1933 Act File No. 2-72277
1940 Act File No. 811-3181
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___X___
-------
Pre-Effective Amendment No. .................... ______
-------- ------
Post-Effective Amendment No. __35_____.................. ___X___
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ___X___
Amendment No. __26_____................................. ___X___
FEDERATED SHORT-TERM MUNICIPAL TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on August 31, 1998__ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i). 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew J. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of FEDERATED SHORT-TERM
MUNICIPAL TRUST, which consists of one portfolio: Federated Short-Term Municipal
Trust, which is offered in two separate classes of shares, Institutional Shares
and Institutional Service Shares, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................Cover Page.
Item 2. Synopsis......................Summary of Trust Expenses.
Item 3. Condensed Financial
Information.................Financial Highlights; Performance
Information.
Item 4. General Description of
Registrant..................General Information; Investment
Information; Investment Objective;
Investment Policies; Municipal
Securities; Investment Risks;
Investment Limitations.
Item 5. Management of the Trust.......Trust Information; Management of the
Trust; Distribution of (Institutional
or Institutional Service) Shares;
Administration of the Trust.
Item 6. Capital Stock and Other
Securities..................Dividends; Capital Gains; Shareholder
Information; Voting Rights; Tax
Information; Federal Income
Tax; State and Local Taxes; Other
Classes of Shares.
Item 7. Purchase of Securities Being
Offered.....................Net Asset Value; Investing in
(Institutional or Institutional
Service) Shares; Share Purchases;
Minimum Investment Required; What
Shares Cost; Confirmations and Account
Activity.
Item 8. Redemption or Repurchase......Redeeming (Institutional or
Institutional Service) Shares;
Telephone Redemption; Written
Requests; Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................Cover Page.
Item 11. Table of Contents.............Table of Contents.
Item 12. General Information and
History.......................General Information About the Trust;
About Federated Investors, Inc.;
Economic and Market
Information.
Item 13. Investment Objectives and
Policies......................Investment Objective and Policies;
Acceptable Investments; Futures
Transactions; When Issued and
Delayed Delivery Transactions;
Portfolio Turnover; Investment
Limitations.
Item 14. Management of the Fund........Trust Management; Trust Ownership;
Trustees' Compensation; Trustee
Liability.
Item 15. Control Persons and Principal
Holders of Securities Not Applicable.
Item 16. Investment Advisory and Other
Services......................Investment Advisory Services; Adviser
to the Trust; Advisory Fees; Trust
Administration; Custodian and
Portfolio Accountant; Independent
Public Accountants; Transfer Agent.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered.......................Purchasing Shares; Distribution Plan
(Institutional Service Shares only)
and Shareholder Services
Agreement; Determining Net Asset
Value; Redeeming Shares; Valuing
Municipal Securities; Use of
Amortized Cost; Redemption In Kind.
Item 20. Tax Status Tax Status; The Trust's Tax Status.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data..........................Total Return; Yield; Tax-Equivalent
Yield; Performance Comparisons.
Item 23. Financial Statements To be filed by amendment.
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, 1998,
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, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Trust Expenses........................... 1
Financial Highlights--Institutional Shares.......... 2
General Information................................. 3
Year 2000 Statement................................ 3
Investment Information.............................. 3
Investment Objective............................... 3
Investment Policies................................ 3
Municipal Securities............................... 5
Investment Risks................................... 6
Investment Limitations............................. 6
Trust Information................................... 6
Management of the Trust............................ 6
Distribution of Institutional Shares............... 7
Administration of the Trust........................ 7
Net Asset Value..................................... 8
Investing in Institutional Shares................... 8
Share Purchases.................................... 8
Minimum Investment Required........................ 8
What Shares Cost................................... 8
Confirmations and Account Statements............... 8
Dividends.......................................... 8
Capital Gains...................................... 9
Redeeming Institutional Shares...................... 9
Telephone Redemption............................... 9
Written Requests................................... 9
Accounts with Low Balances......................... 9
Shareholder Information............................ 10
Voting Rights...................................... 10
Tax Information..................................... 10
Federal Income Tax................................. 10
State and Local Taxes.............................. 10
Performance Information............................. 11
Other Classes of Shares............................. 11
Financial Highlights--Institutional Service Shares.. 12
Financial Statements................................ 13
Report of Independent Public Accountants............ 26
</TABLE>
SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>
Institutional Shares
Shareholder Transaction Expenses
<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
Annual Operating Expenses
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1)................................................................ 0.27%
12b-1 Fee....................................................................................... None
Total Other Expenses............................................................................ 0.20%
Shareholder Services Fee (after waiver)(2)............................................. 0.00%
Total Operating Expenses(3)..................................................................... 0.47%
</TABLE>
(1) The management fee has been reduced to reflect the waiver of a portion of
the management fee. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the waiver of the
shareholder services fee. The shareholder services provider can terminate
this waiver at any time at its sole discretion. The maximum shareholder
services fee is 0.25%.
(3) The total operating expenses would have been 0.85% absent the waiver of a
portion of the management fee and the shareholder service fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Institutional Shares" and "Trust
Information." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees. 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 $59
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.26 $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10 $10.19
Income from investment
operations
Net investment income 0.44 0.44 0.43 0.42 0.40 0.44 0.53 0.60 0.60 0.57
Net realized and
unrealized gain
(loss) on investments 0.03 0.02 (0.04) 0.13 (0.22) 0.08 0.11 0.04 0.04 (0.09)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations 0.47 0.46 0.39 0.55 0.18 0.52 0.64 0.64 0.64 0.48
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions
Distributions from net
investment income (0.44) (0.44) (0.43) (0.42) (0.40) (0.44) (0.53) (0.60) (0.60) (0.57)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value, end of
period $10.29 $10.26 $10.24 $10.28 $10.15 $10.37 $10.29 $10.18 $10.14 $10.10
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total return (a) 4.68% 4.59% 3.82% 5.52% 1.76% 5.11% 6.40% 6.47% 6.54% 4.84%
Ratios to average net
assets
Expenses 0.47% 0.46% 0.47% 0.46% 0.47% 0.46% 0.46% 0.46% 0.47% 0.46%
Net investment income 4.28% 4.30% 4.14% 4.09% 3.89% 4.21% 5.12% 5.89% 5.94% 5.59%
Supplemental data
Net assets, end of period
(000 omitted) $184,903 $210,169 $189,467 $217,713 $316,810 $318,932 $205,101 $142,493 $139,113 $178,978
Portfolio turnover 33% 50% 20% 33% 36% 15% 42% 40% 69% 55%
</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, 1998, 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. 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, Inc. 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.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Trust's
service providers (among them, the adviser, distributor, administrator and
transfer agent) must ensure that their computer systems are adjusted to properly
process and calculate date-related information from and after January 1, 2000.
Many software programs and, to a lesser extent, the computer hardware in use
today cannot distinguish the year 2000 from the year 1900. Such a design flaw
could have a negative impact in the handling of securities trades, pricing and
accounting services. The Trust and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Trust's operations 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 four highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, A, or Baa) or by Standard &
Poor's ("S&P") and Fitch IBCA, Inc. ("Fitch") (AAA, AA, A, or BBB);
. guaranteed at the time of purchase by the U.S. government as to the payment
of principal and interest;
. rated at the time of purchase within the two highest ratings categories of
Moody's short-term municipal securities ratings, (MIG1/VMIG1, MIG2/VMIG2) or
Moody's municipal commercial paper ratings, (P-1, P-2) or S&P's municipal note
rating, (SP-1, SP-2) or S&P's municipal commercial paper and short-term
ratings, (A-1, A-2); or
. unrated, if at the time of purchase, determined by the Trust's investment
adviser to be of comparable quality to municipal securities as stated above.
Changes in economic or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated securities.
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.
Inverse Floaters
The Trust may invest in securities known as "inverse floaters" which represent
interests in municipal securities. The Trust intends to purchase inverse
floaters to assist in pursuing its investment objective. These obligations pay
interest rates that vary inversely with changes in the interest rates of
specified short-term municipal securities or an index of short-term municipal
securities. The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Inverse floaters will generally respond to changes in market
interest rates more rapidly than fixed-rate long-term securities (typically
twice as fast). As a result, the market values of inverse floaters will
generally be more volatile than the market values of fixed-rate municipal
securities. Typically, the portion of the portfolio invested in inverse floaters
will be subject to additional volatility. Financial Futures
The Trust may purchase and sell interest rate and index financial futures
contracts. These financial futures contracts may be used to hedge all or a
portion of its portfolio against changes in the market value of portfolio
securities and interest rates, provide additional liquidity, and accomplish its
current strategies in a more expeditious fashion. Financial futures contracts
call for the delivery of particular debt instruments at a certain time in the
future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
As a matter of investment policy, which may be changed without shareholder
approval, the Trust may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the Trust's existing
futures positions would exceed 5% of the market value of the Trust's total
assets. When the Trust purchases futures contracts, an amount of municipal
securities, cash or cash equivalents, equal to the underlying commodity value of
the futures contracts (less any related margin deposits), will be deposited in a
segregated account with the Trust's custodian (or the broker, if legally
permitted) to collateralize the position. Risks When the Trust uses financial
futures, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the securities
in the Trust's portfolio. This may cause the futures contract to react
differently than the portfolio securities to market changes. In addition, the
Trust's investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate movements. In these
events, the Trust may lose money on the futures contract. It is not certain that
a secondary market for positions in futures contracts will exist at all times.
Although the investment adviser will consider liquidity before entering into
futures transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract at any
particular time. The Trust's ability to establish and close out futures
positions depends on this secondary market. 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.
Investing in Securities of Other Investment Companies
The Trust may invest its assets in securities of other investment companies as
an efficient means of carrying out its investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Trust in shares of other investment companies
may be subject to such duplicate expenses. 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; or
.invest more than 5% of its total assets in industrial development bonds of
issuers that have a record of less than three years of continuous operations.
TRUST INFORMATION
Management of the Trust
Board of Trustees
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
Investment Adviser
Investment decisions for the Trust are made by Federated Management, the Trust's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Trust
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Trust.
Advisory Fees
The Trust's Adviser receives an annual investment advisory fee equal to 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, Inc. All of the Class A (voting) shares
of Federated Investors, Inc. are owned by a trust, the trustees of which are
John F. Donahue, Chairman and Director of Federated Investors, Inc., Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Director of Federated Investors, Inc.
Federated Management and other subsidiaries of Federated Investors, Inc. 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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors, Inc. 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 approximately 4,000 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 Trustees and could result in severe penalties.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 1996. Mr.
Kozemchak joined Federated Investors, Inc. or its predecessor 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, Inc. or its predecessor 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.
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, Inc.
Administration of the Trust
Administrative Services
Federated Services Company, a subsidiary of Federated Investors, Inc., 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 Investor, Inc.
("Federated Funds") as specifiedbelow:
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.
Shareholder Services
The Trust has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, Inc., 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 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/oState 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 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 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, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Confirmations and Account Statements
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.
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, 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, 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 notarypublic.
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
Because interest received by the Trust may not be exempt from all state and
local income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Trust. 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 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 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 assetvalue 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 performace of eachclass.
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 page
26.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1998 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 0.42 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.04) 0.13 (0.20)
----- ----- ----- ----- -----
Total from investment operations 0.45 0.44 0.36 0.52 0.11
Less distributions
Distributions from net investment income (0.42) (0.42) (0.40) (0.39) (0.31)
----- ----- ----- ----- -----
Net asset value, end of period $ 10.29 $10.26 $10.24 $10.28 $ 10.15
----- ----- ----- ----- -----
Total return (b) 4.41% 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 4.05% 4.05% 3.90% 3.69% 3.65%*
Supplemental data
Net assets, end of period (000 omitted) $11,367 $6,758 $6,209 $5,223 $31,459
Portfolio turnover 33% 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, 1998, which can be obtained
free of charge.
PORTFOLIO OF INVESTMENTS
Federated Short-Term Municipal Trust
June 30, 1998
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- ---------- ------- -----
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--92.7%
Alabama--2.0%
$1,000,000 Alabama State Docks Department, Docks Facilities Refunding Revenue Bonds,
5.25% (MBIA INS), 10/1/2000 AAA $ 1,028,020
1,000,000 Alabama State Docks Department, Docks Facilities Refunding Revenue Bonds,
5.25% (MBIA INS), 10/1/2001 AAA 1,036,630
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,856,531
Total 3,921,181
Alaska--1.1%
2,000,000 Anchorage, AK, Hospital Refunding Revenue Bonds, 6.50% (Sisters of
Providence)/(Original Issue Yield: 6.75%), 10/1/1999 AA- 2,065,680
Arkansas--1.1%
2,000,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds (Series 1997A-R), 6.50% (MBIA INS), 2/1/2011 AAA 2,162,440
California--8.7%
1,000,000 ABAG Finance Authority for Non-Profit Corporations, Refunding Revenue
Certificates of Participation, 4.625% (Episcopal Homes Foundation)/(Original
Issue Yield: 4.70%), 7/1/2004 A- 1,007,300
2,620,000 ABAG Finance Authority for Non-Profit Corporations, Refunding Revenue
Certificates of Participation, 4.50% (Episcopal Homes Foundation)/(Original
Issue Yield: 4.60%), 7/1/2003 A- 2,633,388
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 13,554,500
Total 17,195,188
Colorado--4.6%
4,375,000 Arvada, CO Urban Renewal Authority, Revenue Refunding Bonds (Series 1997A),
5.25% (MBIA INS), 9/1/2002 AAA 4,552,319
1,525,000 Colorado HFA, Single Family Mortgage Revenue Bond, Series C-1, 7.65%, Aa2 1,713,902
12/1/2025
2,000,000 Colorado HFA, Single Family Mortgage Revenue Bonds (Series 1997C-3),
4.80%, 11/1/2016 Aa2 2,043,780
500,000 Colorado HFA, Single Family Program Senior Bonds (Series 1998C-2), 4.50%,
11/1/2005 Aa2 499,355
250,000 Colorado HFA, Single Family Program Subordinate Bonds (Series 1998B),
4.625%, 11/1/2005 A2 250,063
Total 9,059,419
District of Columbia--1.3%
$2,335,000 District of Columbia Housing Finance Agency, Single Family Mortgage Revenue
Bonds (Series 1998A), 6.25% (GNMA Collateralized Home Mortgage Program
COL), 12/1/2028 AAA 2,479,910
Florida--1.9%
2,000,000 Dade County, FL, Public Improvement Refunding UT GO Bonds, 7.20% (FSA INS),
6/1/2001 AAA 2,176,960
1,500,000 Florida Housing Finance Corp., Homeowner Mortgage Revenue Bonds, Series 2,
4.75% (MBIA INS), 7/1/2019 AAA 1,504,515
Total 3,681,475
Hawaii--2.7%
5,000,000 Hawaii State, UT GO Bonds, Series CN, 6.25% (FGIC LOC), 3/1/2002 AAA 5,351,000
Illinois--6.5%
1,000,000 Chicago, IL, Collateralized SFM Revenue Bonds, Series A-1, 4.85% (GNMA COL),
3/1/2015 Aaa 1,005,260
1,500,000 Illinois Health Facilities Authority, Adjustable Rate Revenue Bonds, Series
1991B, 5.00% (Highland Park Hospital)/(FGIC INS), 10/1/2000 AAA 1,533,060
1,030,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1998), 5.25%
(Centegra Health System), 9/1/2003 A- 1,065,453
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 1,018,860
2,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds (Series A),
5.00% (Advocate Health Care Network), 8/15/2003 AA 2,054,880
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), 9/1/2000 AAA 3,071,820
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA 3,058,410
Total 12,807,743
Indiana--2.0%
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 3,973,242
Kansas--0.5%
1,000,000 Sedgwick & Shawnee Counties, KS, Single Family Mortgage Revenue Bonds
(Series 1997A-2), 4.90% (GNMA Collateralized Home Mortgage Program COL),
6/1/2016 Aaa 1,014,780
Kentucky--0.6%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%, 3/1/2000 A+ 1,178,250
Louisiana--7.1%
2,200,000 Lake Charles, LA Harbor & Terminal District, Port Facilities Revenue
Refunding Bond, Trunkline Lining Co Project, 7.75% (Panhandle
Eastern Corp.), 8/15/2022 A3 2,517,614
$4,000,000 Louisiana PFA, Health & Education Capital Facilities Revenue Bonds (Series
A), 5.00% TOBs (AMBAC INS), Mandatory Tender 6/1/2002 AAA 4,083,960
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), 6.00% (FGIC INS), AAA 7,282,240
8/1/2000
Total 13,883,814
Michigan--3.5%
1,000,000 Michigan State Building Authority, Revenue Bonds (Series II), 6.25%
(AMBAC INS)/(Original Issue Yield: 6.35%), 10/1/2000 AAA 1,049,590
925,000 Michigan State Hospital Finance Authority, Hospital Revenue & Refunding
Bonds (Series 1998A), 4.60% (Hackley Hospital Obligated Group), 5/1/2003 A3 926,341
1,005,000 Michigan State Hospital Finance Authority, Hospital Revenue & Refunding
Bonds (Series 1998A), 4.70% (Hackley Hospital Obligated Group), 5/1/2004 A3 1,006,719
820,000 Michigan State Hospital Finance Authority, Revenue
& Refunding Bonds (Series 1998A), 4.40% (McLaren
Health Care Corp.)/(Original Issue Yield:
4.45%), 6/1/2004 A1 818,663
3,000,000 Michigan Underground Storage Tank Financial Assurance Authority, Revenue
Refunding Bonds (Series I), 5.00% (AMBAC INS), 5/1/2001 AAA 3,080,730
Total 6,882,043
Minnesota--1.5%
3,000,000 Minneapolis, MN, Temporary Parking Ramp Revenue Bonds, Series 1997A,
4.75%, 6/1/2000 NR 3,003,570
Mississippi--1.1%
1,015,000 Mississippi Home Corp., Single Family Mortgage Revenue Bonds (Series 1998A),
5.125% (GNMA Collateralized Home Mortgage Program COL), 12/1/2017 Aaa 1,020,359
1,090,000 Mississippi Home Corp., Single Family Revenue Mortgage Bonds (Series 1998A),
5.25% (GNMA Collateralized Home Mortgage Program COL), 12/1/2018 Aaa 1,095,712
Total 2,116,071
Missouri--1.1%
2,000,000 Springfield, MO State Highway Improvement Corp., Transportation Revenue
Bonds (Series 1997), 5.25% (AMBAC INS), 8/1/2001 AAA 2,068,600
Nevada--2.6%
5,000,000 Nevada State Highway Improvement Authority, Motor Vehicle Fuel Tax Revenue
Bonds, 7.00%, 4/1/1999 AA 5,124,950
New Jersey--7.3%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,196,000
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C), 6.50%, 1/15/2002 AA+ 7,156,450
Total 14,352,450
New Mexico--1.0%
$1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility Revenue Bonds
(Series 1996), 5.00%, 6/1/2003 NR 1,867,775
New York--4.2%
4,100,000 New York City Municipal Water Finance Authority, Revenue Bonds, 7.20%,
6/15/1999 A- 4,233,045
900,000 New York City Municipal Water Finance Authority, Revenue Bonds, 7.20%,
6/15/1999 A- 930,231
3,000,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds,
Series 71, 4.75%, 10/1/2021 Aa2 3,005,430
Total 8,168,706
Ohio--4.2%
1,000,000 Cincinnati City School District, OH, Tax Anticipation Notes (Series A),
5.50% (AMBAC INS), 12/1/2000 AAA 1,035,980
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds (Series 1996), 5.00%
(ProMedica Healthcare Obligated Group)/(MBIA INS), 11/15/1999 AAA 3,690,004
1,500,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1997D-1), 4.85%
(GNMA Collateralized Home Mortgage Program COL), 3/1/2015 AAA 1,510,950
2,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1998A-1), 4.60%
(GNMA Collateralized Home Mortgage Program COL), 9/1/2026 AAA 1,992,680
Total 8,229,614
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 1,075,625
Oregon--2.1%
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.375% (MBIA Insurance Corporation INS), 6/1/1999 AAA 2,032,220
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.50% (MBIA INS), 6/1/2000 AAA 2,060,460
Total 4,092,680
Pennsylvania--3.3%
4,726,601 Philadelphia, PA Municipal Authority, Equipment Revenue Bonds (Series
1997A), 5.297% (Philadelphia, PA Gas Works)/(AMBAC INS), 10/1/2004 AAA 4,933,531
1,500,000 Southeastern, PA Transportation Authority, Special Revenue Bonds, 5.25%
(FGIC INS), 3/1/2001 AAA 1,545,210
Total 6,478,741
Texas--5.8%
$2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), 5.10% (Original Issue
Yield: 5.20%), 3/1/2000 2,041,080
2,500,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series 1997A, 5.25%
(Memorial Hospital System)/(MBIA Insurance Corporation LOC), 6/1/2002 AAA 2,595,250
2,070,000 Lewisville, TX, Combination Contract Revenue & Special Assessment Bonds
(Series 1997), 4.95% TOBs (Wells Fargo Bank, N.A. LOC), Mandatory
Tender 11/1/2001 A+ 2,099,705
4,440,000 Texas State, UT GO Public Finance Authority (Series B), 8.00%, 10/1/1999 AA 4,672,079
Total 11,408,114
Virginia--0.5%
1,000,000 Botetourt County, VA IDA, Lease Revenue Notes (Series 1997), 4.55%
(Botetourt County, VA), 1/15/2000 NR 1,000,400
Washington--7.9%
1,680,000 Tacoma, WA, Solid Waste Utility Revenue Refunding Bonds (Series 1997B),
5.50% (AMBAC INS), 12/1/2002 AAA 1,768,721
3,000,000 Washington State Public Power Supply System, Nuclear Project No. 2 Revenue
Refunding Bond, (Series 1997B), 5.50%, 7/1/2003 AA- 3,154,290
3,000,000 Washington State Public Power Supply System, Refunding Revenue Bonds
(Nuclear Project No. 2) (Series 1997A), 5.00%, 7/1/2001 AA- 3,071,730
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1999 AA+ 7,511,650
Total 15,506,391
West Virginia--0.8%
1,500,000 Cabell County, WV Board of Education, Refunding UT GO Bonds, 6.00%, 5/1/2001 A+ 1,576,095
Wisconsin--5.2%
6,500,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds
(Series 1996), 5.50% (Gundersen Lutheran)/(FSA INS), 12/1/2000 AAA 6,727,822
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 3,387,560
Total 10,115,382
Total Short-Intermediate Municipal Securties
(identified cost $179,034,173) 181,841,329
Short-Term Municipals--8.5%
California--0.6%
1,100,000 Monterey Peninsula, CA Water Management District Weekly VRDNs
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) A- 1,100,000
Illinois--2.5%
$5,000,000 Illinois Development Finance Authority, Multifamily Housing Refunding &
Revenue Bonds Weekly VRDNs (Cobbler Square Project)/(Sumitomo Bank Ltd.,
Osaka LOC) A- 5,000,000
North Carolina--2.9%
5,600,000 Person County, NC Industrial Facilities & Pollution Control Financing
Authority Daily VRDNs (Carolina Power & Light Co.)/(SunTrust Bank,
Atlanta LOC) Aa3 5,600,000
Pennsylvania--0.5%
1,000,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) AAA 1,000,000
Puerto Rico--0.2%
400,000 Government Development Bank for Puerto Rico (GDB) Weekly VRDNs (MBIA
INS)/(Credit Suisse First Boston LIQ) AA 400,000
Texas--0.5%
1,000,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist Hospital,
Harris County, TX) AA 1,000,000
Wisconsin--1.3%
2,500,000 Milwaukee, WI, Trust Receipts (Series 1998) Daily VRDNs (National
Westminster Bank, PLC, London LIQ) NR 2,500,000
Total Short-Term Municipals (at amortized cost) 16,600,000
Total Investments (identified cost $195,634,173)(a) $198,441,329
</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 $195,634,173.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,807,156 which is comprised of $2,817,134 appreciation and
$9,978 depreciation at June 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($196,269,245) at June 30, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation COL --Collateralized FGIC
- --Financial Guaranty Insurance Company 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 PLC --Public Limited Company PRF --Prerefunded
SFM --Single Family Mortgage 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, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total investments in securities, at value (identified and tax cost $195,634,173) $198,441,329
Income receivable 2,400,217
Receivable for investments sold 40,000
Receivable for shares sold 2,738,649
Total assets 203,620,195
Liabilities:
Payable for investments purchased $ 5,039,722
Payable for shares redeemed 88,075
Income distribution payable 397,898
Payable to Bank 1,806,091
Accrued expenses 19,164
Total liabilities 7,350,950
Net Assets for 19,071,112 shares outstanding $196,269,245
Net Assets Consist of:
Paid in capital $197,490,288
Net unrealized appreciation of investments 2,807,156
Accumulated net realized loss on investments (4,031,116)
Distributions in excess of net investment income 2,917
Total Net Assets $196,269,245
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Shares:
$184,902,660 O 17,966,645 shares outstanding $10.29
Institutional Service Shares:
$11,366,585 O 1,104,467 shares outstanding $10.29
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
Federated Short-Term Municipal Trust
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest $9,497,280
Expenses:
Investment advisory fee $ 799,123
Administrative personnel and services fee 155,000
Custodian fees 13,841
Transfer and dividend disbursing agent fees and expenses 48,912
Directors'/Trustees' fees 14,053
Auditing fees 13,798
Legal fees 5,599
Portfolio accounting fees 75,790
Distribution services fee--Institutional Service Shares 22,281
Shareholder services fee--Institutional Shares 477,166
Shareholder services fee--Institutional Service Shares 22,281
Share registration costs 35,940
Printing and postage 21,765
Insurance premiums 3,941
Taxes 75
Miscellaneous 3,275
Total expenses 1,712,840
Waivers --
Waiver of investment advisory fee $ (256,084)
Waiver of distribution services fee--Institutional Service Shares (21,390)
Waiver of shareholder services fee--Institutional Shares (477,166)
Waiver of shareholder services fee--Institutional Service Shares (891)
Total waivers (755,531)
Net expenses 957,309
Net investment income 8,539,971
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 202,730
Net change in unrealized appreciation of investments 561,167
Net realized and unrealized gain on investments 763,897
Change in net assets resulting from operations $9,303,868
</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,
1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 8,539,971 $ 9,299,278
Net realized gain (loss) on investments ($8,804 net gain and $170,193 net loss,
respectively, as computed for federal tax purposes) 202,730 (188,131)
Net change in unrealized appreciation 561,167 403,659
Change in net assets resulting from operations 9,303,868 9,514,806
Distributions to Shareholders--
Distributions from net investment income
Institutional Shares (8,174,344) (8,989,909)
Institutional Service Shares (360,458) (311,621)
Change in net assets resulting from distributions to shareholders (8,534,802) (9,301,530)
Share Transactions--
Proceeds from sale of shares 83,677,957 120,094,181
Net asset value of shares issued to shareholders in payment of distributions declared 3,608,608 3,735,821
Cost of shares redeemed (108,712,902) (102,793,046)
Change in net assets resulting from share transactions (21,426,337) 21,036,956
Change in net assets (20,657,271) 21,250,232
Net Assets:
Beginning of period 216,926,516 195,676,284
End of period (including undistributed net investment
income of $2,917 and $0, respectively) $ 196,269,245 $ 216,926,516
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
Federated Short-Term Municipal Trust
June 30, 1998
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 expired capital loss carryforwards. The
following reclassification has been made to the financial statements.
Increase (Decrease)
- -------------------------------------
Accumulated Net
Paid In Capital Realized Gain (Loss)
- -------------------------------------
($1,720,574) $1,720,574
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, 1998, the Trust, for federal tax purposes, had a capital loss
carryforward of $4,030,794 which will reduce the Trust's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Trust of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
1999 $ 11,866
2001 $ 62,121
2003 $1,189,491
2004 $2,597,123
2005 $ 170,193
When-Issued and Delayed Delivery Transactions
</TABLE>
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,
------------------------------------------------------
1998 1997
-------------------------- ------------------------
Institutional Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 7,381,068 $ 75,983,944 11,082,005 $113,726,010
Shares issued to shareholders in payment of
distributions declared 328,092 3,376,837 338,791 3,476,789
Shares redeemed (10,235,034) (105,370,170) (9,428,681) (96,745,509)
Net change resulting from Institutional share transactions (2,525,874) $ (26,009,389) 1,992,115 $ 20,457,290
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1998 1997
-------------------------- ------------------------
Institutional Service Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 747,794 $ 7,694,013 619,285 $ 6,368,171
Shares issued to shareholders in payment of
distributions declared 22,517 231,771 25,233 259,032
Shares redeemed (324,766) (3,342,732) (591,876) (6,047,537)
Net change resulting from Institutional Service share
transactions 445,545 $ 4,583,052 52,642 $ 579,666
Net change resulting from share transactions (2,080,329) $ (21,426,337) 2,044,757 $ 21,036,956
</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, Inc. 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.
Year 2000 (unaudited)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1998, were as follows:
Purchases $64,894,259
Sales $93,851,888
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, 1998, 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, 1998, by corespndence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, the
financial statements and financial highlights referred to above present fairly,
in all material respects, the financial position of Federated Short-Term
Municipal Trust as of June 30, 1998, 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 31, 1998
NOTES
NOTES
Federated Short-Term Municipal Trust
Institutional Shares
Prospectus
August 31, 1998
A No-Load, Open-End, Diversified Management Investment Company
Federated Short-Term Municipal Trust Institutional Shares
Federated Investors Funds
5800 Corporate Drive Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and TrustCompany
P.O. Box 8600 Boston,MA02266-8600
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
Federated Securities Corp., Distributor
1-800-341-7400
- --------------------------
www.federatedinvestors.com
- --------------------------
Cusip 313907107
8072507A-IS (8/98)
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, 1998. 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 Short-Term Municipal Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Statement dated August 31, 1998
Cusip 313907107
Cusip 313907206
8072507B (8/98)
<PAGE>
Table of Contents
General Information About the Trust 1
Investment Objective and Policies 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Futures Transactions 2
Portfolio Turnover 2
Investment Limitations 3
Federated Short-Term Municipal Trust Management 5
Trust Ownership 9
Trustee Compensation 10
Trustee Liability 10
Investment Advisory Services 11
Adviser to the Trust 11
Advisory Fees 11
Brokerage Transactions 11
Other Services 11
Trust Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 12
Independent Public Accountants 12
Purchasing Shares 12
Distribution Plan (Institutional Service
Shares only) and Shareholder Services
Agreement 12
Determining Net Asset Value 12
Valuing Municipal Securities 12
Use of Amortized Cost 12
Redeeming Shares 13
Redemption in Kind 13
Massachusetts Partnership Law 13
Tax Status 13
The Trust's Tax Status 13
Total Return 13
Yield 14
Tax-Equivalent Yield 14
Tax-Equivalency Table 15
Performance Comparisons 16
Economic and Market Information 16
About Federated Investors, Inc. 16
Mutual Fund Market 17
Institutional Clients 17
Bank Marketing 17
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 17
Appendix 18
<PAGE>
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")
Standard & Poor's ("S&P"), or Fitch IBCA, Inc. ("Fitch"). 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, S&P, or Fitch 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.
Futures Transactions
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. In the fixed income securities
market, price moves inversely to interest rates. A rise in rates means a drop in
price. Conversely, a drop in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest rates, the
Trust could enter into contracts to deliver securities at a predetermined price
(i.e., "go short") to protect itself against the possibility that the prices of
its fixed income securities may decline during the Trust's anticipated holding
period. The Trust would agree to purchase securities in the future at a
predetermined price (i.e., "go long") to hedge against a decline in market
interest rates.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Trust does not pay or
receive money upon the purchase or sale of a futures contract. Rather, the
Trust is required to deposit an amount of "initial margin" in liquid
securities with its custodian (or the broker, if legally permitted). The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract initial margin
does not involve the borrowing of funds by the Trust to finance the
transactions. Initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Trust upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Trust is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Trust
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "marking
to market." Variation margin does not represent a borrowing or loan by the
Trust but is instead settlement between the Trust and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value ("NAV"), the Trust will mark-to-market
its open futures positions.
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.
Investing in Securities of Other Investment Companies
The Trust may invest in the securities of affiliated money market funds as an
efficient means of managing the Trust's uninvested cash.
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, 1998
and 1997, the portfolio turnover rates were 33% and 50%, 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.
<PAGE>
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.
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.
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.
<PAGE>
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
Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc.; Chairman and Trustee, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport Research,
Ltd.; Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Funds; Director, Member of Executive Committee,
Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.; Director, Member of Executive Committee,
University of Pittsburgh.
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
Director or Trustee of the Funds; 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.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Funds; 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, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Pittsburgh
Civic Light Opera.
<PAGE>
James E. Dowd, Esq.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; formerly, Member, National Board of Trustees, Leukemia Society of
America.
Edward L. Flaherty, Jr., Esq. @
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Funds; Attorney, Of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
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
Director or Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company and
State Street Corporation; Director, VISA USA and VISA International; Chairman
and Director, Massachusetts Banker Association; Director, Depository Trust
Corporation.
<PAGE>
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Funds; President, World Society for Ekistics, Athens;
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; formerly, Professor, United States
Military Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Funds; Public relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Funds; President and Director,
Federated Investors, Inc.; President and Trustee, 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; Director or Trustee of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of
the Trust.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
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.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President and Secretary of the Funds; Treasurer of some of the
Funds; Executive Vice President, Secretary, and Director, Federated Investors,
Inc.; 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.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds; Director or Trustee of some of
the Funds; Executive Vice President, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp.
* 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.
<PAGE>
As used in the table above, "The Funds" and "Funds" mean the following
investment companies:
111 Corcoran 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 Core Trust; 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.; 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; Regions Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; 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; WCT Funds; and World Investment Series, Inc.
Trust Ownership
As of August 7, 1998, Officers and Trustees as a group owned 373,92 (2.06%) 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 7, 1998 the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Trust: CPB Trust Division
Fiduciary Account, Honolulu, Hawaii, owned approximately 114,840 Shares
(11.18%); John H. Seale, Jaspar, Texas, owned approximately 68,999 Shares
(6.72%); FAM & Co., Logansport, Indiana, owned approximately 56,380 Shares
(5.49%); FTC & Co., Denver, Colorado, owned approximately, 53,991 Shares (5.26%)
and Donaldson Lufkin Jenrette Securities Corporation, Inc, Jersey City, New
Jersey, owned approximately 51,693 Shares (5.03%).
As of August 7, 1998, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Trust: Charles Schwab & Co., Inc.,
San Francisco, California owned approximately 2,887,040 Shares (15.82%).
<PAGE>
Trustees' Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
John F. Donahue, $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley, $1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, $1,290.07 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland, $1,290.07 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd, Esq. $1,290.07 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D.,$1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., Esq. $1,290.07 $122,362 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 8 other investment companies in the Fund Complex
Peter E. Madden, $1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., J.D., S.J.D. $1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar, $1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,172.62 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
* Information is furnished for the fiscal year ended June 30, 1998.
# The aggregate compensation is provided for the Trust which is comprised of one portfolio.
The information is provided for the last calendar year.
</TABLE>
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, Inc. All of the securities of Federated
Investors, Inc. 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, 1998, 1997, and 1996, the Trust's adviser earned $799,123, $866,632,
and $837,213, respectively, which were reduced by $256,084, $293,339, and
$266,026, respectively, because of undertakings to limit the Trust's expenses.
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
years ended June 30, 1998, 1997 and 1996, 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, Inc.,
provides administrative personnel and services to the Trust for a fee as
described in the prospectuses. From March 1, 1994 to March 1, 1996, Federated
Administrative Services, a subsidiary of Federated Investors, Inc., 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, 1998, 1997, and 1996, the Administrators earned
$155,000, $163,655, and $158,326, 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 of 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, 1998, payments in the amount of $22,281
were made pursuant to the Distribution Plan (Institutional Service Shares only)
of which $21,390 was waived. In addition, for this period, the Trust paid
shareholder service fees in the amount of $477,166, of which $477,166 was waived
for Institutional Shares and $22,281, of which $891 was waived for Institutional
Service Shares.
Determining Net Asset Value
Net asset value generally changes each day. The days on which the net asset
value is calculated by the Trust are described in each respective prospectus.
Valuing Municipal Securities
The Trustees use an independent pricing service to value municipal securities.
The independent pricing service takes into consideration: yield; stability;
risk; quality; coupon rate; maturity; type of issue; trading characteristics;
special circumstances of a security or trading market; and any other factors or
market data it considers relevant in determining valuations for normal
institutional size trading units of debt securities and does not rely
exclusively on quoted prices.
Use of Amortized Cost
The Trustees have decided that the fair value of municipal securities authorized
to be purchased by the Trust with remaining maturities of 60 days or less at the
time of purchase shall be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Trust's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
Redeeming Shares
The Trust redeems Shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in each
respective prospectus under "Redeeming Institutional Shares" or "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Redemption in Kind
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Trust's portfolio. Redemption in kind will
be made in conformity with applicable Securities and Exchange Commission rules,
taking such securities at the same value employed in determining net asset value
and selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to a lesser of $250,000 or 1% of a class's net asset
value during any 90-day period.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Trust. In the unlikely event a
shareholder is held personally liable for the Trust's obligations, the Trust is
required to use its property to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder for any act or obligation of the Trust. Therefore, financial loss
resulting from liability as a shareholder will occur only if the Trust itself
cannot meet its obligations to indemnify shareholders and pay judgments against
them from its assets.
Tax Status
The Trust's Tax Status
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
Total Return
The average annual total return for each class of shares of the Trust is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the period
by any additional shares, assuming monthly reinvestment of all dividends and
distributions.
The Trust's average annual total returns for Institutional Shares for the
one-year, five-year, and ten-year periods ended June 30, 1998, were 4.68%,
4.07%, and 4.96%, respectively. The Trust's average annual total return for
Institutional Service Shares for the fiscal year ended June 30, 1998 and for the
period since inception (August 31, 1993, date of initial public offering), to
June 30, 1998 was 4.41% and 3.85% respectively.
Yield The Trust's yields for the thirty-day period ended June 30, 1998, for
Institutional Shares and Institutional Service Shares were 3.78% and 3.53%,
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,
1998, for Institutional Shares and Institutional Service Shares were 5.25% and
4.90%, 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.
<PAGE>
Tax-Equivalency Table
The Trust may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Trust's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1998
MULTI-STATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent.
<PAGE>
Performance Comparisons
The performance of both classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Trust's expenses or either class of Shares' expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely because
net earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return. Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Trust uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in offering price over a specific period of
time. From time to time, the Trust will quote its Lipper ranking in the
"intermediate municipal bond funds" category in advertising and sales
literature.
o The Lehman Brothers Municipal Index/1-Year is an unmanaged index of
municipal bonds issued after January 1, 1991 with a minimum credit rating of
at least Baa, which have been issued as part of a deal of at least $50
million, have a maturity value of at least $3 million and mature in at least
1, but not more than 2 years. As of January 1996, the index also includes
zero coupon bonds and bonds subject to the Alternative Minimum Tax.
o The Lehman Brothers Municipal Index/3 Year is an unmanaged index of
municipal bonds issued after January 1, 1991 with a minimum credit rating of
at least Baa, which have been issued as part of a deal of at least $50
million, have a maturity value of at least $3 million, and a maturity range
of 1-5 years. As of January 1996, the index also includes zero coupon bonds
and bonds subject to the Alternative Minimum Tax.
o Morningstar, Inc., An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred 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 investments, 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 analysis 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, Inc.
Federated Investors, Inc. 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, 1997, Federated Investors, Inc.
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 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.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated Investors, Inc. are: U.S. equity and high
yield - J. Thomas Madden; U.S. fixed income -William D. Dawson, III; and global
equities and fixed income - Henry A. Frantzen. The Chief Investment Officers are
Executive Vice Presidents of the Federated advisory companies.
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 $4.4 trillion to the more than 6,700 funds available.*
Federated Investors, Inc., through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
Institutional Clients
Federated Investors, Inc. meets the needs of approximately 900 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
<PAGE>
Appendix
Standard and Poor's ("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.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than 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 Services, Inc. ("Moody's") 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.
Baa--Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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.
Fitch IBCA, Inc. ("Fitch") Investment Grade Bond Ratings
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
Standard and Poor's 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 Services, 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 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 Services, Inc. Commercial Paper Ratings
P-1--Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o well-established access to a range of financial markets and assured sources
of alternative liquidity.
P-2--Issuers rated P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Federated Short-Term Municipal Trust
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, 1998, 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, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Trust Expenses 1
Financial Highlights--Institutional Service Shares 2
General Information 3
Year 2000 Statement 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
Trust Information 6
Management of the Trust 6
Distribution of Institutional Service Shares 7
Administration of the Trust 8
Net Asset Value 8
Investing in Institutional Service Shares 8
Share Purchases 8
Minimum Investment Required 8
What Shares Cost 8
Confirmations and Account Statements 9
Dividends 9
Capital Gains 9
Redeeming Institutional Service Shares 9
Telephone Redemption 9
Written Requests 9
Accounts with Low Balances 10
Shareholder Information 10
Voting Rights 10
Tax Information 10
Federal Income Tax 10
State and Local Taxes 11
Performance Information 11
Other Classes of Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Independent Public Accountants 26
</TABLE>
SUMMARY OF TRUST EXPENSES
Institutional Service Shares
Shareholder Transaction Expenses
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
Annual Operating Expenses
(As a percentage of average net assets)
Management Fee (after waiver) (1) 0.27%
12b-1 Fee (after waiver) (2) 0.01%
Total Other Expenses 0.44%
Shareholder Services Fee (after waiver) (3) 0.24%
Total Operating Expenses (4) 0.72%
(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 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 would have been 1.10% absent the waivers of
portions of the management fee, 12b-1 and shareholder service fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Investing in Institutional Service
Shares" and "Trust Information". Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
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 $ 7
3 Years $23
5 Years $40
10 Years $89
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 26.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 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 0.42 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss) on investments 0.03 0.02 (0.04) 0.13 (0.20)
Total from investment operations 0.45 0.44 0.36 0.52 0.11
Less distributions
Distributions from net investment income (0.42) (0.42) (0.40) (0.39) (0.31)
Net asset value, end of period $ 10.29 $10.26 $10.24 $10.28 $ 10.15
Total return (b) 4.41% 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 4.05% 4.05% 3.90% 3.69% 3.65%*
Supplemental data
Net assets, end of period (000 omitted) $11,367 $6,758 $6,209 $5,223 $31,459
Portfolio turnover 33% 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, 1998, 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. 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.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Trust's
service providers (among them, the adviser, distributor, administrator and
transfer agent) must ensure that their computer systems are adjusted to properly
process and calculate date-related information from and after January 1, 2000.
Many software programs and, to a lesser extent, the computer hardware in use
today cannot distinguish the year 2000 from the year 1900. Such a design flaw
could have a negative impact in the handling of securities trades, pricing and
accounting services. The Trust and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Trust's operations
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 four highest ratings for municipal securities by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, A, or Baa) or by Standard &
Poor's ("S&P") and Fitch IBCA, Inc. ("Fitch") (AAA, AA, A, or BBB);
. guaranteed at the time of purchase by the U.S. government as to the payment
of principal and interest;
. rated at the time of purchase within the two highest ratings categories of
Moody's short-term municipal securities ratings, (MIG1/VMIG1, MIG2/VMIG2) or
Moody's municipal commercial paper ratings, (P-1, P-2) or S&P's municipal
note rating, (SP-1, SP-2) or S&P's municipal commercial paper and short-term
ratings, (A-1, A-2); or
. unrated, if at the time of purchase, determined by the Trust's investment
adviser to be of comparable quality to municipal securities as stated above.
Changes in economic or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments higher than securities.
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.
Inverse Floaters
The Trust may invest in securities known as "inverse floaters" which represent
interests in municipal securities. The Trust intends to purchase inverse
floaters to assist in pursuing its investment objective. These obligations pay
interest rates that vary inversely with changes in the interest rates of
specified short-term municipal securities or an index of short-term municipal
securities. The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Inverse floaters will generally respond to changes in market
interest rates more rapidly than fixed-rate long-term securities (typically
twice as fast). As a result, the market values of inverse floaters will
generally be more volatile than the market values of fixed-rate municipal
securities. Typically, the portion of the portfolio invested in inverse floaters
will be subject to additional volatility. Financial Futures
The Trust may purchase and sell interest rate and index financial futures
contracts. These financial futures contracts may be used to hedge all or a
portion of its portfolio against changes in the market value of portfolio
securities and interest rates, provide additional liquidity, and accomplish its
current strategies in a more expeditious fashion. Financial futures contracts
call for the delivery of particular debt instruments at a certain time in the
future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
As a matter of investment policy, which may be changed without shareholder
approval, the Trust may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of margin deposits on the Trust's existing
futures positions would exceed 5% of the market value of the Trust's total
assets. When the Trust purchases futures contracts, an amount of municipal
securities, cash or cash equivalents, equal to the underlying commodity value of
the futures contracts (less any related margin deposits), will be deposited in a
segregated account with the Trust's custodian (or the broker, if legally
permitted) to collateralize the position.
Risks
When the Trust uses financial futures, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with
the prices of the securities in the Trust's portfolio. This may cause the
futures contract to react differently than the portfolio securities to market
changes. In addition, the Trust's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as interest
rate movements. In these events, the Trust may lose money on the futures
contract. It is not certain that a secondary market for positions in futures
contracts will exist at all times. Although the investment adviser will
consider liquidity before entering into futures transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract at any particular time. The Trust's ability
to establish and close out futures positions depends on this secondary market.
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.
Investing in Securities of Other Investment Companies
The Trust may invest its assets in securities of other investment companies as
an efficient means of carrying out its investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Trust in shares of other investment companies
may be subject to such duplicate expenses.
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; or
. invest more than 5% of its total assets in industrial development bonds of
issuers that have a record of less than three years of continuous operations.
TRUST INFORMATION
Management of the Trust
Board of Trustees
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
Investment Adviser
Investment decisions for the Trust are made by Federated Management, the Trust's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Trust
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Trust.
Advisory Fees
The Trust's Adviser receives an annual investment advisory fee equal to 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. Any accrued shareholder services fees and/or distribution plan fees are
considered to be outside this contractual expense limitation. Further, the
limitation 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, Inc. All of the Class A (voting) shares
of Federated Investors, Inc. are owned by a trust, the trustees of which are
John F. Donahue, Chairman and Director of Federated Investors, Inc., Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Director of Federated Investors, Inc.
Federated Management and other subsidiaries of Federated Investors, Inc. 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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors, Inc. 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 approximately 4,000 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 Trustees and could
result in severe penalties.
Jeff A. Kozemchak has been the Trust's portfolio manager since June 1996. Mr.
Kozemchak joined Federated Investors, Inc. or its predecessor 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, Inc. or its predecessor 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.
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, Inc.
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, Inc., 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 Adviser or its
affiliates.
Administration of the Trust
Administrative Services
Federated Services Company, a subsidiary of Federated Investors, Inc., 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, Inc.
("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, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Confirmations and Account Statements
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The trust will not issue share certificates.
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, 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, 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
Because interest received by the Trust may not be exempt from all state and
local income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Trust.
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, Inc.
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 26.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.26 $ 10.24 $ 10.28 $ 10.15 $ 10.37 $ 10.29 $ 10.18
Income from investment
operations
Net investment income 0.44 0.44 0.43 0.42 0.40 0.44 0.53
Net realized and
unrealized gain
(loss) on investments 0.03 0.02 (0.04) 0.13 (0.22) 0.08 0.11
Total from investment
operations 0.47 0.46 0.39 0.55 0.18 0.52 0.64
Less distributions
Distributions from net
investment income (0.44) (0.44) (0.43) (0.42) (0.40) (0.44) (0.53)
Net asset value, end of
period $ 10.29 $ 10.26 $ 10.24 $ 10.28 $ 10.15 $ 10.37 $ 10.29
Total return (a) 4.68% 4.59% 3.82% 5.52% 1.76% 5.11% 6.40%
Ratios to average net
assets
Expenses 0.47% 0.46% 0.47% 0.46% 0.47% 0.46% 0.46%
Net investment income 4.28% 4.30% 4.14% 4.09% 3.89% 4.21% 5.12%
Supplemental data
Net assets, end
of period
(000 omitted) $184,903 $210,169 $189,467 $217,713 $316,810 $318,932 $205,101
Portfolio turnover 33% 50% 20% 33% 36% 15% 42%
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
1991 1990 1989
<S> <C> <C> <C>
Net asset value, beginning
of period $ 10.14 $ 10.10 $ 10.19
Income from investment
operations
Net investment income 0.60 0.60 0.57
Net realized and
unrealized gain
(loss) on investments 0.04 0.04 (0.09)
Total from investment
operations 0.64 0.64 0.48
Less distributions
Distributions from net
investment income (0.60) (0.60) (0.57)
Net asset value, end of
period $ 10.18 $ 10.14 $ 10.10
Total return (a) 6.47% 6.54% 4.84%
Ratios to average net
assets
Expenses 0.46% 0.47% 0.46%
Net investment income 5.89% 5.94% 5.59%
Supplemental data
Net assets, end
of period
(000 omitted) $142,493 $139,113 $178,978
Portfolio turnover 40% 69% 55%
</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, 1998, which can be obtained
free of charge.
PORTFOLIO OF INVESTMENTS
Federated Short-Term Municipal Trust
June 30, 1998
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--92.7%
Alabama--2.0%
$1,000,000 Alabama State Docks Department, Docks Facilities Refunding Revenue Bonds,
5.25% (MBIA INS), 10/1/2000 AAA $ 1,028,020
1,000,000 Alabama State Docks Department, Docks Facilities Refunding Revenue Bonds,
5.25% (MBIA INS), 10/1/2001 AAA 1,036,630
1,850,000 Alabama State, UT GO Refunding Bonds, 5.70%, 9/1/1998 AA 1,856,531
Total 3,921,181
Alaska--1.1%
2,000,000 Anchorage, AK, Hospital Refunding Revenue Bonds, 6.50% (Sisters of
Providence)/(Original Issue Yield: 6.75%), 10/1/1999 AA- 2,065,680
Arkansas--1.1%
2,000,000 Arkansas Development Finance Authority, Single Family Mortgage Revenue
Bonds (Series 1997A-R), 6.50% (MBIA INS), 2/1/2011 AAA 2,162,440
California--8.7%
1,000,000 ABAG Finance Authority for Non-Profit Corporations, Refunding Revenue
Certificates of Participation, 4.625% (Episcopal Homes Foundation)/(Original
Issue Yield: 4.70%), 7/1/2004 A- 1,007,300
2,620,000 ABAG Finance Authority for Non-Profit Corporations, Refunding Revenue
Certificates of Participation, 4.50% (Episcopal Homes Foundation)/(Original
Issue Yield: 4.60%), 7/1/2003 A- 2,633,388
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 13,554,500
Total 17,195,188
Colorado--4.6%
4,375,000 Arvada, CO Urban Renewal Authority, Revenue Refunding Bonds (Series 1997A),
5.25% (MBIA INS), 9/1/2002 AAA 4,552,319
1,525,000 Colorado HFA, Single Family Mortgage Revenue Bond, Series C-1, 7.65%,
12/1/2025 Aa2 1,713,902
2,000,000 Colorado HFA, Single Family Mortgage Revenue Bonds (Series 1997C-3),
4.80%, 11/1/2016 Aa2 2,043,780
500,000 Colorado HFA, Single Family Program Senior Bonds (Series 1998C-2), 4.50%,
11/1/2005 Aa2 499,355
250,000 Colorado HFA, Single Family Program Subordinate Bonds (Series 1998B), 4.625%,
11/1/2005 A2 250,063
Total 9,059,419
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--continued
District Of Columbia--1.3%
$2,335,000 District of Columbia Housing Finance Agency, Single Family Mortgage Revenue
Bonds (Series 1998A), 6.25% (GNMA Collateralized Home Mortgage Program
COL), 12/1/2028 AAA $ 2,479,910
Florida--1.9%
2,000,000 Dade County, FL, Public Improvement Refunding UT GO Bonds, 7.20% (FSA INS),
6/1/2001 AAA 2,176,960
1,500,000 Florida Housing Finance Corp., Homeowner Mortgage Revenue Bonds, Series 2,
4.75% (MBIA INS), 7/1/2019 AAA 1,504,515
Total 3,681,475
Hawaii--2.7%
5,000,000 Hawaii State, UT GO Bonds, Series CN, 6.25% (FGIC LOC), 3/1/2002 AAA 5,351,000
Illinois--6.5%
1,000,000 Chicago, IL, Collateralized SFM Revenue Bonds, Series A-1, 4.85% (GNMA COL),
3/1/2015 Aaa 1,005,260
1,500,000 Illinois Health Facilities Authority, Adjustable Rate Revenue Bonds, Series
1991B, 5.00% (Highland Park Hospital)/(FGIC INS), 10/1/2000 AAA 1,533,060
1,030,000 Illinois Health Facilities Authority, Revenue Bonds (Series 1998), 5.25%
(Centegra Health System), 9/1/2003 A- 1,065,453
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 1,018,860
2,000,000 Illinois Health Facilities Authority, Revenue Refunding Bonds (Series A),
5.00% (Advocate Health Care Network), 8/15/2003 AA 2,054,880
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), 9/1/2000 AAA 3,071,820
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA 3,058,410
Total 12,807,743
Indiana--2.0%
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 3,973,242
Kansas--0.5%
1,000,000 Sedgwick & Shawnee Counties, KS, Single Family Mortgage Revenue Bonds
(Series 1997A-2), 4.90% (GNMA Collateralized Home Mortgage Program COL),
6/1/2016 Aaa 1,014,780
Kentucky--0.6%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%, 3/1/2000 A+ 1,178,250
Louisiana--7.1%
2,200,000 Lake Charles, LA Harbor & Terminal District, Port Facilities Revenue
Refunding Bond, Trunkline Lining Co Project, 7.75% (Panhandle
Eastern Corp.), 8/15/2022 A3 2,517,614
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--continued
Louisiana--continued
$4,000,000 Louisiana PFA, Health & Education Capital Facilities Revenue Bonds (Series
A), 5.00% TOBs (AMBAC INS), Mandatory Tender 6/1/2002 AAA $ 4,083,960
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), 6.00% (FGIC INS), AAA 7,282,240
8/1/2000
Total 13,883,814
Michigan--3.5%
1,000,000 Michigan State Building Authority, Revenue Bonds (Series II), 6.25%
(AMBAC INS)/(Original Issue Yield: 6.35%), 10/1/2000 AAA 1,049,590
925,000 Michigan State Hospital Finance Authority, Hospital Revenue & Refunding
Bonds (Series 1998A), 4.60% (Hackley Hospital Obligated Group), 5/1/2003 A3 926,341
1,005,000 Michigan State Hospital Finance Authority, Hospital Revenue & Refunding
Bonds (Series 1998A), 4.70% (Hackley Hospital Obligated Group), 5/1/2004 A3 1,006,719
820,000 Michigan State Hospital Finance Authority, Revenue
& Refunding Bonds (Series 1998A), 4.40% (McLaren
Health Care Corp.)/(Original Issue Yield:
4.45%), 6/1/2004 A1 818,663
3,000,000 Michigan Underground Storage Tank Financial Assurance Authority, Revenue
Refunding Bonds (Series I), 5.00% (AMBAC INS), 5/1/2001 AAA 3,080,730
Total 6,882,043
Minnesota--1.5%
3,000,000 Minneapolis, MN, Temporary Parking Ramp Revenue Bonds, Series 1997A,
4.75%, 6/1/2000 NR 3,003,570
Mississippi--1.1%
1,015,000 Mississippi Home Corp., Single Family Mortgage Revenue Bonds (Series 1998A),
5.125% (GNMA Collateralized Home Mortgage Program COL), 12/1/2017 Aaa 1,020,359
1,090,000 Mississippi Home Corp., Single Family Revenue Mortgage Bonds (Series 1998A),
5.25% (GNMA Collateralized Home Mortgage Program COL), 12/1/2018 Aaa 1,095,712
Total 2,116,071
Missouri--1.1%
2,000,000 Springfield, MO State Highway Improvement Corp., Transportation Revenue
Bonds (Series 1997), 5.25% (AMBAC INS), 8/1/2001 AAA 2,068,600
Nevada--2.6%
5,000,000 Nevada State Highway Improvement Authority, Motor Vehicle Fuel Tax Revenue
Bonds, 7.00%, 4/1/1999 AA 5,124,950
New Jersey--7.3%
7,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 7,196,000
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C), 6.50%, 1/15/2002 AA+ 7,156,450
Total 14,352,450
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--continued
New Mexico--1.0%
$1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility Revenue Bonds
(Series 1996), 5.00%, 6/1/2003 NR $ 1,867,775
New York--4.2%
4,100,000 New York City Municipal Water Finance Authority, Revenue Bonds, 7.20%,
6/15/1999 A- 4,233,045
900,000 New York City Municipal Water Finance Authority, Revenue Bonds, 7.20%,
6/15/1999 A- 930,231
3,000,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds,
Series 71, 4.75%, 10/1/2021 Aa2 3,005,430
Total 8,168,706
Ohio--4.2%
1,000,000 Cincinnati City School District, OH, Tax Anticipation Notes (Series A), 5.50%
(AMBAC INS), 12/1/2000 AAA 1,035,980
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds (Series 1996), 5.00%
(ProMedica Healthcare Obligated Group)/(MBIA INS), 11/15/1999 AAA 3,690,004
1,500,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1997D-1), 4.85%
(GNMA Collateralized Home Mortgage Program COL), 3/1/2015 AAA 1,510,950
2,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1998A-1), 4.60%
(GNMA Collateralized Home Mortgage Program COL), 9/1/2026 AAA 1,992,680
Total 8,229,614
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 1,075,625
Oregon--2.1%
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.375% (MBIA Insurance Corporation INS), 6/1/1999 AAA 2,032,220
2,000,000 Oregon State Department of Transportation, Regional Light Rail Revenue Bond,
Westside Project, 5.50%
(MBIA INS), 6/1/2000 AAA 2,060,460
Total 4,092,680
Pennsylvania--3.3%
4,726,601 Philadelphia, PA Municipal Authority, Equipment Revenue Bonds (Series 1997A),
5.297% (Philadelphia, PA Gas Works)/(AMBAC INS), 10/1/2004 AAA 4,933,531
1,500,000 Southeastern, PA Transportation Authority, Special Revenue Bonds, 5.25%
(FGIC INS), 3/1/2001 AAA 1,545,210
Total 6,478,741
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Intermediate Municipal Securities--continued
Texas--5.8%
$2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), 5.10% (Original Issue
Yield: 5.20%), 3/1/2000 $ 2,041,080
2,500,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series 1997A, 5.25%
(Memorial Hospital System)/(MBIA Insurance Corporation LOC), 6/1/2002 AAA 2,595,250
2,070,000 Lewisville, TX, Combination Contract Revenue & Special Assessment Bonds
(Series 1997), 4.95% TOBs (Wells Fargo Bank, N.A. LOC), Mandatory
Tender 11/1/2001 A+ 2,099,705
4,440,000 Texas State, UT GO Public Finance Authority (Series B), 8.00%, 10/1/1999 AA 4,672,079
Total 11,408,114
Virginia--0.5%
1,000,000 Botetourt County, VA IDA, Lease Revenue Notes (Series 1997), 4.55% (Botetourt
County, VA), 1/15/2000 NR 1,000,400
Washington--7.9%
1,680,000 Tacoma, WA, Solid Waste Utility Revenue Refunding Bonds (Series 1997B),
5.50% (AMBAC INS), 12/1/2002 AAA 1,768,721
3,000,000 Washington State Public Power Supply System, Nuclear Project No. 2 Revenue
Refunding Bond, (Series 1997B), 5.50%, 7/1/2003 AA- 3,154,290
3,000,000 Washington State Public Power Supply System, Refunding Revenue Bonds
(Nuclear Project No. 2) (Series 1997A), 5.00%, 7/1/2001 AA- 3,071,730
7,425,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1999 AA+ 7,511,650
Total 15,506,391
West Virginia--0.8%
1,500,000 Cabell County, WV Board of Education, Refunding UT GO Bonds, 6.00%, 5/1/2001 A+ 1,576,095
Wisconsin--5.2%
6,500,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds (Series
1996), 5.50% (Gundersen Lutheran)/(FSA INS), 12/1/2000 AAA 6,727,822
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 3,387,560
Total 10,115,382
Total Short-Intermediate Municipal Securties (identified cost $179,034,173) 181,841,329
Short-Term Municipals--8.5%
California--0.6%
1,100,000 Monterey Peninsula, CA Water Management District Weekly VRDNs
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) A- 1,100,000
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Term Municipals--continued
Illinois--2.5%
$5,000,000 Illinois Development Finance Authority, Multifamily Housing Refunding &
Revenue Bonds Weekly VRDNs (Cobbler Square Project)/(Sumitomo Bank Ltd.,
Osaka LOC) A- $ 5,000,000
North Carolina--2.9%
5,600,000 Person County, NC Industrial Facilities & Pollution Control Financing
Authority Daily VRDNs (Carolina Power & Light Co.)/(SunTrust Bank,
Atlanta LOC) Aa3 5,600,000
Pennsylvania--0.5%
1,000,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs
(Jameson Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) AAA 1,000,000
Puerto Rico--0.2%
400,000 Government Development Bank for Puerto Rico (GDB) Weekly VRDNs (MBIA
INS)/(Credit Suisse First Boston LIQ) AA 400,000
Texas--0.5%
1,000,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist Hospital,
Harris County, TX) AA 1,000,000
Wisconsin--1.3%
2,500,000 Milwaukee, WI, Trust Receipts (Series 1998) Daily VRDNs (National Westminster
Bank, PLC, London LIQ) NR 2,500,000
Total Short-Term Municipals (at amortized cost) 16,600,000
Total Investments (identified cost $195,634,173)(a) $198,441,329
</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 $195,634,173.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,807,156 which is comprised of $2,817,134 appreciation and
$9,978 depreciation at June 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($196,269,245) at June 30, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
COL --Collateralized
FGIC --Financial Guaranty Insurance Company
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
PLC --Public Limited Company
PRF --Prerefunded
SFM --Single Family Mortgage
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, 1998
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $195,634,173) $198,441,329
Income receivable 2,400,217
Receivable for investments sold 40,000
Receivable for shares sold 2,738,649
Total assets 203,620,195
Liabilities:
Payable for investments purchased $ 5,039,722
Payable for shares redeemed 88,075
Income distribution payable 397,898
Payable to Bank 1,806,091
Accrued expenses 19,164
Total liabilities 7,350,950
Net Assets for 19,071,112 shares outstanding $196,269,245
Net Assets Consist of:
Paid in capital $197,490,288
Net unrealized appreciation of investments 2,807,156
Accumulated net realized loss on investments (4,031,116)
Distributions in excess of net investment income 2,917
Total Net Assets $196,269,245
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Shares:
$184,902,660 O 17,966,645 shares outstanding $10.29
Institutional Service Shares:
$11,366,585 O 1,104,467 shares outstanding $10.29
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM MUNICIPAL TRUST
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $9,497,280
Expenses:
Investment advisory fee $ 799,123
Administrative personnel and services fee 155,000
Custodian fees 13,841
Transfer and dividend disbursing agent fees and expenses 48,912
Directors'/Trustees' fees 14,053
Auditing fees 13,798
Legal fees 5,599
Portfolio accounting fees 75,790
Distribution services fee--Institutional Service Shares 22,281
Shareholder services fee--Institutional Shares 477,166
Shareholder services fee--Institutional Service Shares 22,281
Share registration costs 35,940
Printing and postage 21,765
Insurance premiums 3,941
Taxes 75
Miscellaneous 3,275
Total expenses 1,712,840
Waivers --
Waiver of investment advisory fee $ (256,084)
Waiver of distribution services fee--Institutional Service Shares (21,390)
Waiver of shareholder services fee--Institutional Shares (477,166)
Waiver of shareholder services fee--Institutional Service Shares (891)
Total waivers (755,531)
Net expenses 957,309
Net investment income 8,539,971
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 202,730
Net change in unrealized appreciation of investments 561,167
Net realized and unrealized gain on investments 763,897
Change in net assets resulting from operations $9,303,868
</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,
1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 8,539,971 $ 9,299,278
Net realized gain (loss) on investments ($8,804 net gain and $170,193 net loss,
respectively, as computed for federal tax purposes) 202,730 (188,131)
Net change in unrealized appreciation 561,167 403,659
Change in net assets resulting from operations 9,303,868 9,514,806
Distributions to Shareholders--
Distributions from net investment income
Institutional Shares (8,174,344) (8,989,909)
Institutional Service Shares (360,458) (311,621)
Change in net assets resulting from distributions to shareholders (8,534,802) (9,301,530)
Share Transactions--
Proceeds from sale of shares 83,677,957 120,094,181
Net asset value of shares issued to shareholders in payment of distributions declared 3,608,608 3,735,821
Cost of shares redeemed (108,712,902) (102,793,046)
Change in net assets resulting from share transactions (21,426,337) 21,036,956
Change in net assets (20,657,271) 21,250,232
Net Assets:
Beginning of period 216,926,516 195,676,284
End of period (including undistributed net investment
income of $2,917 and $0, respectively) $ 196,269,245 $ 216,926,516
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM MUNICIPAL TRUST
JUNE 30, 1998
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 expired capital loss carryforwards. The
following reclassification has been made to the financial statements.
Increase (Decrease)
Accumulated Net
Paid In Capital Realized Gain (Loss)
($1,720,574) $1,720,574
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, 1998, the Trust, for federal tax purposes, had a capital loss
carryforward of $4,030,794 which will reduce the Trust's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Trust of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
1999 $ 11,866
2001 $ 62,121
2003 $1,189,491
2004 $2,597,123
2005 $ 170,193
When-Issued and Delayed Delivery Transactions
</TABLE>
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,
1998 1997
Institutional Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 7,381,068 $ 75,983,944 11,082,005 $113,726,010
Shares issued to shareholders in payment of
distributions declared 328,092 3,376,837 338,791 3,476,789
Shares redeemed (10,235,034) (105,370,170) (9,428,681) (96,745,509)
Net change resulting from Institutional share transactions (2,525,874) $ (26,009,389) 1,992,115 $ 20,457,290
Year Ended June 30,
1998 1997
Institutional Service Shares Shares Amount Shares Amount
Shares sold 747,794 $ 7,694,013 619,285 $ 6,368,171
Shares issued to shareholders in payment of
distributions declared 22,517 231,771 25,233 259,032
Shares redeemed (324,766) (3,342,732) (591,876) (6,047,537)
Net change resulting from Institutional Service share
transactions 445,545 $ 4,583,052 52,642 $ 579,666
Net change resulting from share transactions (2,080,329) $ (21,426,337) 2,044,757 $ 21,036,956
</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, Inc. 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.
Year 2000 (unaudited)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1998, were as follows:
Purchases $64,894,259
Sales $93,851,888
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, 1998, 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, 1998, by corespndence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, the
financial statements and financial highlights referred to above present fairly,
in all material respects, the financial position of Federated Short-Term
Municipal Trust as of June 30, 1998, 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 31, 1998
[LOGO]
Federated Short-Term
Municipal Trust
Institutional Service Shares
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Prospectus
August 31, 1998
A No-Load, Open-End, Diversified
Management Investment Company
Federated Short-Term
Municipal Trust
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Cusip 313907206
8072507A-SS (8/98)
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Filed in Part A)
(b) Exhibits:
(1) (i) Conformed Copy of Declaration of Trust of the
Registrant; (13)
(ii) Conformed Copy of Amendment No. 1 to the Declaration of
Trust; (13)
(ii) Conformed Copy of Amendment No. 2 to the Declaration of
Trust; (13)
(ii) Conformed Copy of Amendment No. 3 to the Declaration of
Trust; (13)
(iii) Conformed Copy of Amendment No. 4 to the Declaration of
Trust of Registrant; (12)
(2) (i) Copy of the By-Laws of the Registrant; (13) (ii)
Copy of Amendment to the By-Laws; (7) (iii) Copy of
Amendment No. 5 to the By-Laws; (16) (iv) Copy of
Amendment No. 6 to the By-Laws; (16) (v) Copy of
Amendment No. 7 to the By-Laws; (16) (vi) Copy of
Amendment No. 8 to the By-Laws; (16)
(3) Not applicable;
(4) Copy of Specimen Certificate of Shares; (13)
(5) Conformed Copy of the Investment Advisory Contract; (9)
(6) (i) Conformed Copy of the Distributor's Contract of the
Registrant; (11)
(ii) The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement;
Mutual ...........Funds Service Agreement; and Plan Item 24
(b) (6) of the Cash Trust Series II Registration Statement on
Form N-1A, filed with the Commission on July 24, 1995.
(File Numbers 33-38550 and 811-6269).
(7) Not applicable;
- ----------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed August 24, 1987. (File Nos. 2-72277 and
811-3181)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed August 24, 1989. (File Nos. 2-72277 and
811-3181)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 26, 1994. (File Nos. 2-72277 and
811-3181)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 28 on Form N-1A filed August 25, 1995. (File Nos. 2-72277 and
811-3181)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed April 25, 1996. (File Nos. 2-72277 and
811-3181)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed June 30, 1998. (File Nos. 2-72277 and
811-3181)
<PAGE>
(8) Conformed Copy of the Custodian Agreement of the Registrant; (11)
(i) Conformed Copy of Domestic Custody Fee Schedule; (16)
(9) (i) Conformed Copy of Amended and Restated Agreement for
Fund Accounting Services, Administrative Services,
Transfer Agency Services, and Custody Services
Procurement; + (ii) The responses described in Item 24
(b)(6)(ii) are hereby incorporated by reference. (iii)
The registrant hereby incorporates the conformed copy of
the Shareholder Services Sub- Contract between Fidelity
and Federated Shareholder Services from Item
24(b)(9)(iii) of the Federated GNMA Trust Registration
Statement on Form N-1A, filed with the Commission on
March 25, 1996. (File Nos. 2-75670 and 811- 3375) (iv)
Conformed Copy of Amended and Restated Shareholder
Services Agreement; (16)
(10) Copy of Opinion and Consent of Counsel as to the legality of shares
being registered; (2)
(11) Conformed Copy of the Consent of Independent Public Accountants; +
(12) Not applicable;
(13) Copy of Initial Capital Understanding; (13)
(14) Not applicable;
(15) Conformed Copy of Rule 12b-1 Plan; (11)
(16) Schedule for Computation of Fund Performance Data; (8)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the Conformed Copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A, filed
with the Commission on January 26, 1996. (File Nos. 33-52149
and 811-07141)
(19) Power of Attorney; (15)
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
- ---------------------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed August 4, 1981. (File Nos. 2-72277 and
811-3181)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed August 22, 1988. (File Nos. 2-72277 and
811-3181)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 26, 1994. (File Nos. 2-72277 and
811-3181)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed April 25, 1996. (File Nos. 2-72277 and
811-3181)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed August 25, 1997. (File Nos. 2-72277 and
811-3181)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed June 30, 1998. (File Nos. 2-72277 and
811-3181)
<PAGE>
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of August 7, 1998
Shares of Beneficial Interest
(no par value)
Institutional Shares 1,300
Institutional Service Shares 187
Item 27. Indemnification: (10)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see the
section entitled "Trust Information - Management of the Trust" in Part A. The
affiliations with the Registrant of four of the Trustees and one of the Officers
of the investment adviser are included in Part B of this Registration Statement
under "Federated Short-Term Municipal Trust Management." The remaining Trustee
of the investment adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson (Partner, Wilson,
Halbrook & Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed August 26, 1994. (File Nos. 2-72277 and
811-3181)
<PAGE>
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents:
Stefanie L. Bachhuber
Arthur J. Barry
Robert E. Cauley
Lee R. Cunningham, II
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Natalie F. Metz
Joseph M. Natoli
Keith J. Sabol
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. These
individuals are also officers of a majority of the investment advisers to the
Funds listed in Part B of this Registration Statement.
<PAGE>
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following
open-end investment companies:
111 Corcoran 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 Core Trust; 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.; Fixed Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company Federated Investors Tower
("Transfer Agent, Dividend 1001 Liberty Avenue
Disbursing Agent and Pittsburgh, PA 15222-3779
Portfolio Recordkeeper")
Federated Administrative Services Federated Investors Tower
("Administrator") 1001 Liberty Avenue
---------------------------------
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED SHORT-TERM MUNICIPAL
TRUST, certifies that it meets all of the requirement for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
26th day of August, 1998.
FEDERATED SHORT-TERM MUNICIPAL TRUST
BY: /s/ Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
August 26, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Matthew S. Hardin
Matthew S. Hardin Attorney In Fact August 26, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President and Trustee
Edward C. Gonzales* Executive Vice President
John W. McGonigle* Secretary, Treasurer and Executive
Vice President
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Glen R. Johnson* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr. Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 9(i) under Form N-1A
Exhibt 23 under Item 601/Reg. S-K
AMENDED & RESTATED
AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, and amended and restated as of September
1, 1997, by and between those investment companies listed on Exhibit 1 as may be
amended from time to time, having their principal office and place of business
at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment
Company"), on behalf of the portfolios (individually referred to herein as a
"Fund" and collectively as "Funds") of the Investment Company, and FEDERATED
SERVICES COMPANY, a Pennsylvania corporation, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 on behalf of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Investment Company hereby appoints the Company to provide certain pricing
and accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily, if
a designated pricing service does not provide a price for a security which
the Company believes should be available by market quotation, the Company
may obtain a price by calling brokers designated by the investment adviser
of the fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to find brokers
to price those securities; thirdly, for securities for which no market
price is available, the Pricing Committee of the Board will determine a
fair value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. The Company is not
the guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a Fund's
assets or calculating the net asset value per share of such Fund or Class
when the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser the
securities prices used in calculating the net asset value of the fund, for
its use in preparing exception reports for those prices on which the
adviser has comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues communication
regarding exception reports with the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board and
as set forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Investment Company are the
property of the Investment Company and further agrees to surrender
promptly to the Investment Company such records upon the Investment
Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other applicable
laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees of
Trustees or Directors of the Investment Company; independent auditors
expenses; legal and audit department expenses billed to the Company for
work performed related to the Investment Company, the Funds, or the
Classes; law firm expenses; organizational expenses; or other expenses
not specified in this Article 3 which may be properly payable by the
Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
Fund Accounting Services. Such person or persons may be affiliates of
the Company, third-party service providers, or they may be officers and
employees who are employed by both the Company and the Investment
Company; provided, however, that the Company shall be as fully
responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no obligation
shall be incurred on behalf of the Investment Company, the Funds, or the
Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
Article 4. Appointment.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.
Article 5. The Company's Duties.
As Administrator, and subject to the supervision and control of the Board and
in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already
been prepared and filed), the By-laws and minutes of meetings of the
Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for
the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous offering
of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who
will be responsible for the management of certain of the Investment
Company's affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."
Article 6. Records.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
Article 7. Duties of the Fund.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.
Article 8. Expenses.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.
Article 9. Compensation.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall be
accrued by the Fund and paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.
Max. Admin. Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)
However, in no event shall the administrative fee received during any year of
the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.
Article 10. Responsibility of Administrator.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. Any person, even though also
an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall
in such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case
in which the Investment Company will be asked to indemnify the Company
except with the Investment Company's written consent.
SECTION THREE: Transfer Agency Services.
Article 11. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
Article 12. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, the Company shall, on or before the payment date
of any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution which is
payable in cash and request the Custodian to make available
sufficient funds for the cash amount to be paid out. The Company
shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to the
Shareholder's account; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder holding
certificates;
(h) Any information required in order for the Company to perform the
calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on
accounts subject to back-up or other withholding (including
non-resident alien accounts), preparing and filing reports on
U.S. Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information; and
(b) provide a system which will enable the Fund to monitor the total
number of Shares of each Fund (and/or Class) sold in each state
("blue sky reporting"). The Fund shall by Proper Instructions (i)
identify to the Company those transactions and assets to be
treated as exempt from the blue sky reporting for each state and
(ii) verify the classification of transactions for each state on
the system prior to activation and thereafter monitor the daily
activity for each state. The responsibility of the Company for
each Fund's (and/or Class's) state blue sky registration status
is limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky compliance
and the reporting of such transactions and accounts to the Fund
as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain faclities and procedures
for safekeeping of check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such forms and devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."
Article 13. Duties of the Investment Company.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.
Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 14. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Investment Company and the Company. Pursuant to
information in the Fund Prospectus or other information or instructions
from the Fund, the Company may sub-divide any Fund into Classes or other
sub-components for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the same as if
each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
SECTION FOUR: Custody Services Procurement.
Article 15. Appointment.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
Article 16. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and
has been approved by the Board as being eligible for selection by the
Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided
by Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature and
amount of disbursements made on account of the each Fund with respect to
each custodial agreement; and (iii) such other information as the Board
shall reasonably request to enable it to fulfill its duties and
obligations under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree in
writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."
Article 17. Fees and Expenses.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
Article 18. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.
SECTION FIVE: General Provisions.
Article 19. Proper Instructions.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.
Article 20. Assignment.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or
(2) such other provider of services duly registered as a transfer agent
under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on
the part of the Investment Company subcontract for the performance of
such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
Article 21. Documents.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Investment Company and all
amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Printed documentation from the recordkeeping system representing
outstanding Share certificates of the Investment Company or the Funds;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of
Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and the
By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Such other certifications, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(6) Revisions to the Prospectus of each Fund.
Article 22. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good standing
under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and in
the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize it to
enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement;
(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform its obligations under this Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its obligations
under this Agreement;
(4) The Investment Company is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
Article 23. Standard of Care and Indemnification.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or other
party contracted by or approved by the Investment Company or Fund,
(2) The reliance on or use by the Company or its agents or subcontractors
of information, records and documents in proper form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of Fund
for use in the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents or
subcontractors of Proper Instructions of the Investment Company or the
Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the
offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article
23 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
to participate with the party seeking indemnification in the defense of
such claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior
written consent.
Article 24. Term and Termination of Agreement.
This Agreement shall be effective from September 1, 1997, and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18
month terms. The Agreement can be terminated by either party upon 18 months
notice to be effective as of the end of such 18 month period. In the event,
however, of willful misfeasance, bad faith, negligence or reckless disregard of
its duties by the Company, the Investment Company has the right to terminate the
Agreement upon 60 days written notice, if Company has not cured such willful
misfeasance, bad faith, negligence or reckless disregard of its duties within 60
days. The termination date for all original or after-added Investment companies
which are, or become, a party to this Agreement. shall be coterminous.
Investment Companies that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
Article 25. Amendment.
This Agreement may be amended or modified by a written agreement executed by
both parties.
Article 26. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 27. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of the Commonwealth of Massachusetts
Article 28. Notices.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
Article 29. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original. Article 30. Limitations of Liability
of Trustees and Shareholders of the Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
Article 31. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 32. Successor Agent.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
Article 33. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 34. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.
Article 35. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Article 36. Limitations of Liability of Trustees and Shareholders of the
Investment Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
INVESTMENT COMPANIES
(listed on Exhibit 1)
By: /s/ S. Elliott Cohan
Name: S. Elliott Cohan
Title: Assistant Secretary
FEDERATED SERVICES COMPANY
By: /s/ Thomas J. Ward
Name: Thomas J. Ward
Title: Secretary
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 35 to Form N-1A Registration Statement of Federated
Short-Term Municipal Trust of our report date July 31, 1998, on the financial
statements of Federated Short-Term Municipal Trust as of June 30, 1998, included
in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
August 24, 1998
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