1,022,120
Refunding Revenue Bonds, 5.25% (MBIA INS), 10/1/2000
1,000,000 Alabama State Docks Department, Docks Facilities AAA 1,030,400
Refunding Revenue Bonds, 5.25% (MBIA INS), 10/1/2001
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,874,531
TOTAL 3,927,051
ALASKA--1.1%
2,000,000 Anchorage, AK, Hospital Refunding Revenue Bonds, AA-
2,083,720 6.50% (Sisters of Providence)/(Original Issue
Yield:
6.75%), 10/1/1999
ARKANSAS--1.2%
2,000,000 Arkansas Development Finance Authority, Single Family AAA 2,164,460
Mortgage Revenue Bonds (Series 1997A-R), 6.50% (MBIA
INS), 2/1/2011
CALIFORNIA--9.0%
1,700,000 California State, Trust Receipts (Series 1997) Daily A-1+ 1,700,000
VRDNs (Bank of New York, New York LIQ)
1,500,000 California Statewide Communities Development A 1,510,995
Authority, Certificates of Participation, 4.80%
(Queen of Angels-Hollywood Presbyterian Medical
Center), 1/1/2000
12,500,000 Los Angeles, CA Wastewater System, Revenue Bonds AAA 13,668,000
(Series D), 6.70% (MBIA INS)/(United States Treasury
PRF)/(Original Issue Yield: 6.769%), 12/1/2000 (@102)
TOTAL 16,878,995
COLORADO--4.5%
4,375,000 Arvada, CO Urban Renewal Authority, Revenue Refunding AAA
4,563,825 Bonds (Series 1997A), 5.25% (MBIA INS), 9/1/2002
1,655,000 Colorado HFA, Single Family Mortgage Revenue Bond, AAA
1,875,297 Series C-1, 7.65% (FHA/VA mtgs LOC), 12/1/2025
2,000,000 Colorado HFA, Single Family Mortgage Revenue Bonds AAA
2,037,900 (Series 1997C-3), 4.80%, 11/1/2016
TOTAL 8,477,022
CONNECTICUT--3.2%
5,965,000 Commissioner of Housing of the State of Connecticut, Aa3 5,973,948
Multifamily Housing Revenue Bonds, 5.00% TOBs (Town
Colony Project)/(National Australia Bank, Ltd.,
Melbourne LOC), Mandatory Tender 4/1/2001
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES--CONTINUED
HAWAII--6.0%
$ 1,300,000 Hawaii St. Department of Budget & Finance, (Series A $ 1,300,000
1988) Weekly VRDNs (G.N. Wilcox Memorial
Hospital)/(Fuji Bank, Ltd., Tokyo LOC)
5,000,000 Hawaii State, UT GO Bonds, Series CN, 6.25% (FGIC AAA 5,399,600
LOC), 3/1/2002
4,500,000 Honolulu, HI City & County, UT GO Bonds (Series B), AA 4,520,160
4.80% (Original Issue Yield: 4.90%), 6/1/1998
TOTAL 11,219,760
ILLINOIS--7.3%
1,500,000 Illinois Health Facilities Authority, Adjustable Rate AAA 1,535,460
Revenue Bonds, Series 1991B, 5.00% (Highland Park
Hospital)/(FGIC INS), 10/1/2000
1,000,000 Illinois Health Facilities Authority, Revenue AA 1,018,400
Refunding Bonds (Series A), 4.80% (Advocate Health
Care Network)/(Original Issue Yield: 4.90%),
8/15/2002
2,000,000 Illinois Health Facilities Authority, Revenue AA 2,054,580
Refunding Bonds (Series A), 5.00% (Advocate Health
Care Network), 8/15/2003
2,900,000 Illinois State Sales Tax, Revenue Bonds (Series V), AAA 2,925,201
5.625%, 6/15/1998
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), AAA 3,081,750
9/1/2000
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA 3,071,640
TOTAL 13,687,031
INDIANA--2.1%
3,900,000 Indiana Health Facilty Financing Authority, Hospital AA 3,970,629
Revenue Bonds (Series 1996A), 4.75% (Clarian Health
Partners, Inc.)/(Original Issue Yield: 4.85%),
2/15/2002
KANSAS--0.5%
1,000,000 Sedgwick & Shawnee Counties, KS, Single Family AAA 1,025,670
Mortgage Revenue Bonds (Series 1997A-2), 4.90% (GNMA
Collateralized Home Mortgage Program COL), 6/1/2016
KENTUCKY--0.6%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, A+ 1,182,489
5.25%, 3/1/2000
LOUISIANA--7.5%
2,200,000 Lake Charles, LA Harbor & Terminal District, Port A3 2,543,442
Facilities Revenue Refunding Bond, Trunkline Lining
Co Project, 7.75% (Panhandle Eastern Corp.),
8/15/2022
4,000,000 Louisiana PFA, Health & Education Capital Facilities AAA 4,071,120
Revenue Bonds (Series A), 5.00% TOBs (AMBAC INS),
Mandatory Tender 6/1/2002
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), AAA 7,338,310
6.00% (FGIC INS), 8/1/2000
TOTAL 13,952,872
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES--CONTINUED
MICHIGAN--2.3%
$ 1,000,000 Michigan State Building Authority, Revenue Bonds AAA $ 1,058,240
(Series II), 6.25% (AMBAC INS)/(Original Issue Yield:
6.35%), 10/1/2000
3,000,000 Michigan Underground Storage Tank Financial Assurance AAA 3,093,240
Authority, Revenue Refunding Bonds (Series I), 5.00%
(AMBAC INS), 5/1/2001
TOTAL 4,151,480
MINNESOTA--1.6%
3,000,000 Minneapolis, MN, Temporary Parking Ramp Revenue NR 3,004,110
Bonds, Series 1997A, 4.75%, 6/1/2000
MISSOURI--1.1%
2,000,000 Springfield, MO State Highway Improvement Corp., AAA 2,079,240
Transportation Revenue Bonds (Series 1997), 5.25%
(AMBAC INS), 8/1/2001
NEVADA--4.7%
3,500,000 Nevada State Highway Improvement Authority, Motor AA 3,508,890
Vehicle Fuel Tax Revenue Bond, 4.75% (Original Issue
Yield: 4.90%), 4/1/1998
5,000,000 Nevada State Highway Improvement Authority, Motor AA 5,188,750
Vehicle Fuel Tax Revenue Bonds, 7.00%, 4/1/1999
TOTAL 8,697,640
NEW JERSEY--7.8%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,298,410
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C), AA+ 7,240,170
6.50%, 1/15/2002
TOTAL 14,538,580
NEW MEXICO--1.0%
1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility NR 1,865,009
Revenue Bonds (Series 1996), 5.00%, 6/1/2003
NEW YORK--2.8%
5,000,000 New York City Municipal Water Finance Authority, A- 5,225,750
Water & Sewer System Revenue Bonds (Series A), 7.20%,
6/15/1999
OHIO--3.4%
1,000,000 Cincinnati City School District, OH, Tax Anticipation AAA
1,041,430 Notes (Series A), 5.50% (AMBAC INS), 12/1/2000
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds AAA 3,697,954
(Series 1996), 5.00% (ProMedica Healthcare Obligated
Group)/(MBIA INS), 11/15/1999
1,500,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series AAA 1,506,750
1997D-1), 4.85% (GNMA Collateralized Home Mortgage
Program COL), 3/1/2015
TOTAL 6,246,134
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES--CONTINUED
OKLAHOMA--0.6%
$ 1,055,000 Washington Cnty., OK Medical Authority, Hospital AAA $ 1,076,606
Revenue Bonds (Series 1996A), 4.75% (Jane Phillips
Medical Center)/(Connie Lee INS)/(Original Issue
Yield: 4.90%), 11/1/2001
OREGON--2.2%
2,000,000 Oregon State Department of Transportation, Regional AAA 2,042,780
Light Rail Revenue Bond, Westside Project, 5.375%
(MBIA INS), 6/1/1999
2,000,000 Oregon State Department of Transportation, Regional AAA 2,072,440
Light Rail Revenue Bond, Westside Project, 5.50%
(MBIA INS), 6/1/2000
TOTAL 4,115,220
PENNSYLVANIA--6.5%
5,000,000 Commonwealth of Pennsylvania, UT GO Second Series AA- 5,023,850
Refunding Bonds, 4.75%, 6/15/1998
300,000 Philadelphia, PA Hospitals & Higher Education AA 300,000
Facilities Authority, Hospital Revenue Bonds (Series
A of 1996) Daily VRDNs (Children's Hospital of
Philadelphia)/(Morgan Guaranty Trust Co., New York
LIQ)
5,000,000 Philadelphia, PA Municipal Authority, Equipment AAA 5,228,500
Revenue Bonds (Series 1997A), 5.297% (Philadelphia,
PA Gas Works)/(AMBAC INS), 10/1/2004
1,500,000 Southeastern, PA Transportation Authority, Special AAA 1,553,805
Revenue Bonds, 5.25% (FGIC INS), 3/1/2001
TOTAL 12,106,155
PUERTO RICO--0.1%
200,000 Government Development Bank for Puerto Rico (GDB) AA 200,000
Weekly VRDNs (MBIA INS)/(Credit Suisse First Boston
LIQ)
TEXAS--6.2%
2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), Aa2 2,049,300
5.10% (Original Issue Yield: 5.20%), 3/1/2000
2,500,000 Harris County, TX HFDC, Hospital Revenue Bonds, AAA 2,606,250
Series 1997A, 5.25% (Memorial Hospital System)/(MBIA
Insurance Corporation LOC), 6/1/2002
2,070,000 Lewisville, TX, Combination Contract Revenue & A+ 2,097,966
Special Assessment Bonds (Series 1997), 4.95% TOBs
(Wells Fargo Bank, N.A. LOC), Mandatory Tender
11/1/2001
4,440,000 Texas State, UT GO Public Finance Authority (Series AA 4,747,781
B), 8.00%, 10/1/1999
TOTAL 11,501,297
VIRGINIA--0.5%
1,000,000 Botetourt County, VA IDA, Lease Revenue Notes (Series NR
1,001,730 1997), 4.55% (Botetourt County, VA), 1/15/2000
</TABLE>
FEDERATED SHORT-TERM MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <C> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES--CONTINUED
WASHINGTON--8.3%
$ 1,680,000 Tacoma, WA, Solid Waste Utility Revenue Refunding AAA $ 1,779,103
Bonds (Series 1997B), 5.50% (AMBAC INS), 12/1/2002
3,000,000 Washington State Public Power Supply System, Nuclear AA- 3,164,910
Project No. 2 Revenue Refunding Bond, (Series 1997B),
5.50%, 7/1/2003
3,000,000 Washington State Public Power Supply System, AA- 3,075,900
Refunding Revenue Bonds (Nuclear Project No. 2)
(Series 1997A), 5.00%, 7/1/2001
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%, AA+ 7,537,192
5/1/1999
TOTAL 15,557,105
WEST VIRGINIA--0.9%
1,500,000 Cabell County, WV Board of Education, Refunding UT GO A+ 1,586,175
Bonds, 6.00%, 5/1/2001
WISCONSIN--5.4%
6,500,000 Wisconsin Health and Educational Facilities AAA 6,756,620
Authority, Revenue Bonds (Series 1996), 5.50%
(Gundersen Lutheran)/(FSA INS), 12/1/2000
3,335,000 Wisconsin Health and Educational Facilities AAA 3,392,927
Authority, Revenue Bonds (Series 1997), 4.70%
(Marshfield Clinic, WI)/(MBIA INS)/(Original Issue
Yield: 4.85%), 2/15/2002
TOTAL 10,149,547
TOTAL SHORT-INTERMEDIATE MUNICIPAL SECURITIES 187,645,425
(IDENTIFIED COST $184,520,621)
SHORT-TERM MUNICIPALS--0.5%
PENNSYLVANIA--0.5%
900,000 New Castle, PA Area Hospital Authority, (Series 1996) AAA 900,000
Weekly VRDNs (Jameson Memorial Hospital)/(FSA
INS)/(PNC Bank, N.A. LIQ) (at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED $ 188,545,425
COST $185,420,621)(A)
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) The cost of investments for federal tax purposes amounts to $185,420,621.
The net unrealized appreciation of investments on a federal tax basis amounts to
$3,124,804 which is comprised of $3,127,719 appreciation and $2,915 depreciation
at December 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($186,666,521) at December 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation COL --Collateralized FGIC
- --Financial Guaranty Insurance Company FHA/VA --Federal Housing
Administration/Veterans Administration FSA --Financial Security Assurance GNMA
- --Government National Mortgage Association GO --General Obligation HFA --Housing
Finance Authority 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
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 188,545,425
$185,420,621)
Income receivable 2,375,181
Receivable for shares sold 13,701
Total assets 190,934,307
LIABILITIES:
Payable for investments purchased $ 3,531,955
Payable for shares redeemed 3,000
Income distribution payable 713,350
Payable to Bank 9,190
Accrued expenses 10,291
Total liabilities 4,267,786
Net Assets for 18,109,009 shares outstanding $ 186,666,521
NET ASSETS CONSIST OF:
Paid in capital $ 189,305,379
Net unrealized appreciation of investments 3,124,804
Accumulated net realized loss on investments (5,761,409)
Distributions in excess of net investment income (2,253)
Total Net Assets $ 186,666,521
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$177,878,679 / 17,256,473 shares outstanding $10.31
INSTITUTIONAL SERVICE SHARES:
$8,787,842 / 852,536 shares outstanding $10.31
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM MUNICIPAL TRUST
SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 5,012,600
EXPENSES:
Investment advisory fee $ 424,773
Administrative personnel and services fee 80,159
Custodian fees 13,062
Transfer and dividend disbursing agent fees and expenses 27,872
Directors'/Trustees' fees 8,068
Auditing fees 7,394
Legal fees 3,564
Portfolio accounting fees 40,435
Distribution services fee--Institutional Service Shares 10,257
Shareholder services fee--Institutional Shares 255,221
Shareholder services fee--Institutional Service Shares 10,257
Share registration costs 16,379
Printing and postage 13,040
Insurance premiums 2,595
Taxes 2,438
Miscellaneous 3,944
Total expenses 919,458
Waivers --
Waiver of investment advisory fee $ (147,043)
Waiver of distribution services fee--Institutional (9,847)
Service Shares
Waiver of shareholder services fee--Institutional Shares (255,221)
Waiver of shareholder services fee--Institutional (410)
Service Shares
Total waivers (412,521)
Net expenses 506,937
Net investment income 4,505,663
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 193,012
Net change in unrealized appreciation of investments 878,815
Net realized and unrealized gain on investments 1,071,827
Change in net assets resulting from operations $ 5,577,490
</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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income/operating loss $ 4,505,663 $ 9,299,278
Net realized gain (loss) on investments ($193,012 net gain and 193,012 (188,131)
$170,193 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation/depreciation 878,815 403,659
Change in net assets resulting from operations 5,577,490 9,514,806
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (4,340,207) (8,989,909)
Institutional Service Shares (165,457) (311,621)
Change in net assets resulting from distributions to (4,505,664) (9,301,530)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 36,522,673 120,094,181
Net asset value of shares issued to shareholders in payment of 1,697,759 3,735,821
distributions declared
Cost of shares redeemed (69,552,253) (102,793,046)
Change in net assets resulting from share transactions (31,331,821) 21,036,956
Change in net assets (30,259,995) 21,250,232
NET ASSETS:
Beginning of period 216,926,516 195,676,284
End of period $ 186,666,521 $ 216,926,516
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
SIX MONTHS
ENDED
(UNAUDITED)
DECEMBER 31, YEAR ENDED JUNE 30,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.24 $10.28 $10.15 $10.37 $10.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22 0.44 0.43 0.42 0.40 0.44
Net realized and unrealized gain (loss) on investments 0.05 0.02 (0.04) 0.13 (0.22) 0.08
Total from investment operations 0.27 0.46 0.39 0.55 0.18 0.52
LESS DISTRIBUTIONS
Distributions from net investment income (0.22) (0.44) (0.43) (0.42) (0.40) (0.44)
NET ASSET VALUE, END OF PERIOD $10.31 $10.26 $10.24 $10.28 $10.15 $10.37
TOTAL RETURN(A) 2.66% 4.59% 3.82% 5.52% 1.76% 5.11%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.47%* 0.46% 0.47% 0.46% 0.47% 0.46%
Net investment income 4.25%* 4.30% 4.14% 4.09% 3.89% 4.21%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $177,879 $210169 $189467 $217,713 $316,810 $318,932
Portfolio turnover 15% 50% 20% 33% 36% 15%
* 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.
(See Notes which are an integral part of the Financial Statements)
</TABLE>
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
DECEMBER 31, YEAR ENDED JUNE 30,
1997 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.24 $10.28$10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments 0.05 0.02 (0.04) 0.13 (0.20)
Total from investment operations 0.26 0.44 0.36 0.52 0.11
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.42) (0.40)(0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.31 $10.26 $10.24$10.28 $10.15
TOTAL RETURN(B) 2.53% 4.33% 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72%* 0.71% 0.72% 0.71% 0.72%*
Net investment income 4.03%* 4.05% 3.90% 3.69% 3.65%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,788 $6,758 $6,209$5,223 $31,459
Portfolio turnover 15% 50% 20% 33% 36%
* 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)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
DECEMBER 31, 1997 (UNAUDITED)
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.
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
2002 1,189,491
2003 2,597,123
2004 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, 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>
Six Months
Ended Year Ended
December 31, June 30, 1997
1997
Institutional Shares Amount Shares Amount
Shares
<S> <C> <C> <C> <C>
Shares sold 3,226,992 $ 33,189,425 11,082,005 $ 113,726,010
Shares issued to
shareholders 156,667 1,611,163 338,791 3,476,789
in payment of
distributions declared
Shares redeemed (6,619,705) (68,121,281) (9,428,681) (96,745,509)
Net change (3,236,046) $ (33,320,693) 1,992,115 $ 20,457,290
resulting from
Institutional Share
transactions
<CAPTION>
Six Months
Ended Year Ended
December 31, June 30, 1997
1997
Institutional Shares Amount Shares Amount
Service Shares
<S> <C> <C> <C> <C>
Shares sold 324,289 $ 3,333,248 619,285 $ 6,368,171
Shares issued 8,420 86,596 25,233 259,032
to shareholders
in payment of
distributions declared
Shares redeemed (139,095) (1,430,972) (591,876) (6,047,537)
Net change 193,614 $ 1,988,872 52,642 $ 579,666
resulting from
Institutional Service
Share transactions
Net change (3,042,432) $ (31,331,821) 2,044,757 $ 21,036,956
resulting from share
transactions
</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 extra ordinary 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.
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 December 31, 1997, were as follows:
PURCHASES $30,823,138
SALES $58,412,115
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
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
Matthew S. Hardin
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 risk, including the
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated Short Term Municipal Trust
Semi-Annual Report
to Shareholders
December 31, 1997
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313907107
Cusip 313907206
8020108 (2/98)
[Graphic]
