SEMI-ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Short-Term Municipal Trust for the six-month reporting period ended December 31,
1998. The report begins with an investment review by the fund's portfolio
manager, Jeffrey A. Kozemchak, Senior Vice President, followed by a complete
list of portfolio holdings and the financial statements for the fund's
Institutional Shares and Institutional Service Shares.
On behalf of its shareholders, the fund pursues monthly dividend income exempt
from federal regular income tax through a portfolio of high-quality, short-term
municipal securities. 1
During the reporting period, tax-free dividends paid to shareholders totaled
$0.22 per share for Institutional Shares and $0.21 per share for Institutional
Service Shares. Total return was 2.82% 2 for Institutional Shares and 2.69%2 for
Institutional Service Shares. The net asset value of both share classes
increased slightly, from $10.29 on the first day of the reporting period to
$10.36 on the last day of the reporting period. Fund assets totaled $210.6
million on December 31, 1998.
Thank you for participating in tax-free income opportunities through Federated
Short-Term Municipal Trust. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
February 15, 1999
1 Income may be subject to the federal alternative minimum tax and state and
local taxes.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
PERFORMANCE
For the six-month reporting period ended December 31, 1998, Federated Short-Term
Municipal Trust produced non-annualized total returns of 2.82% 1 for the
Institutional Shares (IS) and 2.69%1 for the Institutional Service Shares (ISS).
Against the Lipper Short-Term Municipal Debt Category the trust's total returns
ranked favorably at 4th out of 32 funds (IS), and 12th out of 32 funds (ISS) for
the one-year period ended 12/31/98.2 For the twelve month period ended December
31, 1998, the trust produced total returns of 4.84% (IS) and 4.58% (ISS).3 These
one-year total returns are equivalent to pre-tax equivalent returns of 7.70% for
(IS), and 7.26% (ISS) for investors in the highest federal tax bracket.
Nonetheless, the trust is managed predominately for tax-exempt income, with
minimal fluctuation of principal value. Accordingly, the largest contribution to
total return will consist of tax-exempt income to the shareholder. Over the
reporting period, the trust produced income dividends exempt from Federal
regular income taxes of $0.22/share (IS), and $0.21/share (ISS). 4 These
dividends are equivalent to annualized tax-free distribution rates of 4.21% (IS)
and 3.96% (ISS).
MARKET
The short-term municipal bond market performed well over the reporting period as
it continued to deliver a significant incremental income advantage as compared
to money market securities while providing modest price appreciation.
The reporting period began with market expectations somewhat sanguine regarding
moderate growth with low inflation. By the third quarter, however, a dramatic
shift in market sentiment was evident. Uncertainty in world economies resulted
in vulnerability of our domestic equity market, and led to a substantial
flight-to-quality to U.S. Treasury securities across the yield curve. Economic
trouble spread to include Russia and Latin America, and what had been perceived
to have been a fairly modest drag on the U.S. economy as a result of the remote
Asian crisis now became an overpowering influence on the market and expectations
regarding future U.S. growth. Although economic fundamentals still remained
fairly positive in this environment, fear dominated market sentiment over much
of this period.
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
2 As of 12/31/98, the trust's Institutional Shares ranked 4th out of 18 and 3rd
out of 6 against all short-term municipal debt funds for the five- and ten-year
periods, respectively. The Institutional Service Shares ranked 11th out of 18
funds for the five-year period ended 12/31/98.
3 For the five-year and ten-year periods ended December 31, 1998, the
Institutional Shares produced average annual total returns of 4.28% and 5.06%,
respectively. For the five-year and since inception (8/31/93) periods ended
12/31/98, the Institutional Service Shares produced average annual total returns
of 4.02% and 4.00%, respectively.
4 Income may be subject to the federal alternative minimum tax and state and
local taxes.
By late August, market expectations that the Federal Reserve Board (the "Fed")
might eventually need to ease monetary policy (cut interest rates) to help the
U.S. economy along as a result of the world economic struggles had begun to
grow. This expectation intensified throughout September along with a need to
restore liquidity to various market sectors. In response, at the September 29,
1998 Federal Open Market Committee ("FOMC") meeting, the Fed voted to ease
monetary policy by a modest 25 basis points. The Fed followed that move with
another 25 basis point ease on October 15, 1998, an intermeeting decision that
surprised some market participants. This move had significant impact in the
markets, both fixed-income and equity. On November 17, 1998, the Fed added
additional assurance with another 25 basis point cut-which brought the Fed Funds
Target Rate down to 4.75%.
Yields on three-year "AA" rated, high quality municipal bonds (a proxy for the
trust) fell over the reporting period and prices rose. Yields began the period
at 4.05% last July but fell rather steadily to 3.55% in early October. Yields
then traded in a range between 3.55% and 3.70% until the end of the reporting
period. Because yields fell over the reporting period, the net asset value per
share (NAV) for (IS) and (ISS) appreciated. The NAV for both (IS) and (ISS)
increased from $10.29 per share to $10.36 per share.
STRATEGY
Over the reporting period, three-year municipal bonds exhibited less price
volatility than comparable treasury notes while providing an extremely
attractive after-tax income advantage for those investors at marginal federal
tax rates of 28% or higher. During the reporting period, yields on three-year
"AA" municipal bonds as a percentage of treasuries averaged close to 80%, but
ranged from 73% to 90%. A higher ratio means that municipal bonds are more
attractive from an after-tax income viewpoint. Yield ratios of 72% or higher
show the attractiveness of municipal bonds for income oriented investors at
federal tax rates of 28% or above.
Portfolio strategy continues to emphasize credit quality, as yield spreads
remain narrow between "AAA" and "A" rated bonds. Credit spreads will eventually
widen from these levels when the economy slows, and investors once again
emphasize quality in their purchase decisions. Accordingly, the trust will
continue to emphasize the highest quality instruments, with over 86% of the
assets invested in "AAA" and "AA" rated issues.
Management continues to add value by purchasing bonds in attractive sectors and
through yield curve management. The municipal short-term yield curve (bonds with
maturities between one and five years) remains much steeper than the comparable
maturity treasury curve. From a relative value standpoint, bonds with maturities
from four to five years are more attractive because of the steeper municipal
yield curve.
During the reporting period, assets increased by over $11 million, and the
weighted average maturity of the trust moved slightly from 2.77 years to 2.65
years. In the declining interest rate environment, management bond purchases
emphasized the greater price appreciation potential in longer maturity (four- to
five-year) bonds as well as liquidity and quality. Despite declining market
yields and rising bond prices, management was able to take advantage of market
opportunities to keep the trust's distribution yield relatively unchanged over
the reporting period.
Portfolio of Investments
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-98.8%
ALABAMA-1.0%
$ 1,000,000 Alabama State Docks Department, Docks Facilities Refunding
Revenue Bonds, 5.25% (MBIA INS), 10/1/2000 AAA $ 1,031,120
1,000,000 Alabama State Docks Department, Docks Facilities Refunding
Revenue Bonds, 5.25% (MBIA INS), 10/1/2001 AAA 1,042,380
TOTAL 2,073,500
ALASKA-1.0%
2,000,000 Anchorage, AK, Hospital Refunding Revenue Bonds, 6.50%
(Sisters of Providence)/(Original Issue Yield: 6.75%),
10/1/1999 AA- 2,049,600
ARKANSAS-1.0%
1,950,000 Arkansas Development Finance Authority, Single Family
Mortgage Revenue Bonds (Series 1997A-R), 6.50% (MBIA INS),
2/1/2011 AAA 2,149,797
CALIFORNIA-10.1%
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- 1,029,840
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- 2,681,596
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 13,541,375
4,000,000 San Bernardino County, CA, SFM Revenue Bonds Mortgage-Backed
Securities Program, 4.875%, 5/1/2015 AAA 4,017,040
TOTAL 21,269,851
COLORADO-4.2%
4,375,000 Arvada, CO Urban Renewal Authority, Revenue Refunding Bonds
(Series 1997A), 5.25% (MBIA INS), 9/1/2002 AAA 4,586,181
1,335,000 Colorado HFA, Single Family Mortgage Revenue Bond, Series C-
1, 7.65%, 12/1/2025 Aa2 1,488,125
2,000,000 Colorado HFA, Single Family Mortgage Revenue Bonds
(Series 1997C-3), 4.80%, 11/1/2016 Aa2 2,032,680
500,000 Colorado HFA, Single Family Program Senior Bonds (Series
1998C-2), 4.50%, 11/1/2005 Aa2 503,485
250,000 Colorado HFA, Single Family Program Subordinate Bonds
(Series 1998B), 4.625%, 11/1/2005 A1 252,100
TOTAL 8,862,571
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
DISTRICT OF COLUMBIA-1.2%
$ 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 $ 2,509,051
FLORIDA-1.7%
2,000,000 Dade County, FL, Public Improvement Refunding UT GO Bonds,
7.20% (FSA INS), 6/1/2001 AAA 2,165,760
1,440,000 Florida Housing Finance Corp., Homeowner Mortgage Revenue
Bonds, Series 2, 4.75% (MBIA INS), 7/1/2019 AAA 1,467,706
TOTAL 3,633,466
HAWAII-4.9%
4,660,000 Hawaii State, Highway Revenue Bonds, Series 1998, 5.00%
(MBIA INS), 7/1/2003 AAA 4,878,507
5,000,000 Hawaii State, UT GO Bonds, Series CN, 6.25% (FGIC LOC),
3/1/2002 AAA 5,372,600
TOTAL 10,251,107
IDAHO-1.5%
3,100,000 Boise, ID Industrial Development Corp., Multi-Mode Variable
Rate Industrial Development Revenue Bonds (Series 1998)
Weekly VRDNs (Multiquip Inc. Project)/(Bank of Tokyo-
Mitsubishi Ltd. LOC) A- 3,100,000
ILLINOIS-6.1%
1,000,000 Chicago, IL, Collateralized SFM Revenue Bonds, Series A-1,
4.85% (GNMA COL), 3/1/2015 Aaa 1,013,560
1,500,000 Illinois Health Facilities Authority, Adjustable Rate
Revenue Bonds, Series 1991B, 5.00% (Highland Park
Hospital)/(FGIC INS), 10/1/2000 AAA 1,534,455
1,030,000 Illinois Health Facilities Authority, Revenue Bonds (Series
1998), 5.25% (Centegra Health System), 9/1/2003 A- 1,078,678
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 1,029,580
2,000,000 Illinois Health Facilities Authority, Revenue Refunding
Bonds (Series A), 5.00% (Advocate Health Care Network),
8/15/2003 AA 2,082,260
3,000,000 Illinois State, UT GO Bonds, 5.10% (FGIC INS), 9/1/2000 AAA 3,081,930
3,000,000 Illinois State, UT GO Bonds, 5.50%, 8/1/1999 AA 3,043,380
TOTAL 12,863,843
INDIANA-2.9%
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 Aa3 4,007,952
1,250,000 Indiana State HFA, SFM Revenue Bonds, Series C-3, 4.75%,
1/1/2029 Aaa 1,267,050
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
INDIANA-CONTINUED
$ 885,000 LaPorte County, IN Hospital Authority, Refunding Revenue
Bonds, 5.60% (LaPorte Hospital, Inc., IN)/(Original Issue
Yield: 5.747%), 3/1/1999 Baa1 $ 888,549
TOTAL 6,163,551
KANSAS-1.9%
1,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds, (Series
1998 A-1), 4.70% (GNMA Collateralized Home Mortgage Program
COL), 12/1/2008 Aaa 1,010,790
2,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds, (Series
1998 A-1), 5.00% (GNMA Collateralized Home Mortgage Program
COL), 6/1/2013 Aaa 2,012,800
1,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds
(Series 1997A-2), 4.90% (GNMA Collateralized Home Mortgage
Program COL), 6/1/2016 Aaa 1,019,620
TOTAL 4,043,210
KENTUCKY-0.6%
1,155,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%,
3/1/2000 A+ 1,180,156
LOUISIANA-6.6%
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 2,499,706
4,000,000 Louisiana PFA, Health & Education Capital Facilities Revenue
Bonds (Series A), 5.00% TOBs (AMBAC INS), Mandatory Tender
6/1/2002 AAA 4,135,480
7,000,000 Louisiana State, Refunding GO Bonds (Series 1996A), 6.00%
(FGIC INS), 8/1/2000 AAA 7,278,320
TOTAL 13,913,506
MICHIGAN-3.3%
1,000,000 Michigan State Building Authority, Revenue Bonds (Series
II), 6.25% (AMBAC INS)/(Original Issue Yield: 6.35%),
10/1/2000 AAA 1,049,270
925,000 Michigan State Hospital Finance Authority, Hospital Revenue
& Refunding Bonds (Series 1998A), 4.60% (Hackley Hospital
Obligated Group), 5/1/2003 A3 939,652
1,005,000 Michigan State Hospital Finance Authority, Hospital Revenue
& Refunding Bonds (Series 1998A), 4.70% (Hackley Hospital
Obligated Group), 5/1/2004 A3 1,023,351
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 834,088
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
MICHIGAN-CONTINUED
$ 3,000,000 Michigan Underground Storage Tank Financial Assurance
Authority, Revenue Refunding Bonds (Series I), 5.00% (AMBAC
INS), 5/1/2001 AAA $ 3,098,130
TOTAL 6,944,491
MINNESOTA-1.4%
3,000,000 Minneapolis, MN, Temporary Parking Ramp Revenue Bonds,
Series 1997A, 4.75%, 6/1/2000 NR 3,000,960
MISSISSIPPI-1.0%
1,010,000 Mississippi Home Corp., Single Family Mortgage Revenue Bonds
(Series 1998A4), 5.125% (GNMA Collateralized Home Mortgage
Program COL), 12/1/2017 Aaa 1,029,645
1,085,000 Mississippi Home Corp., Single Family Revenue Mortgage Bonds
(Series 1998A), 5.25% (GNMA Collateralized Home Mortgage
Program COL), 12/1/2018 Aaa 1,106,440
TOTAL 2,136,085
MISSOURI-1.0%
2,000,000 Springfield, MO State Highway Improvement Corp.,
Transportation Revenue Bonds (Series 1997), 5.25% (AMBAC
INS), 8/1/2001 AAA 2,080,900
NEW JERSEY-5.3%
4,000,000 New Jersey State, UT GO Bonds, 7.20%, 4/15/1999 AA+ 4,048,040
7,000,000 New Jersey State, UT GO Refunding Bonds (Series C), 6.50%,
1/15/2002 AA+ 7,172,830
TOTAL 11,220,870
NEW MEXICO-0.9%
1,820,000 Santa Fe Solid Waste Management Agency, NM, Facility Revenue
Bonds (Series 1996), 5.00%, 6/1/2003 NR 1,887,504
NEW YORK-3.9%
4,100,000 New York City Municipal Water Finance Authority, Revenue
Bonds, 7.20%, 6/15/1999 A 4,177,285
900,000 New York City Municipal Water Finance Authority, Revenue
Bonds, 7.20%, 6/15/1999 A 916,902
3,000,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds, Series 71, 4.75%, 10/1/2021 Aa2 3,023,820
TOTAL 8,118,007
OHIO-5.5%
1,000,000 Cincinnati City School District, OH, Tax Anticipation Notes
(Series A), 5.50% (AMBAC INS), 12/1/2000 AAA 1,039,500
1,610,000 Knox County, OH, Hospital Facilities Revenue Refunding Bonds
(Series 1998), 4.20% (Knox Community Hospital)/(Asset
Guaranty INS)/(Original Issue Yield: 4.30%), 6/1/2003 AA 1,609,887
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
OHIO-CONTINUED
$ 1,750,000 Knox County, OH, Hospital Facilities Revenue Refunding Bonds
(Series 1998), 4.30% (Knox Community Hospital)/(Asset
Guaranty INS)/(Original Issue Yield: 4.40%), 6/1/2004 AA $ 1,749,283
3,630,000 Lucas County, OH, Hospital Revenue Refunding Bonds (Series
1996), 5.00% (ProMedica Healthcare Obligated Group)/(MBIA
INS), 11/15/1999 AAA 3,691,129
1,310,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1997D-
1), 4.85% (GNMA Collateralized Home Mortgage Program),
3/1/2015 AAA 1,337,693
2,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1998A-
1), 4.60% (GNMA Collateralized Home Mortgage Program),
9/1/2026 AAA 2,031,880
TOTAL 11,459,372
OKLAHOMA-2.6%
4,000,000 Oklahoma HFA, Single Family Mortgage Revenue Bonds
(Series 1998D-2), 6.25% (GNMA Collateralized Home Mortgage
Program), 9/1/2029 Aaa 4,358,200
1,055,000 Washington County, OK Medical Authority, Hospital Revenue
Bonds (Series 1996A), 4.75% (Jane Phillips Medical
Center)/(Connie Lee INS)/(Original Issue Yield: 4.90%),
11/1/2001 AAA 1,084,139
TOTAL 5,442,339
OREGON-2.0%
2,000,000 Oregon State Department of Transportation, Regional Light
Rail Revenue Bond, Westside Project, 5.375% (MBIA INS),
6/1/1999 AAA 2,020,040
2,000,000 Oregon State Department of Transportation, Regional Light
Rail Revenue Bond, Westside Project, 5.50% (MBIA INS),
6/1/2000 AAA 2,061,220
TOTAL 4,081,260
PENNSYLVANIA-4.4%
3,000,000 Philadelphia, PA IDA, Airport Revenue Bonds, (Series 1998A),
4.50% (Philadelphia Airport System)/(FGIC INS), 7/1/2003 AAA 3,064,320
4,417,272 Philadelphia, PA Municipal Authority, Equipment Revenue
Bonds (Series 1997A), 5.297% (Philadelphia, PA Gas
Works)/(AMBAC INS), 10/1/2004 AAA 4,671,485
1,500,000 Southeastern, PA Transportation Authority, Special Revenue
Bonds, 5.25% (FGIC INS), 3/1/2001 AAA 1,553,070
Total 9,288,875
RHODE ISLAND-3.1%
950,000 Central Falls Detention Facility Corporation, RI, Detention
Facility Revenue Refunding Bonds (Series 1998A), 4.10%
(Donald W. Wyatt Detention Facility)/(Asset Guaranty INS),
1/15/2003 AA 956,109
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
RHODE ISLAND-CONTINUED
$ 990,000 Central Falls Detention Facility Corporation, RI, Detention
Facility Revenue Refunding Bonds (Series 1998A), 4.20%
(Donald W. Wyatt Detention Facility)/(Asset Guaranty INS),
1/15/2004 AA $ 995,524
1,035,000 Central Falls Detention Facility Corporation, RI, Detention
Facility Revenue Refunding Bonds (Series 1998A), 4.30%
(Donald W. Wyatt Detention Facility)/(Asset Guaranty INS),
1/15/2005 AA 1,041,220
2,230,000 Johnston, RI, GO Bonds, Series A, 4.25% (Asset Guaranty
INS), 6/15/2002 AA 2,240,057
1,280,000 Johnston, RI, GO Bonds, Series A, 4.35% (Asset Guaranty
INS), 6/15/2003 AA 1,287,398
TOTAL 6,520,308
SOUTH CAROLINA-1.4%
3,000,000 Georgetown County, SC, Pollution Control Facilities
Adjustable Rate Bonds (Series A), 4.10% TOBs (International
Paper Co.), Optional Tender 9/1/1999 A3 3,006,126
TEXAS-5.4%
2,000,000 Fort Worth, TX, Refunding LT GO Bonds (Series A), 5.10%
(Original Issue Yield: 5.20%), 3/1/2000 Aa2 2,044,020
2,500,000 Harris County, TX HFDC, Hospital Revenue Bonds, Series
1997A, 5.25% (Memorial Hospital System)/(MBIA INS LOC),
6/1/2002 AAA 2,610,800
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 AAA 2,173,831
4,440,000 Texas State, UT GO Public Finance Authority (Series B),
8.00%, 10/1/1999 AA 4,602,948
TOTAL 11,431,599
VIRGINIA-0.5%
1,000,000 Botetourt County, VA IDA, Lease Revenue Notes (Series 1997),
4.55% (Botetourt County, VA), 1/15/2000 NR 1,000,930
WASHINGTON-6.4%
1,680,000 Tacoma, WA, Solid Waste Utility Revenue Refunding Bonds
(Series 1997B), 5.50% (AMBAC INS), 12/1/2002 AAA 1,782,648
3,000,000 Washington State Public Power Supply System, Nuclear Project
No. 2 Revenue Refunding Bond, (Series 1997B), 5.50%,
7/1/2003 AA- 3,189,360
3,000,000 Washington State Public Power Supply System, Refunding
Revenue Bonds (Nuclear Project No. 2) (Series 1997A), 5.00%,
7/1/2001 AA- 3,091,230
5,425,000 Washington State, UT GO Bonds (Series B), 5.00%, 5/1/1999 AA+ 5,461,619
TOTAL 13,524,857
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
SHORT-INTERMEDIATE MUNICIPAL SECURITIES-continued
WEST VIRGINIA-1.2%
$ 1,500,000 Cabell County, WV Board of Education, Refunding UT GO Bonds,
6.00%, 5/1/2001 A+ $ 1,576,290
1,000,000 West Virginia State, GO State Road Bonds, Series 1998, 4.40%
(FGIC INS), 6/1/2004 AAA 1,025,700
TOTAL 2,601,990
WISCONSIN-4.8%
6,500,000 Wisconsin Health and Educational Facilities Authority,
Revenue Bonds (Series 1996), 5.50% (Gundersen Lutheran)/(FSA
INS), 12/1/2000 AAA 6,739,720
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 3,417,508
TOTAL 10,157,228
TOTAL INVESTMENTS (IDENTIFIED COST $203,907,549) 2 $ 207,966,910
</TABLE>
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
2 The cost of investments for federal tax purposes amounts to $203,907,549. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,059,361.
Note: The categories of investments are shown as a percentage of net assets
($210,572,960) at December 31, 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 LOC -Letter of Credit LT -Limited Tax MBIA
- -Municipal Bond Investors Assurance PFA -Public Facility Authority 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
December 31, 1998 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $203,907,549) $ 207,966,910
Cash 84,968
Income receivable 2,718,353
Receivable for investments sold 95,000
Receivable for shares sold 437,248
Total assets 211,302,479
LIABILITIES:
Income distribution payable $ 727,403
Accrued expenses 2,116
Total liabilities 729,519
Net assets for 20,328,216 shares outstanding $ 210,572,960
NET ASSETS CONSIST OF:
Paid in capital $ 210,493,781
Net unrealized appreciation of investments 4,059,361
Accumulated net realized loss on investments (3,983,099)
Undistributed net investment income 2,917
Total Net Assets $ 210,572,960
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE
INSTITUTIONAL SHARES:
$194,955,557 / 18,820,544 shares outstanding $10.36
INSTITUTIONAL SERVICE SHARES:
$15,617,403 / 1,507,672 shares outstanding $10.36
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
Six Months Ended December 31, 1998 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,787,023
EXPENSES:
Investment advisory fee $ 411,609
Administrative personnel and services fee 78,456
Custodian fees 5,567
Transfer and dividend disbursing agent fees and expenses 23,495
Directors'/Trustees' fees 7,532
Auditing fees 6,906
Legal fees 2,944
Portfolio accounting fees 38,899
Distribution services fee-Institutional Service Shares 17,120
Shareholder services fee-Institutional Shares 240,136
Shareholder services fee-Institutional Service Shares 17,120
Share registration costs 16,696
Printing and postage 10,954
Insurance premiums 2,024
Miscellaneous 2,098
Total expenses 881,556
WAIVERS AND REIMBURSEMENTS:
Waiver of investment advisory fee $ (128,111)
Waiver of distribution services fee-Institutional Service
Shares (16,435)
Waiver of shareholder services fee-Institutional Shares (240,136)
Waiver of shareholder services fee-Institutional Service
Shares (685)
Total waivers (385,367)
Net expenses 496,189
Net investment income 4,290,834
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 48,017
Net change in unrealized appreciation of investments 1,252,205
Net realized and unrealized gain on investments 1,300,222
Change in net assets resulting from operations $ 5,591,056
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR
(UNAUDITED) ENDED
DECEMBER 31, JUNE 30,
1998 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 4,290,834 $ 8,539,971
Net realized gain (loss) on investments ($48,020 net gain
and $0 net loss, respectively, as computed for federal tax
purposes) 48,017 202,730
Net change in unrealized appreciation/depreciation 1,252,205 561,167
Change in net assets resulting from operations 5,591,056 9,303,868
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (4,020,964) (8,174,344)
Institutional Service Shares (269,870) (360,458)
Change in net assets resulting from distributions
to shareholders (4,290,834) (8,534,802)
SHARE TRANSACTIONS:
Proceeds from sale of shares 51,205,685 83,677,957
Net asset value of shares issued to shareholders in payment
of distributions declared 1,553,047 3,608,608
Cost of shares redeemed (39,755,239) (108,712,902)
Change in net assets resulting from share transactions 13,003,493 (21,426,337)
Change in net assets 14,303,715 (20,657,271)
NET ASSETS:
Beginning of period 196,269,245 216,926,516
End of period (including undistributed net investment income
of $2,917 and $2,917, respectively) $ 210,572,960 $ 196,269,245
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
DECEMBER 31, YEAR ENDED JUNE 30,
1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $10.26 $10.24 $10.28 $10.15 $10.37
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.44 0.44 0.43 0.42 0.40
Net realized and unrealized gain (loss)
on investments 0.07 0.03 0.02 (0.04) 0.13 (0.22)
Total from investment operations 0.29 0.47 0.46 0.39 0.55 0.18
LESS DISTRIBUTIONS:
Distributions from net investment income (0.22) (0.44) (0.44) (0.43) (0.42) (0.40)
NET ASSET VALUE, END OF PERIOD $10.36 $10.29 $10.26 $10.24 $10.28 $10.15
TOTAL RETURN 1 2.82% 4.68% 4.59% 3.82% 5.52% 1.76%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.47%2 0.47% 0.46% 0.47% 0.46% 0.47%
Net investment income 4.19%2 4.28% 4.30% 4.14% 4.09% 3.89%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $194,956 $184,903 $210,169 $189,467 $217,713 $316,810
Portfolio turnover 7% 33% 50% 20% 33% 36%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
DECEMBER 31, YEAR ENDED JUNE 30,
1998 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $10.26 $10.24 $10.28 $10.15 $10.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.42 0.42 0.40 0.39 0.31
Net realized and unrealized gain (loss)
on investments 0.07 0.03 0.02 (0.04) 0.13 (0.20)
Total from investment operations 0.28 0.45 0.44 0.36 0.52 0.11
LESS DISTRIBUTIONS:
Distributions from net investment income (0.21) (0.42) (0.42) (0.40) (0.39) (0.31)
NET ASSET VALUE, END OF PERIOD $10.36 $10.29 $10.26 $10.24 $10.28 $10.15
TOTAL RETURN 2 2.69% 4.41% 4.33% 3.56% 5.26% 1.08%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.72%3 0.72% 0.71% 0.72% 0.71% 0.72%3
Net investment income 3.94%3 4.05% 4.05% 3.90% 3.69% 3.65%3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $15,617 $11,367 $6,758 $6,209 $5,223 $31,459
Portfolio turnover 7% 33% 50% 20% 33% 36%
</TABLE>
1 Reflects operations for the period from August 31, 1993 (date of initial
public offering) to June 30, 1994.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
December 31, 1998 (unaudited)
ORGANIZATION
Federated Short-Term Municipal Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Trust offers two classes of shares:
Institutional Shares and Institutional Service Shares. The investment objective
of the Trust is to provide dividend income which is exempt from federal regular
income tax. The Trust pursues this investment objective by investing in a
portfolio of municipal securities with a dollar-weighted average maturity of
less than three years.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At June 30, 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 fund of any liability for
federal tax. Pursuant to the code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
1999 $11,866
2001 $62,121
2003 $1,189,491
2004 $2,597,123
2005 $170,193
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,146,782 $ 42,859,768 7,381,068 $ 75,983,944
Shares issued to shareholders in
payment of distributions declared 136,094 1,408,130 328,092 3,376,837
Shares redeemed (3,428,977) (35,440,677) (10,235,034) (105,370,170)
NET CHANGE RESULTING FROM INSTITUTIONAL
SHARE TRANSACTIONS 853,899 $ 8,827,221 (2,525,874) $ (26,009,389)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 806,887 $ 8,345,917 747,794 $ 7,694,013
Shares issued to shareholders in payment
of distributions declared 14,004 144,917 22,517 231,771
Shares redeemed (417,686) (4,314,562) (324,766) (3,342,732)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 403,205 4,176,272 445,545 $ 4,583,052
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 1,257,104 $13,003,493 (2,080,329) $ (21,426,337)
</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 Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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, FSSC, serves as transfer and dividend disbursing
agent for the Trust. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records for which it receives a fee. The
fee is based on the level of the Trust's average daily net assets for the
period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1998, were as follows:
Purchases $32,163,374
Sales $12,817,529
YEAR 2000
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.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
GLEN R. JOHNSON
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
MATTHEW S. HARDIN
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
SEMI-ANNUAL REPORT
Federated Short-Term Municipal Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS
December 31, 1998
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Federated Short-Term Municipal Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 313907107
Cusip 313907206
8020108 (2/99)
[Graphic]
