PENNSYLVANIA
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO OF FEDERATED SECURITIES CORP.] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2032304 (4/94)
President's Message
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Pennsylvania
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Pennsylvania resident, you will find that the Fund may
deliver a high level of relief in the form of monthly income that is exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania. This income is earned by a quality portfolio of
investment-grade, long-term Pennsylvania municipal securities. Shares of the
Fund are also exempt from Pennsylvania personal property tax.
Due to increased investor participation in the Fund, total net assets grew from
$87.9 million to $104.3 million between the first and last days of the report
period. Dividends paid to shareholders totaled $0.29 per share for Investment
Shares, $0.31 per share for Trust Shares, and $0.30 per share for Income Shares.
Reflecting the fact that, when interest rates rise, bond prices decline, the
Fund's net asset value of both Investment Shares and Trust Shares declined from
$11.68 to $11.47, and the net asset value of Income Shares declined from $11.68
to $11.43.
We believe that your investment in Pennsylvania Municipal Income Fund is a wise
way to pursue tax-free earnings. We encourage you to build up share holdings to
take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated, while inflation--the scourge of fixed-income investing--was
subdued. Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the
past six months at an annual pace of 5.2%. From September 1, 1993 to February
28, 1994, annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%.
In the meantime, however, increases for the Producer Price Index remained
miniscule--at yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of
February 28, 1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6%, due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$87.9 million to $104.3 million. Reflecting market activity, the net asset value
per Investment Share of the Fund grew from $11.68 on September 1, 1993 to $11.92
on October 15, 1993, then fell to $11.47 on February 28, 1994. For Trust Shares,
the net asset value was $11.68 on September 1, 1993; $11.92 on October 15, 1993;
and $11.47 on February 28, 1994. For Income Shares, the net asset value was
$11.68 on
September 1, 1993; $11.91 on October 15, 1993; and $11.43 on February 28, 1994.
On that date, the credit breakdown of the holdings of the Fund was: 46.7% in
"Aaa" issues; 39.4% in "Aa" issues; 12.0% in "A" issues; 1.8% in "Baa" issues;
and 0.1% in municipal cash equivalents within the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition
and industry/sector make-up, debt structure, debt service coverage, financial
flexibility, and contingent liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; water & sewer issues;
single-family mortgage revenue issues; and airport revenue issues--insured. The
average purchase yield for new investments by the Fund was 5.65%.
For the six month period ended February 28, 1994, an investor in Investment
Shares of the Fund experienced a "total return" of 0.70%.* This performance was
comprised of 2.50% income and reinvestment return (net of class expenses) and of
1.80% depreciation in the net asset value per share-- both on a non-annualized
basis. An investor in Trust Shares of the Fund experienced a "total return" of
0.84%* for the same period. This performance was comprised of 2.64% income and
reinvestment return (net of class expenses) and of 1.80% depreciation in the net
asset value--both on a non-annualized basis. For the six-month period ended
February 28, 1994, investors in Income Shares of the Fund experienced a "total
return" of 0.36%.* This performance was comprised of 2.50% income and
reinvestment return (net of class expenses) and of 2.14% depreciation in the net
asset value per share-- both on a non-annualized basis.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Pennsylvania Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount issue or S&P* Value
<C> <S> <C> <C>
- ------------- -------------------------------------------------------------------- ----------- ---------------
Long-Term Municipal Securities--98.3%
- -----------------------------------------------------------------------------------
Pennsylvania--98.3%
--------------------------------------------------------------------
$ 1,000,000 Allegheny County, PA, 6.00% GO Bonds (Series C39)/ (AMBAC
Insured)/(Original Issue Yield: 6.099%),
5/1/2012 Aaa $ 1,048,000
--------------------------------------------------------------------
900,000 Allegheny County, PA, 6.75% GO Bonds (Series C36)/ (Original Issue
Yield: 6.80%), 12/1/2007 A 1,002,114
--------------------------------------------------------------------
500,000 Allegheny County, PA, 6.75% GO Bonds (Series C36)/ (Original Issue
Yield: 6.85%), 12/1/2009 A 556,730
--------------------------------------------------------------------
2,700,000 Allegheny County, PA, HDA, 6.00% Refunding Revenue Bonds (Series
1992)/(South Hills Health System)/(Original Issue Yield: 6.40%),
5/1/2020 A 2,720,520
--------------------------------------------------------------------
850,000 Allegheny County, PA, Higher Education Building Authority, 5.80%
College Revenue Bonds (Series 1993A)/(Community College of Allegheny
County), 6/1/2013 A 861,135
--------------------------------------------------------------------
1,000,000 Allegheny County, PA, Hospital Development Authority, 5.625%
Hospital Revenue Bonds (Series 1993)/(Magee
Women's Hospital)/(FGIC Insured)/(Original Issue Yield: 5.72%),
10/1/2023 AAA 989,270
--------------------------------------------------------------------
3,200,000 Allegheny County, PA, Hospital Development Authority, 6.00%
Refunding Revenue Bonds (Series 1992)/ (Presbyterian University
Health Centre)/(MBIA Insured)/ (Original Issue Yield: 6.40%),
11/1/2023 Aaa 3,280,800
--------------------------------------------------------------------
900,000 Allegheny County, PA, Hospital Development Authority, 6.00% Revenue
Bonds (Presbyterian University Hospital)/ (MBIA Insured)/(Original
Issue Yield: 6.499%), 11/1/2012 Aaa 928,746
--------------------------------------------------------------------
$ 2,300,000 Allegheny County, PA, Hospital Development Authority, 6.25%
Refunding Revenue Bonds (Series1992)/ (Presbyterian University
Health Centre)/(MBIA Insured)/ (Original Issue Yield: 6.60%),
11/1/2023 Aaa $ 2,372,703
--------------------------------------------------------------------
1,000,000 Allegheny County, PA, Hospital Development Authority, 6.30%
Refunding Revenue Bonds (Series 1992)/(Health Care Development,
Inc.)/(MBIA Insured)/(Original Issue Yield: 6.40%), 9/1/2013 Aaa 1,063,200
--------------------------------------------------------------------
2,525,000 Allegheny County, PA, Hospital Development Authority, 6.875% Revenue
Bonds (Children's Hospital of Pittsburgh)/(MBIA Insured)/(Original
Issue Yield: 7.060%),
7/1/2014 Aaa 2,759,295
--------------------------------------------------------------------
200,000 Allegheny County, PA, Hospital Development Authority, 7.00% Revenue
Bonds (Children's Hospital of Pittsburgh)/ (MBIA Insured), 7/1/2015 Aaa 221,628
--------------------------------------------------------------------
775,000 Allegheny County, PA, Residential Finance Authority, 7.40% SFH
Mortgage Revenue Bonds (Series Q)/(GNMA Collateralized)/(Subject to
AMT), 12/1/2022 Aaa 839,015
--------------------------------------------------------------------
500,000 Allegheny County, PA, Residential Finance Authority, 7.75% SFH
Mortgage Revenue Bonds (Series K)/(GNMA Collateralized)/(Subject to
AMT), 12/1/2022 Aaa 528,535
--------------------------------------------------------------------
400,000 Allegheny County, PA, Sanitary Authority, 6.00% Sewer System Revenue
Bonds (Series 1992)/(FGIC Insured)/ (Original Issue Yield: 6.20%),
12/1/2012 Aaa 417,028
--------------------------------------------------------------------
300,000 Armstrong County, PA, Hospital Authority, 6.75% Health Facilities
Revenue Bonds (St. Francis Health Care Services)/(AMBAC
Insured)/(Original Issue Yield: 7.10%,
8/15/2012 Aaa 331,167
--------------------------------------------------------------------
200,000 Berks County, PA, Municipal Authority, 7.40% Revenue Bonds (Albright
College)/(CGIC Insured), 12/1/2018 Aaa 232,192
--------------------------------------------------------------------
$ 750,000 Butler County, PA, Hospital Authority, 7.00% Revenue Bonds (Series
1991A)/(North Hills Passavant Hospital)/ (CGIC Insured), 6/1/2022 AAA $ 843,435
--------------------------------------------------------------------
1,000,000 Central Bucks School District, PA, 6.90% GO Bonds
(Series 1991), 2/1/2008 A1 1,102,320
--------------------------------------------------------------------
1,000,000 Chester County, PA, 7.00% GO Bonds (Series 1991A),
12/15/2011 Aa 1,147,430
--------------------------------------------------------------------
2,635,000 Delaware County, PA, 6.00% UT GO Bonds (Series 1992)/ (Original
Issue Yield: 6.20%), 11/15/2022 Aa 2,704,801
--------------------------------------------------------------------
750,000 Derry Township School District, PA, 7.00% GO Bonds
(Series 1991), 9/15/2009 A1 809,047
--------------------------------------------------------------------
1,500,000 Erie, PA, 5.125% UT GO Bonds (Series B)/(Original Issue Yield:
5.375%)/(FGIC Insured), 11/1/2017 AAA 1,399,605
--------------------------------------------------------------------
1,000,000 Geisinger, PA, Health System, 7.625% Revenue Bonds (Original Issue
Yield: 7.695%), 7/1/2009 AA 1,164,670
--------------------------------------------------------------------
755,000 Hanover Area School District (Luzerne County), PA, 7.00% GO Bonds
(Series 1991)/(FGIC Insured), 6/1/2008 Aaa 823,516
--------------------------------------------------------------------
375,000 Harrisburg, PA, Water Authority, 7.00% Revenue Bonds (FGIC Insured),
7/15/2010 Aaa 430,001
--------------------------------------------------------------------
250,000 Harrisburg, PA, Water Authority, 7.00% Revenue Bonds (FGIC Insured),
11/15/2015 Aaa 286,668
--------------------------------------------------------------------
1,000,000 Lackawanna Trail School District (Wyoming and Lackawanna Counties),
PA, 6.90% GO Bonds (Series 1991)/ (AMBAC Insured), 3/15/2010 Aaa 1,112,220
--------------------------------------------------------------------
1,000,000 Lancaster, PA, Hospital Authority, 6.50% Revenue Bonds (Masonic
Homes)/(AMBAC Insured)/(Original Issue Yield: 7.15%), 10/1/2020 Aaa 1,115,550
--------------------------------------------------------------------
$ 1,875,000 Lebanon County, PA, 6.00% Hospital Authority Revenue Bonds (Good
Samaritan Hospital)/(Original Issue Yield: 6.10%), 11/15/2018 BBB+ $ 1,818,937
--------------------------------------------------------------------
1,000,000 Lehigh-Northampton, PA, Airport Authority, 5.60% Airport Revenue
Bonds (Series A)/(Allentown-Bethlehem
Easton International)/(Original Issue Yield: 5.75%)/(MBIA
Insured)/(Subject to AMT), 1/1/2023 AAA 977,530
--------------------------------------------------------------------
1,000,000 Montgomery County, PA, Higher Education and Health
Facilities Authority, 7.375% Hospital Revenue Bonds (Byrn
Mawr Hospital), 12/1/2019 A 1,107,030
--------------------------------------------------------------------
1,000,000 Norristown, PA, Area School District, 6.90% GO Bonds
(Series 1991), 9/1/2011 Aa 1,138,500
--------------------------------------------------------------------
995,000 Pennsylvania HFA, 5.45% SFM Revenue Bonds (Series 37A)/(Original
Issue Yield: 5.46%, 10/1/2017 AA 954,175
--------------------------------------------------------------------
5,000,000 Pennsylvania HFA, 5.60% SFM Revenue Bonds (Series 1993-37B)/(Subject
to AMT), 10/1/2025 AA 4,731,350
--------------------------------------------------------------------
750,000 Pennsylvania HFA, 6.90% SFM Revenue Bonds (Series 1991)/(Subject to
AMT), 4/1/2017 Aa 787,170
--------------------------------------------------------------------
1,000,000 Pennsylvania HFA, 7.00% SFM Revenue Bonds, (Series 1992B34)/(Subject
to AMT), 4/1/2024 Aa 1,056,960
--------------------------------------------------------------------
4,540,000\ Pennsylvania HFA, 7.65% SFM Revenue Bonds, (Series 28)/(Subject to
AMT), 10/1/2023 Aa 4,851,444
--------------------------------------------------------------------
2,250,000 Pennsylvania Higher Educational Assistance Agency, 6.00% Revenue
Bonds (Thomas Jefferson University),
7/1/2019 Aa 2,284,425
--------------------------------------------------------------------
1,000,000 Pennsylvania Higher Educational Facilities Authority, 5.50% Revenue
Bonds (Series 1993A)/(Duquesne
University)/(MBIA Insured)/(Original Issue Yield: 5.73%),
9/1/2020 AAA 972,810
--------------------------------------------------------------------
$ 1,600,000 Pennsylvania Higher Educational Facilities Authority, 6.625% Revenue
Bonds (Trustees of the University of
Pennsylvania)/(Original Issue Yield: 6.75%), 1/1/2017 Aa $ 1,674,832
--------------------------------------------------------------------
1,000,000 Pennsylvania Higher Educational Facilities Authority, 7.25% Revenue
Bonds (Series 1991A)/(Allegheny General
Hospital)/(Original Issue Yield: 7.40%), 9/1/2017 Aa 1,127,680
--------------------------------------------------------------------
500,000 Pennsylvania Higher Educatonal Facilities Authority, 7.30% Revenue
Bonds (Thomas Jefferson University and Jefferson Park College),
7/1/2015 Aa 573,400
--------------------------------------------------------------------
1,025,000 Pennsylvania State Higher Education Assistance Agency, 6.05% Student
Loan Revenue Bonds (Series 1988D)/ (AMBAC Insured)/(Subject to AMT),
1/1/2019 Aaa 1,050,266
--------------------------------------------------------------------
250,000 Pennsylvania State Higher Educational Facilities Authority, 6.625%
Revenue Bonds (Thomas Jefferson University and Jefferson Park
Hospital)/(Series 1992)/(Original Issue Yield: 6.77%), 8/15/2009 Aa 275,200
--------------------------------------------------------------------
250,000 Pennsylvania State Higher Educational Facilities Authority, 6.625%
Revenue Bonds (Trustees of the University of
Pennsylvania), 1/1/2007 Aa 263,525
--------------------------------------------------------------------
1,600,000 Pennsylvania State Higher Educational Facilities Authority, 7.15%
Revenue Bonds (Thomas Jefferson University and
Jefferson Park Hospital)/(MBIA Insured), 6/15/2015 Aaa 1,826,352
--------------------------------------------------------------------
500,000 Pennsylvania State Higher Educational Facilities Authority, 7.55%
Revenue Bonds (Thomas Jefferson University and
Jefferson Park Hospital), 11/1/2010 Aa 591,600
--------------------------------------------------------------------
290,000 Pennsylvania State Turnpike Commission, 5.50% Revenue Bonds
(Original Issue Yield: 6.68%), 12/1/2017 A 281,004
--------------------------------------------------------------------
1,500,000 Pennsylvania State Turnpike Commission, 5.50% Revenue Bonds (Series
O)/(FGIC Insured)/(Original Issue Yield: 6.06%), 12/1/2017 Aaa 1,461,060
--------------------------------------------------------------------
$ 875,000 Pennsylvania State Turnpike Commission, 6.00% Revenue Bonds (Series
1991)/(MBIA Insured )/(Original Issue Yield: 6.85%), 6/1/2015 Aaa $ 902,475
--------------------------------------------------------------------
600,000 Pennsylvania State Turnpike Commission, 6.25% Revenue Bonds (Series
1991N)/(FGIC Insured)/(Original Issue Yield: 6.60%), 11/15/2011 Aaa 642,456
--------------------------------------------------------------------
1,250,000 Pennsylvania State University, 5.10% Refunding Bonds
(Series 1993A)/(Original Issue Yield: 5.625%), 3/1/2018 A1 1,157,150
--------------------------------------------------------------------
400,000 Pennsylvania State University, 5.50% Refunding Revenue Bonds (Series
1992A)/(Original Issue Yield: 5.90%),
8/15/2016 A1 388,444
--------------------------------------------------------------------
650,000 Pennsylvania State University, 6.75% Revenue Bonds
(Series 1989)/(Original Issue Yield: 7.02%), 7/1/2014 A1 704,444
--------------------------------------------------------------------
850,000 Pennsylvania State University, 7.00% Revenue Bonds
(Series 1991)/(Original Issue Yield: 7.172%), 7/1/2016 A1 985,210
--------------------------------------------------------------------
750,000 Pennsylvania State, 6.50% UT GO Bonds (Series 1991A)/ (Original
Issue Yield: 6.60%), 11/15/2010 A1 840,705
--------------------------------------------------------------------
1,000,000 Pennsylvania State, 6.50% UT GO Bonds (Series 1991A)/ (Original
Issue Yield: 6.60%), 11/15/2011 A1 1,073,240
--------------------------------------------------------------------
1,000,000 Pennsylvania State Turnpike Commission, 7.50% Revenue Bonds
(Original Issue Yield: 7.625%), 12/1/2019 A 1,168,300
--------------------------------------------------------------------
1,250,000 Philadelphia, PA, Hospital and Higher Education Facility Authority,
5.00% Revenue Refunding Bonds (Children's Hospital of
Philadelphia)/(Original Issue Yield: 5.774%),
2/15/2021 AA 1,117,575
--------------------------------------------------------------------
1,500,000 Philadelphia, PA, Hospital and Higher Education Facility Authority,
5.375% Hospital Revenue Bonds (Children's Hospital of
Philadelphia)/(Original Issue Yield: 5.73%),
2/15/2014 AA 1,445,745
--------------------------------------------------------------------
$ 2,400,000 Philadelphia, PA, Hospital and Higher Education Facilities
Authority, 5.50% Hospital Revenue Bonds (Children's Hospital of
Philadelphia)/(Original Issue Yield: 6.75%,
2/15/2022 AA $ 2,307,288
--------------------------------------------------------------------
900,000 Philadelphia, PA, Hospital and Higher Education Facilities
Authority, 6.50% Hospital Revenue Bonds (Children's Hospital of
Philadelphia)/(Original Issue Yield: 6.85%),
2/15/2021 Aa 1,013,229
--------------------------------------------------------------------
1,775,000 Philadelphia, PA, Water System, 5.50% Revenue Bonds (CGIC
Insured)/(Original Issue Yield: 5.78%),
6/15/2015 AAA 1,739,944
--------------------------------------------------------------------
1,400,000 Philadelphia, PA, Water System, 5.50% Revenue Bonds (CGIC
Insured)/(Original Issue Yield: 5.780%), 6/15/2014 AAA 1,373,036
--------------------------------------------------------------------
750,000 Pittsburgh, PA, Water and Sewer Authority, 6.50% System Refunding
Revenue Bonds (Series 1991A)/(FGIC Insured)/ (Original Issue Yield:
7.085%), 9/1/2014 Aaa 847,710
--------------------------------------------------------------------
600,000 Pittsburgh, PA, Water and Sewer Authority, 7.25%
Refunding Bonds (FGIC Insured)/(Original Issue Yield: 7.766%),
9/1/2014 Aaa 719,826
--------------------------------------------------------------------
220,000 Sayre, PA, Health Care Facilities Authority, 7.10% Revenue Bonds
(Guthrie Healthcare System)/(AMBAC Insured),
3/1/2017 Aaa 248,050
--------------------------------------------------------------------
900,000 Seneca Valley School District, PA, 5.50% GO Bonds
(Series 1992A)/(FGIC Insured)/(Original Issue Yield:
6.05%), 7/1/2014 Aaa 882,657
--------------------------------------------------------------------
5,500,000 Sewickley Valley, PA, Hospital Authority, 5.75% Revenue Refunding
Bonds (Series 1993A)/(Sewickley Valley Hospital)/(Original Issue
Yield: 5.875%), 10/15/2016 A 5,410,680
--------------------------------------------------------------------
$ 1,400,000 Swarthmore Borough Authority, PA, 6.00% Revenue Bonds (Series
1992)/(Swarthmore College)/(Original Issue Yield: 6.35%), 9/15/2020 AA $ 1,426,096
--------------------------------------------------------------------
1,000,000 Swarthmore Borough Authority, PA, 7.375% Revenue Bonds (Swarthmore
College), 9/15/2020 AA 1,160,540
--------------------------------------------------------------------
2,600,000 University of Pittsburgh, PA, 6.125% Capital Project
Refunding Bonds (Series 1992A)/(MBIA Insured)/(Original
Issue Yield: 6.488%), 6/1/2021 Aaa 2,699,996
--------------------------------------------------------------------
3,750,000 Washington County, PA, 5.375% Pool Capital Program Revenue Bonds
(Shadyside Hospital)/(AMBAC Insured), 12/15/2013 Aaa 3,824,700
--------------------------------------------------------------------
1,250,000 Washington County, PA, 6.00% Pooled Capital Program Revenue Bonds
(Series 1992)/(Shadyside Hospital)/ (AMBAC Insured)/(Original Issue
Yield: 6.40%),
12/15/2018 Aaa 1,280,813
--------------------------------------------------------------------
1,450,000 Washington County, PA, 7.45% Municipal Facilities Lease Revenue
Bonds (Shadyside Hospital)/(AMBAC Insured), 12/15/2018 Aaa 1,708,869
--------------------------------------------------------------------
1,300,000 West Jefferson Hills School District, PA, 7.15% GO Bonds (Series
1991)/(FGIC Insured), 2/1/2015 Aaa 1,491,308
--------------------------------------------------------------------
1,000,000 Westmoreland County, PA, IDA, 6.00% Hospital Revenue Bonds (Series
1992A)/(Westmoreland Health System)/ (AMBAC Insured)/(Original Issue
Yield: 6.42%), 7/1/2022 Aaa 1,025,550
-------------------------------------------------------------------- ---------------
Total Long-Term Municipal Securities (identified cost
$97,291,757) $ 102,482,627\
-------------------------------------------------------------------- ---------------
</TABLE>
*Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\The cost of investments for federal tax purposes amounts to $97,291,757. The
net unrealized appreciation on a federal tax basis amounts to $5,190,870, which
is comprised of $5,831,337 appreciation and $640,467 depreciation at February
28, 1994.
Pennsylvania Municipal Income Fund
- --------------------------------------------------------------------------------
Note: The category of investments is shown as a percentage of net assets
($104,267,813) at February 28, 1994.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
CGIC -- Capital Guaranty Insurance
Corporation
FGIC -- Financial Guaranty Insurance
Company
GNMA -- Government National Mortgage
Association
GO -- General Obligation
HDA -- Hospital Development Authority
HFA -- Housing Finance Authority/Agency
IDA -- Industrial Development Authority
MBIA -- Municipal Bond Investors Assurance
SFH -- Single Family Housing
SFM -- Single Family Mortgage
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ----------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $97,291,757) $102,482,627
- ----------------------------------------------------------------------------------------------------
Interest receivable 1,781,702
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 364,673
- ----------------------------------------------------------------------------------------------------
Deferred expenses (Note 2D) 8,779
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 104,637,781
- ----------------------------------------------------------------------------------------------------
Liabilities:
- ----------------------------------------------------------------------------------------------------
Dividends payable $ 210,407
- -----------------------------------------------------------------------------------------
Payable to bank 82,184
- -----------------------------------------------------------------------------------------
Payable for Fund shares redeemed 54,647
- -----------------------------------------------------------------------------------------
Accrued expenses 22,730
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 369,968
- ---------------------------------------------------------------------------------------------------- ------------
Net Assets for 9,090,520 shares of beneficial interest outstanding $104,267,813
- ---------------------------------------------------------------------------------------------------- ------------
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 99,079,674
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,190,870
- ----------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments 54,486
- ----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (Note 3) (57,217)
- ---------------------------------------------------------------------------------------------------- ------------
Total $104,267,813
- ---------------------------------------------------------------------------------------------------- ------------
Net Asset Value:
- ----------------------------------------------------------------------------------------------------
Investment Shares ($75,963,915 / 6,620,770 shares of beneficial interest outstanding) $11.47
- ---------------------------------------------------------------------------------------------------- ------------
Trust Shares ($21,049,372 / 1,834,886 shares of beneficial interest outstanding) $11.47
- ---------------------------------------------------------------------------------------------------- ------------
Income Shares ($7,254,526 / 634,864 shares of beneficial interest outstanding) $11.43
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price per Share:
- ----------------------------------------------------------------------------------------------------
Investment Shares (100/97 of $11.47)* $11.82
- ---------------------------------------------------------------------------------------------------- ------------
Trust Shares $11.47
- ---------------------------------------------------------------------------------------------------- ------------
Income Shares $11.43
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds per Share:
- ----------------------------------------------------------------------------------------------------
Investment Shares (99.5/100 of $11.47)** $11.41
- ---------------------------------------------------------------------------------------------------- ------------
Trust Shares $11.47
- ---------------------------------------------------------------------------------------------------- ------------
Income Shares (97/100 of $11.43)*** $11.09
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
*** See "Contingent Deferred Sales Charge" in the prospectus
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,890,593
- --------------------------------------------------------------------------------------------------
Expenses--
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 198,733
- -------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 153,476
- -------------------------------------------------------------------------------------
Trustees' fees 1,247
- -------------------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 22,010
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,241
- -------------------------------------------------------------------------------------
Fund share registration costs 18,261
- -------------------------------------------------------------------------------------
Printing and postage 19,500
- -------------------------------------------------------------------------------------
Legal fees 4,621
- -------------------------------------------------------------------------------------
Auditing fees 8,488
- -------------------------------------------------------------------------------------
Shareholder services fees (Note 5) 100,577
- -------------------------------------------------------------------------------------
Distribution services fee (Note 5) 18,068
- -------------------------------------------------------------------------------------
Insurance premiums 3,623
- -------------------------------------------------------------------------------------
Miscellaneous 3,937
- ------------------------------------------------------------------------------------- -----------
Total expenses 565,782
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) 198,733
- -------------------------------------------------------------------------------------
Net expenses 367,049
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 2,523,544
- -------------------------------------------------------------------------------------------------- -------------
Realized and Unrealized Gain (Loss) on Investments:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- 71,585
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (2,010,950)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (1,939,365)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations 584,179
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C>
1994* 1993
Increase (Decrease) in Net Assets:
- --------------------------------------------------------------------------------------
Operations--
- --------------------------------------------------------------------------------------
Net investment income $ 2,523,544 $ 3,587,749
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($71,585 net gain and $63 net loss
respectively, as computed for federal tax purposes) (Note 2C) 71,585 (63)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (2,010,950) 4,748,657
- -------------------------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from operations 584,179 8,336,343
- -------------------------------------------------------------------------------------- ------------ -----------
Net Equalization Credits (Note 2E)-- 22,971 37,826
- -------------------------------------------------------------------------------------- ------------ -----------
Distributions to Shareholders (Note 3)--
- --------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Investment Shares (1,915,014) (3,121,962)
- --------------------------------------------------------------------------------------
Trust Shares (512,726) (490,234)
- --------------------------------------------------------------------------------------
Income Shares (123,819) (1,788)
- --------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Investment Shares -- --
- --------------------------------------------------------------------------------------
Trust Shares -- --
- --------------------------------------------------------------------------------------
Income Shares (5,814) --
- -------------------------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from distributions to shareholders (2,557,373) (3,613,984)
- -------------------------------------------------------------------------------------- ------------ -----------
Fund Share (Principal) Transactions (Exclusive of amounts allocated to
net investment income) (Note 4)--
- --------------------------------------------------------------------------------------
Proceeds from sale of shares 22,927,914 38,303,074
- --------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 1,400,483 2,177,736
- --------------------------------------------------------------------------------------
Cost of shares redeemed (6,001,310) (9,392,767)
- -------------------------------------------------------------------------------------- ------------ -----------
Change in net assets resulting from Fund share transactions 18,327,087 31,088,043
- -------------------------------------------------------------------------------------- ------------ -----------
Change in net assets 16,376,864 35,848,228
- --------------------------------------------------------------------------------------
Net Assets:
- --------------------------------------------------------------------------------------
Beginning of period 87,890,949 52,042,721
- -------------------------------------------------------------------------------------- ------------ -----------
End of period $104,267,813 $87,890,949
- -------------------------------------------------------------------------------------- ------------ -----------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Financial Highlights--Investment Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C> <C>
1994* 1993 1992 1991**
Net asset value, beginning of period $ 11.68 $ 10.93 $ 10.44 $ 10.00
- ------------------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------------------
Net investment income 0.29 0.60 0.627 0.588
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.21) 0.75 0.493 0.456
- ------------------------------------------------------------------------ --------- --------- --------- ---------
Total from investment operations 0.08 1.35 1.120 1.044
- ------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29) (0.60) (0.627) (0.588)
- ------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.003)(a) (0.016)(a)
- ------------------------------------------------------------------------ --------- --------- --------- ---------
Total distributions (0.29) (0.60) (0.630) (0.604)
- ------------------------------------------------------------------------ --------- --------- --------- ---------
Net asset value, end of period $ 11.47 $ 11.68 $ 10.93 $ 10.44
- ------------------------------------------------------------------------ --------- --------- --------- ---------
Total return*** 0.70% 12.71% 11.06% 10.60%
- ------------------------------------------------------------------------
Ratios to Average Net Assets
- ------------------------------------------------------------------------
Expenses 0.75%(c) 0.83% 0.73% 0.26%(c)
- ------------------------------------------------------------------------
Net investment income 5.06%(c) 5.33% 5.88% 6.45%(c)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.40%(c) 0.70% 0.97% 1.24%(c)
- ------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $75,964 $69,947 $48,261 $31,067
- ------------------------------------------------------------------------
Portfolio turnover rate 1% 0% 0% 10%
- ------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from October 11, 1990 (date of initial
public investment) to August 31, 1991. For the period from the start of
business, October 1, 1990, to October 10, 1990, net investment income
aggregating $0.014 per share ($140) was distributed to the Fund's investment
adviser. Such distribution represented the net investment income of the Fund
prior to the initial public investment in Fund shares.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Distributions in excess of net investment income for the year ended August
31, 1992 and the period ended August 31, 1991 were a result of certain book
and tax timing differences. These do not represent a return of capital for
federal income tax purposes.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Financial Highlights--Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C>
1994* 1993 1992**
Net asset value, beginning of period $ 11.68 $ 10.93 $ 10.59
- --------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------
Net investment income 0.31 0.63 0.28
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.21) 0.75 0.33
- -------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.10 1.38 0.61
- --------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.31) (0.63) (0.27)
- -------------------------------------------------------------------------- --------- --------- -----------
Net asset value, end of period $ 11.47 $ 11.68 $ 10.93
- -------------------------------------------------------------------------- --------- --------- -----------
Total return*** 0.84% 13.06% 6.32%
- --------------------------------------------------------------------------
Ratios to Average Net Assets
- --------------------------------------------------------------------------
Expenses 0.50%(a) 0.54% 0.50%(a)
- --------------------------------------------------------------------------
Net investment income 5.33%(a) 5.60% 5.77%(a)
- --------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.40%(a) 0.60% 0.89%(a)
- --------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $21,049 $15,525 $ 3,782
- --------------------------------------------------------------------------
Portfolio turnover rate 1% 0% 0%
- --------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period April 1, 1992 (date of initial public
investment) to August 31, 1992.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Financial Highlights--Income Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
Net asset value, beginning of period $ 11.68 $ 11.43
- -------------------------------------------------------------------------------------------
Income from investment operations
- -------------------------------------------------------------------------------------------
Net investment income 0.29 0.09
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.24) 0.21
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.05 0.30
- -------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29) (0.05)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(c) --
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.30) (0.05)
- ------------------------------------------------------------------------------------------- --------- -----------
Net asset value, end of period $11.43 $11.68
- ------------------------------------------------------------------------------------------- --------- -----------
Total return*** 0.36% 1.20%
- -------------------------------------------------------------------------------------------
Ratios to Average Net Assets
- -------------------------------------------------------------------------------------------
Expenses 1.50%(a) 1.48%(a)
- -------------------------------------------------------------------------------------------
Net investment income 4.38%(a) 6.13%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.40%(a) 0.60%(a)
- -------------------------------------------------------------------------------------------
Supplemental Data
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,255 $2,419
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 1% 0%
- -------------------------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from July 29, 1993 (date of initial
public investment) to August 31, 1993.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(c) Distributions in excess of net investment income for the period ended
February 28, 1994 were the result of certain book and tax timing
differences. These do not represent a return of capital for federal tax
purposes.
(See Notes which are an integral part of the Financial Statements)
Pennsylvania Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
Pennsylvania Municipal Income Fund, a non-diversified portfolio of the Trust.
The financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregrated and a shareholder's
interest is limited to the portfolio in which shares are held.
Effective July 15, 1993, and March 23, 1992 (the effective dates for the Income
Shares Class and Trust Shares Class, respectively, of Pennsylvania Municipal
Income Fund) Pennsylvania Municipal Income Fund provides three classes of Shares
("Investment Shares", "Trust Shares", and "Income Shares"). Investment Shares,
Trust Shares, and Income Shares are subject to certain of the same expenses;
however, Investment Shares are subject to a shareholder services fee and certain
sales and redemption charges; and Income Shares are sold pursuant to a
distribution plan ("Plan") adopted in accordance with Investment Company Act
Rule 12b-1, a shareholder services fee and certain redemption charges.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, or any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at February 28, 1994, 45.6% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution ranged from 1.3% to 17.6% of
total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
Pennsylvania Municipal Income Fund
- --------------------------------------------------------------------------------
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its net investment income, including any
net realized gain on investments. Accordingly, no provision for federal
income tax is necessary. Dividends paid by the Fund from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as
gross income for federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Fund to pay tax-exempt
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax
preference item for shareholders.
At August 31, 1993, the Fund for federal tax purposes, had a capital loss
carryforward of $17,100, $17,037 which expires in 2000, $63 which expires
in 2001, which will reduce the Fund's taxable income arising from future
net realized gains on investments, if any, to the extent permitted by the
Internal Revenue 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 income tax.
D. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line basis over a period of five-years from
the Fund's commencement date.
E. Equalization--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of Fund shares equivalent, on a per share basis, to the amount
of undistributed net investment income on the date of the transaction is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
F. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
G. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared and paid monthly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
Pennsylvania Municipal Income Fund
- --------------------------------------------------------------------------------
The amount shown in the financial statements for net investment income for the
period ended
August 31, 1991, for the year ended August 31, 1992, and for the six months
ended February 28, 1994, differ from those determined for tax purposes because
of certain timing differences. This resulted in distributions to shareholders in
excess of net investment income. These distributions do not represent a return
of capital for federal income tax purposes.
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
1994* 1993
Investment Shares Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, beginning of period 5,987,227 $ 63,536,449 4,416,127 $ 45,935,722
- ------------------------------------------------------
Shares sold 745,760 8,732,135 1,755,124 19,686,371
- ------------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 105,673 1,230,205 187,851 2,102,669
- ------------------------------------------------------
Shares redeemed (217,890) (2,550,432) (371,875) (4,188,313)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, end of period 6,620,770 $ 70,948,357 5,987,227 $ 63,536,449
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
1994* 1993
Trust Shares Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, beginning of period 1,328,924 $ 14,809,930 346,087 $ 3,728,821
- ------------------------------------------------------
Shares sold 787,175 9,213,208 1,442,058 16,212,265
- ------------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 11,553 133,938 6,460 73,298
- ------------------------------------------------------
Shares redeemed (292,766) (3,421,653) (465,681) (5,204,454)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, end of period 1,834,886 $ 20,735,423 1,328,924 $ 14,809,930
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
* Six months ended February 28, 1994.
Pennsylvania Municipal Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
1994* 1993
Income Shares Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
- ------------------------------------------------------------- --------- ------------- --------- -------------
Shares outstanding, beginning of period 207,149 $ 2,406,207 -- $ --
- -------------------------------------------------------------
Shares sold 427,072 4,982,571 206,997 2,404,438
- -------------------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 3,147 36,340 152 1,769
- -------------------------------------------------------------
Shares redeemed (2,504) (29,224) -- --
- ------------------------------------------------------------- --------- ------------- --------- -------------
Shares outstanding, end of period 634,864 $ 7,395,894 207,149 $ 2,406,207
- ------------------------------------------------------------- --------- ------------- --------- -------------
</TABLE>
* Six months ended February 28, 1994.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee.
Adviser can modify or terminate this voluntary waiver of expense at any time at
its sole discretion. Administrative personnel and services were provided at
approximate cost by Federated Administrative Services, Inc. Effective March 1,
1994, Federated Administrative Services ("FAS") will provide administrative
personnel and services. The fee is based on the level of average aggregate net
assets of the total Federated Funds for the period. 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.
Organizational expenses ($28,449) and start-up administrative service expenses
($100,330) were borne initially by Federated Administrative Services, Inc.,
Administrator to the Fund. The Fund has agreed to reimburse the Administrator,
at an annual rate of .005 of 1% of average daily net assets for organizational
expenses and .01 of 1% of average daily net assets for start-up costs, until the
organizational expenses and start-up costs initially borne by the Administrator
are reimbursed or the expiration of five years from October 1, 1990, the date
the Trust's portfolio became effective, whichever occurs earlier. For the six
months ended February 28, 1994, the Fund paid $2,410 and $4,819 respectively,
pursuant to this agreement.
During the period ended February 28, 1994, the Fund engaged in purchase and sale
transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of
the Investment Company Act of 1940, amounting to $17,400,000 and $18,200,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund paid Federated Securities
Corp. ("FSC"), the principal distributor, up to .40 of 1% of the average daily
net assets of the Investment Shares for the period from September 1,
1992 to July 28, 1993; thereafter, no fee was charged. The fee for Income Shares
is equal to .75 of 1% of the average daily net assets.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's Investment Shares and Income Shares. The Fund reimbursed
FSC from the net assets of the Fund for fees FSC paid which relate to
administrative support services of the Fund's shares. The Services Plan provides
that the Fund's Investment Shares and Income Shares may incur shareholder
services expenses up to .25 of 1% of the average daily net assets of the
Investment and Income Shares. Under the terms of a shareholder service agreement
with Federated Shareholder Services ("FSS") which take effect March 1, 1994, the
Fund will pay FSS a fee to obtain certain personal services for shareholders and
the maintenance of shareholder accounts. The fee is based on the level of
average net assets for the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the six
months ended
February 28, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Purchases-- $ 21,273,660
- -------------------------------------------------------------------------------------------------- --------------
Sales-- $ 1,146,657
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
NEW JERSEY
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO OF FEDERATED SECURITIES CORP.] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4031008 (4/94)
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for New Jersey
Municipal Income Fund (the "Fund") covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive New Jersey resident, you will find that the Fund may deliver
a high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the state of New
Jersey and its municipalities. This income is earned by a quality portfolio of
investment-grade, long-term New Jersey municipal securities.
During the past six months, the Fund paid a total of $0.28 per share in tax-free
distributions to shareholders. Reflecting the fact that, when interest rates
rise, bond prices decline, the Fund's net asset value declined from $10.30 to
$10.05. Due to increased investor participation in the Fund, total net assets
grew from $3.4 million to $9.4 milion between the first and last days of the
period.
We believe that your investment in New Jersey Municipal Income Fund is a wise
way to pursue tax-free earnings. We thank you for your confidence and encourage
you to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6%, due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$3.4 million to $9.4 million. Reflecting market activity, the net asset value
per share of the Fund grew from $10.30 on September 1, 1993 to $10.49 on October
15, 1993, then fell to $10.05 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 36.2% in "Aaa" issues; 22.4% in "Aa"
issues; 10.4% in "A" issues; 5.5% in "Baa" issues; 21.6% in "non-rated" issues;
and 3.9% in municipal cash equivalents within the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; university revenue issues;
single-family mortgage revenue issues; and pollution control revenue issues. The
average purchase yield for new investments by the Fund was 5.81%.
For the six-month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of 0.24%.* This performance was comprised of 2.67%
income and reinvestment return (net of Fund expenses) and of 2.43% depreciation
in the net asset value per share of the Fund--both on a non-annualized basis.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
New Jersey Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ----------- -------------
Short-Term Municipal Securities--3.7%
- --------------------------------------------------------------------------------------
$ 350,000 Government Development Bank of Puerto Rico, Weekly VRDNs (Credit
Suisse, Zurich LOC)/(Sumitomo Bank, Ltd. LOC)/(at amortized cost)(Note
2A) A-1+ $ 350,000
----------------------------------------------------------------------- -------------
Long-Term Municipal Securities--96.2%
- --------------------------------------------------------------------------------------
New Jersey--94.2%
-----------------------------------------------------------------------
100,000 Bordentown, NJ, Sewerage Authority, 5.40% Revenue Bonds (Series
D)/(MBIA Insured), 12/1/2020 Aaa 98,874
-----------------------------------------------------------------------
400,000 Camden County, NJ, Improvement Authority, 5.25% Revenue Bonds
(Guaranteed Health Service Center)/
(AMBAC Insured), 12/1/2018 AAA 384,956
-----------------------------------------------------------------------
100,000 Cape May County, NJ, Municipal Utilities Authority, 5.75% Sewer Revenue
Bonds (MBIA Insured), 1/1/2016 AAA 101,767
-----------------------------------------------------------------------
350,000 Gloucester County, NJ, Pollution Control Financing Authority, 5.625%
Revenue Refunding Bonds (Mobil Oil Refining Corp.), 12/1/2028 AA 350,413
-----------------------------------------------------------------------
450,000 Keansburg, NJ, 5.625% Elderly Housing Mortgage Revenue Refunding Bonds
(The Church Street Corp.), 3/1/2011 A+ 443,943
-----------------------------------------------------------------------
100,000 Mercer County, NJ, Improvement Authority, 5.25% (NJ County Courthouse
Project 1993), 11/1/2014 AA 97,893
-----------------------------------------------------------------------
100,000 Montville Township, NJ, Municipal Utilities Authority, 5.50% (AMBAC
Insured), 12/1/2013 AAA 101,374
-----------------------------------------------------------------------
400,000 New Jersey EDA, 5.35% Pollution Control Revenue Bonds (General Motors),
4/1/2009 BBB+ 392,072
-----------------------------------------------------------------------
300,000 New Jersey EDA, 5.40% Growth Bonds (Series A)/(Richard L. Tauber
Composite Issue)/(Subject to AMT)/(National Westminster Bank LOC),
10/1/2013 AA- 288,867
-----------------------------------------------------------------------
$ 260,000 New Jersey EDA, 5.75% Reserve Bonds (Deeter Weisenrieder-1993
Project)/(Weiss-Aug Co., Inc.-1993 Project)/(Subject to
AMT)/(Corestates Bank LOC), 12/1/2013 Aa3 $ 258,154
-----------------------------------------------------------------------
250,000 New Jersey EDA, 5.55% Reserve Bonds (United Cerebral Palsy
Project)/(Series 1993)/(Corestates Bank LOC), 8/1/2015 Aa3 246,903
-----------------------------------------------------------------------
200,000 New Jersey EDA, 5.50% Water Facility Revenue Bonds (American Water
Co.)/(FGIC Insured)/(Subject to AMT),
6/1/2023 Aaa 197,686
-----------------------------------------------------------------------
350,000 New Jersey EDA, 5.375% National Gas Facility Revenue Bonds (New Jersey
Natural Gas Project) 8/1/2023 A 339,668
-----------------------------------------------------------------------
100,000 New Jersey State, 5.50% UT GO Bonds, 2/15/2012 AA+ 100,700
-----------------------------------------------------------------------
100,000 New Jersey State Highway Authority, 5.75% General
Revenue Bonds (Garden State Parkway), 1/1/2019 AA- 101,122
-----------------------------------------------------------------------
100,000 New Jersey Health Care Facility Financing Authority, 5.50% Revenue
Bonds (Mountainside Hospital)/(MBIA Insured),
7/1/2014 AAA 99,628
-----------------------------------------------------------------------
250,000 New Jersey Health Care Facility Financing Authority, 5.00% Revenue
Bonds (Chilton Memorial Hospital)/(Series D),
7/1/2013 A1 232,397
-----------------------------------------------------------------------
100,000 New Jersey Health Care Facility Financing Authority, 6.30% Revenue
Bonds (Deborah Heart & Lung Center), 7/1/2023 Baa1 100,641
-----------------------------------------------------------------------
100,000 New Jersey State Educational Facility Authority, 5.35%
Revenue Bonds (Richard Stockton State College)/(AMBAC Insured),
7/1/2023 AAA 97,252
-----------------------------------------------------------------------
2,000,000 New Jersey State Educational Facility Authority, 6.625% Revenue Bonds
(Fairleigh Dickinson University Issue)/
(Series 1993-C), 7/1/2023 (restricted security) NR 1,933,920
-----------------------------------------------------------------------
100,000 New Jersey State Housing & Mortgage Finance Agency, 5.95% Revenue Bonds
(MBIA Insured), 4/1/2025 AAA 100,126
-----------------------------------------------------------------------
$ 700,000 New Jersey State Housing & Mortgage Finance Agency, 5.50% Revenue Bonds
(MBIA Insured), 10/1/2026 AAA $ 675,318
-----------------------------------------------------------------------
150,000 New Jersey State Turnpike Authority, 6.50% Revenue Bonds (Series C),
1/1/2016 A 169,332
-----------------------------------------------------------------------
100,000 Ocean County, NJ, Utilities Authority, 5.75% Water Revenue Refunding
Bonds, 1/1/2018 AA- 102,559
-----------------------------------------------------------------------
100,000 Port Authority of New York & New Jersey, 5.625% Consolidated Revenue
Bonds (Series 81), 8/1/2014 A-1 101,373
-----------------------------------------------------------------------
250,000 Port Authority of New York & New Jersey, 6.25% Consolidated Revenue
Bonds (Series 77), 1/15/2027 AA- 262,000
-----------------------------------------------------------------------
100,000 Rutgers State University, NJ, 5.375% Revenue Refunding Bonds, 5/1/2016 AA 98,527
-----------------------------------------------------------------------
400,000 Salem County, NJ, Industrial Pollution Control Finance
Authority, 5.20% Revenue Refunding Bonds (Public Service Electric &
Gas)/(Subject to AMT), 3/1/2025 AAA 367,252
-----------------------------------------------------------------------
350,000 Salem County, NJ, Industrial Pollution Control Finance
Authority, 5.60% Revenue Refunding Bonds (Atlantic City Electric
Co.)/(FSA Insured)/(Subject to AMT), 11/1/2025 AAA 343,354
-----------------------------------------------------------------------
100,000 Salem County, NJ, Industrial Pollution Control Finance
Authority, 5.70% Revenue Refunding Bonds (Public Service Electric &
Gas)/(MBIA Insured), 5/1/2028 AAA 100,236
-----------------------------------------------------------------------
300,000 Salem County, NJ, Industrial Pollution Control Finance
Authority, 5.45% Revenue Refunding Bonds (Public Service Electric &
Gas)/(MBIA Insured), 2/1/2032 AAA 285,270
-----------------------------------------------------------------------
200,000 Salem County, NJ, Industrial Pollution Control Finance
Authority, 5.55% Revenue Refunding Bonds (Public Service Electric &
Gas)/(MBIA Insured), 11/1/2033 AAA 197,142
-----------------------------------------------------------------------
$ 100,000 Sussex County, NJ, Municipal Utilities, 5.50% Revenue
Refunding Bonds (MBIA Insured), 12/1/2013 AAA $ 100,404
----------------------------------------------------------------------- -------------
Total 8,871,123
----------------------------------------------------------------------- -------------
Puerto Rico--2.0%
-----------------------------------------------------------------------
200,000 Puerto Rico Electric Power Authority, 5.00% Revenue Bonds, 7/1/2012 A- 188,364
----------------------------------------------------------------------- -------------
Total Long-Term Municipal Securities
(identified cost, $9,228,001) 9,059,487
----------------------------------------------------------------------- -------------
Total Investments (identified cost $9,578,001) $ 9,409,487\
----------------------------------------------------------------------- -------------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ The cost of investments for federal tax purposes amounts to $9,578,001. The
net unrealized depreciation on a federal tax basis amounts to $168,514, which
is comprised of $9,494 appreciation and $178,008 depreciation at February 28,
1994.
Note: The categories of investments are shown as a percentage of net assets
($9,415,375) at February 28, 1994.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
EDA -- Economic Development Authority
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ----------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $9,578,001) $ 9,409,487
- ----------------------------------------------------------------------------------------------------
Cash 24,993
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 360,195
- ----------------------------------------------------------------------------------------------------
Interest receivable 135,013
- ----------------------------------------------------------------------------------------------------
Receivable from adviser (Note 5) 25,000
- ----------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 5,163
- ---------------------------------------------------------------------------------------------------- -----------
Total assets 9,959,851
- ----------------------------------------------------------------------------------------------------
Liabilities:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 445,701
- ----------------------------------------------------------------------------------------
Dividends payable 29,697
- ----------------------------------------------------------------------------------------
Accrued expenses 69,078
- ---------------------------------------------------------------------------------------- ----------
Total liabilities 544,476
- ---------------------------------------------------------------------------------------------------- -----------
Net Assets for 936,442 shares of beneficial interest outstanding $ 9,415,375
- ---------------------------------------------------------------------------------------------------- -----------
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 9,574,498
- ----------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (168,514)
- ----------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gains on investments 9,391
- ---------------------------------------------------------------------------------------------------- -----------
Total $ 9,415,375
- ---------------------------------------------------------------------------------------------------- -----------
Net Asset Value and Offering Price per Share
($9,415,375 / 936,442 shares of beneficial interest outstanding) $10.05
- ---------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds per Share (97/100 of $10.05)* $9.75
- ---------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- ------------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 179,074
- ------------------------------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 12,922
- ------------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 76,714
- ------------------------------------------------------------------------------------------
Trustees' fees 375
- ------------------------------------------------------------------------------------------
Custodian and recordkeeper fees and expenses 30,887
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 6,335
- ------------------------------------------------------------------------------------------
Fund share registration costs 6,478
- ------------------------------------------------------------------------------------------
Printing and postage 7,000
- ------------------------------------------------------------------------------------------
Legal fees 2,500
- ------------------------------------------------------------------------------------------
Auditing fees 8,000
- ------------------------------------------------------------------------------------------
Distribution services fee (Note 5) 24,229
- ------------------------------------------------------------------------------------------
Shareholder services fee (Note 5) 8,076
- ------------------------------------------------------------------------------------------
Insurance premiums 2,521
- ------------------------------------------------------------------------------------------
Taxes 125
- ------------------------------------------------------------------------------------------
Miscellaneous 989
- ------------------------------------------------------------------------------------------ ----------
Total expenses 187,151
- ------------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) $ 12,922
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 150,000 162,922
- ------------------------------------------------------------------------------ ---------- ----------
Net expenses 24,229
- ------------------------------------------------------------------------------------------------------ ----------
Net investment income 154,845
- ------------------------------------------------------------------------------------------------------ ----------
Realized and Unrealized Gain (Loss) on Investments:
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 9,391
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (242,846)
- ------------------------------------------------------------------------------------------------------ ----------
Net realized and unrealized gain (loss) on investments (233,455)
- ------------------------------------------------------------------------------------------------------ ----------
Change in net assets resulting from operations $ (78,610)
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C>
1994* 1993**
Increase (Decrease) in Net Assets:
- -------------------------------------------------------------------------------------
Operations--
- -------------------------------------------------------------------------------------
Net investment income $ 154,845 $ 20,003
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($9,391 net gain and $0
respectively, as computed for federal tax purposes) 9,391 --
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (242,846) 74,332
- ------------------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations (78,610) 94,335
- ------------------------------------------------------------------------------------- ------------ ------------
Distributions to Shareholders (Note 3)--
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (154,845) (20,003)
- -------------------------------------------------------------------------------------
Distributions in excess of net investment income (24,229) (3,086)
- ------------------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to shareholders (179,074) (23,089)
- ------------------------------------------------------------------------------------- ------------ ------------
Fund Share (Principal) Transactions (Note 4)--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 7,544,238 5,887,786
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 46,514 4,402
- -------------------------------------------------------------------------------------
Cost of shares redeemed (1,268,189) (2,612,938)
- ------------------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Fund share transactions 6,322,563 3,279,250
- ------------------------------------------------------------------------------------- ------------ ------------
Change in net assets 6,064,879 3,350,496
- -------------------------------------------------------------------------------------
Net Assets:
- -------------------------------------------------------------------------------------
Beginning of period 3,350,496 --
- ------------------------------------------------------------------------------------- ------------ ------------
End of period $ 9,415,375 $ 3,350,496
- ------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** For the period from June 1, 1993 (date of initial public investment) to
August 31, 1993.
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994** 1993***
Net asset value, beginning of period $ 10.30 $ 10.00
- -----------------------------------------------------------------------------------------
Income from investment operations
- -----------------------------------------------------------------------------------------
Net investment income 0.25 0.12
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.22) 0.31
- ----------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 0.03 0.43
- -----------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.25) (0.12)
- -----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.03)(a) (0.01)(a)
- ----------------------------------------------------------------------------------------- --------- ---------
Total distributions (0.28) (0.13)
- ----------------------------------------------------------------------------------------- --------- ---------
Net asset value, end of period $ 10.05 $ 10.30
- ----------------------------------------------------------------------------------------- --------- ---------
Total return* 0.24% 4.28%
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------
Expenses 0.75%(b) 0.75%(b)
- -----------------------------------------------------------------------------------------
Net investment income 4.79%(b) 4.86%(b)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.04%(b) 4.00%(b)
- -----------------------------------------------------------------------------------------
Supplemental Data
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,415 $3,350
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 30% 0%
- -----------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Six months ended February 28, 1994 (unaudited).
*** Reflects operations for the period from June 1, 1993 (date of initial public
investment) to August 31, 1993.
(a) Distributions in excess of net investment income for the periods ended
February 28, 1994, and August 31, 1993 were a result of certain book and tax
timing differences. These distributions do not represent a return of capital
for federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, an open-end, management investment
company. The financial statements included herein are only those of New Jersey
Municipal Income Fund, a non-diversified portfolio of the Trust. The financial
statements of the other portfolios in the Trust are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, or any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at February 28, 1994, 42.8% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentage by financial institutions ranged from 2.1% to 18.1% of
total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its net investment income, including any
net realized gain on investments. Accordingly, no provision for federal
income tax is necessary. Dividends paid by the Fund from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as
gross income for federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Fund to pay tax-exempt
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax
preference item for shareholders.
New Jersey Municipal Income Fund
- --------------------------------------------------------------------------------
D. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
E. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
Income distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. This difference
is primarily due to differing treatments for Distribution Services Fees which
resulted in distributions to shareholders in excess of net investment income,
which were recorded for Financial statement purposes as a reduction of paid-in
capital. These distributions do not represent a return of capital for federal
income tax purposes for the six months ended February 28, 1994.
(4) 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).
Transactions in Fund shares were as follows:
New Jersey Municipal Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
- --------------------------------------------------------------------------------------
Shares outstanding, beginning of period 325,174 --
- --------------------------------------------------------------------------------------
Shares sold 729,019 581,973
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 4,536 430
- --------------------------------------------------------------------------------------
Shares redeemed (122,287) (257,229)
- -------------------------------------------------------------------------------------- ---------- ----------
Shares outstanding, end of period 936,442 325,174
- -------------------------------------------------------------------------------------- ---------- ----------
</TABLE>
*Six months ended February 28, 1994.
**For the period from June 1, 1993 (date of initial public investment) to August
31, 1993.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses ($30,100) and start-up administrative service expenses
($54,000) were initially borne by Adviser. The Fund has agreed to reimburse
Adviser for the organization expenses and start-up administrative expenses
initially borne by Adviser during the five year period following May 23, 1993
(date the Trust's portfolio first became effective).
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940, amounting to $4,300,000 and $3,950,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .75 of 1% of the Funds average
daily net assets.
New Jersey Municipal Income Fund
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund reimbursed FSC from the net assets of the
Fund for fees which FSC paid which relate to administrative support services of
the Fund's shares. The Services Plan provides that the Fund may incur
shareholder services expenses up to 0.25 of 1% of the average daily net assets
of the Fund. Under the terms of a shareholder service agreement with Federated
Shareholder Services ("FSS") which takes effect March 1, 1994, the Fund will pay
FSS a fee to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The fee is based on the level of average
net assets for the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the six
months ended
February 28, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
Purchases $ 7,365,132
- --------------------------------------------------------------------------------------------------- -------------
Sales $ 1,986,121
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
TEXAS
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO OF FEDERATED SECURITIES CORP.] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4031010 (4/94)
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Texas
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Texas resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax. This income is earned by a quality portfolio of
investment-grade, long-term Texas municipal securities.
During the past six months, the Fund paid a total of $0.28 per share in tax-free
distributions to shareholders. Reflecting the fact that, when interest rates
rise, bond prices decline, the Fund's net asset value declined from $10.43 to
$10.15. Due to increased investor participation in the Fund, total net assets
have grown to $11.0 million since the Fund was introduced on June 1, 1993.
We believe that your investment in Texas Municipal Income Fund is a wise way to
pursue tax-free earnings. We thank you for your confidence and encourage you to
build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6% due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$5.0 million to $11.0 million. Reflecting market activity, the net asset value
per share of the Fund grew from $10.43 on September 1, 1993 to $10.64 on October
15, 1993, then fell to $10.15 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 40.6% in "Aaa" issues; 33.6% in "Aa"
issues; 18.9% in "A" issues; and 6.9% in "Baa" issues.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; water & sewer issues;
single-family mortgage revenue issues;
electric revenue issues; pollution control revenue issues; and local general
obligation issues. The average purchase yield for new investments by the Fund
was 5.59%.
For the six-month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of negative 0.01%.* This performance was comprised
of 2.67% income and reinvestment return (net of Fund expenses), and of 2.68%
depreciation in the net asset value per share of the Fund--both on a
non-annualized basis.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Texas Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
Long-Term Municipal Securities--107.6%
- ------------------------------------------------------------------------------------
Texas--107.6%
---------------------------------------------------------------------
$ 100,000 Austin, TX, Utility System, 5.625% Refunding Revenue Bonds (Series
A), 5/15/2016 A $ 97,820
---------------------------------------------------------------------
100,000 Austin, TX, Utility System, 5.75% Refunding Revenue Bonds (AMBAC
Insured), 11/15/2016 Aaa 100,466
---------------------------------------------------------------------
100,000 Bexar County, TX, 5.50% LT GO Bonds, Certificate of
Obligation, 6/15/2013 AA 98,936
---------------------------------------------------------------------
300,000 Bexar Metropolitan Water District, TX, 5.00% Waterworks System
Revenue Bonds (Series 1994)/(AMBAC Insured),
5/1/2019 Aaa 273,576
---------------------------------------------------------------------
500,000 Brazos County, TX, 6.00% Health Facility Development Revenue Bonds
(St. Joseph Hospital & Health Center),
1/1/2019 A- 496,865
---------------------------------------------------------------------
100,000 Brazos River Authority, TX, 6.10% PCR Bonds (Texas
Utilities Electric Co.)/(FSA Insured)/(Subject to AMT),
4/1/2028 AAA 102,094
---------------------------------------------------------------------
100,000 Brazosport, TX, 5.50% Water Authority Revenue Bonds, (AMBAC Insured),
9/1/2018 AAA 97,504
---------------------------------------------------------------------
120,000 Cameron, TX, Independent School District, 4.50% GO
Unlimited Bonds (Texas Permanent School Fund Guaranty), 8/1/2013 Aaa 105,521
---------------------------------------------------------------------
100,000 Clint, TX, Independent School District, 5.25% UT GO Bonds (Texas
Permanent School Fund Guaranty), 3/1/2016 Aaa 95,299
---------------------------------------------------------------------
100,000 Colorado River, TX, 5.15%, Municipal Water Refunding Revenue Bonds,
(AMBAC Insured), 1/1/2021 Aaa 93,387
---------------------------------------------------------------------
200,000 Colorado River, TX, 5.375%, Municipal Water Revenue Bonds, (AMBAC
Insured), 1/1/2013 Aaa 194,786
---------------------------------------------------------------------
$ 200,000 Edinburg, TX, Consolidated Independent School District, 5.00%
Unlimited GO Refunding Bonds (Series 1993)/(Texas Permanent School
Fund Guaranty), 2/15/2014 Aaa $ 185,680
---------------------------------------------------------------------
100,000 Fort Bend, TX, Independent School District, 5.50% LT GO Bonds (Texas
Permanent School Fund Guaranty),
2/15/2011 AAA 100,253
---------------------------------------------------------------------
100,000 Fort Worth, TX, 5.00% UT GO Bonds, 3/1/2013 AA 93,367
---------------------------------------------------------------------
300,000 Gregg County, TX, 5.50% Health Facility Development
Hospital Revenue Bonds (Good Shepherd Medical Center
Project)/(AMBAC Insured), 10/1/2015 AAA 291,858
---------------------------------------------------------------------
200,000 Harris County Municipal Utility District, TX, 5.25%
Limited GO Refunding Bonds, 3/1/2010 Aa 193,894
---------------------------------------------------------------------
200,000 Harris County, TX, 5.375% Toll Road Senior Lien Revenue Refunding
Bonds (Series 1994)/(FGIC Insured), 8/15/2020 Aaa 190,904
---------------------------------------------------------------------
100,000 Houston, TX, Independent School District, 5.50% LT GO Bonds (Texas
Permanent School Fund Guaranty),
8/15/2011 AAA 99,775
---------------------------------------------------------------------
200,000 Houston, TX, Water & Sewer System, 5.00% Revenue Bonds (Series B),
12/1/2018 A 178,852
---------------------------------------------------------------------
200,000 Interwood Municipal Utility District, TX, 5.25% LT GO Bonds,
Refunding Revenue Bonds, 3/1/2010 AA- 193,482
---------------------------------------------------------------------
100,000 Lower Colorado River Authority, TX, 5.375% Revenue
Refunding Bonds, 1/1/2016 A 94,529
---------------------------------------------------------------------
250,000 Lower Colorado River Authority, TX, 5.625% Revenue
Refunding Bonds, 1/1/2017 Aaa 247,285
---------------------------------------------------------------------
300,000 Lower Neches Valley Authority, TX, 5.35% PCR Bonds (NRTC
Project--Mobil Oil Corp), 11/1/2028 Aa 283,743
---------------------------------------------------------------------
$ 100,000 Lubbock, TX, Health Facility Development Corporation, 5.25% Revenue
Bonds (Methodist Hospital)/(Series B)/ (AMBAC Insured), 12/1/2019 Aaa $ 93,568
---------------------------------------------------------------------
300,000 Lubbock, TX, Health Facility Develpment Corporation, 5.50% Revenue
Bonds (St. Joseph Health System),
7/1/2014 AA 293,508
---------------------------------------------------------------------
100,000 Lubbock, TX, Health Facility Development Corporation, 5.50% Hospital
Revenue Bonds (Methodist Hospital)/
(Series B)/(AMBAC Insured), 12/1/2014 AAA 97,693
---------------------------------------------------------------------
1,350,000 Matagorda County, TX, 6.00% Texas Navigation District Number One, PCR
Bonds (Central Power & Light),
7/1/2028 A- 1,363,689
---------------------------------------------------------------------
100,000 McAllen, TX, Health Facility Development Corporation, 5.00% Refunding
Revenue Bonds (Sisters of Mercy Health System), 6/1/2015 AA 92,122
---------------------------------------------------------------------
100,000 North Central, TX, Health Facility Development, 5.75% Refunding
Revenue Bonds (Children's Medical Center)/(MBIA Insured), 8/15/2013 Aaa 102,415
---------------------------------------------------------------------
100,000 North Central, TX, Health Facility Development Corporation, 5.80%
Revenue Bonds (Presbyterian Healthcare),
6/1/2013 Aa 100,564
---------------------------------------------------------------------
300,000 North Central, TX, Health Facility Development Corporation, 5.90%
Revenue Bonds (Presbyterian Healthcare),
6/1/2021 Aa 301,683
---------------------------------------------------------------------
100,000 Nueces County, TX, Hospital District, 5.50% LT GO Bonds, Refunding
Revenue Bonds (FGIC Insured),
7/1/2015 AAA 97,781
---------------------------------------------------------------------
250,000 Plano, TX, 5.00% UT GO Bonds, (FGIC Insured),
9/1/2013 Aaa 233,455
---------------------------------------------------------------------
$ 200,000 Plano, TX, Waterworks & Sewer System, 5.35% Revenue Bonds, 5/1/2013 Aaa $ 195,068
---------------------------------------------------------------------
210,000 Sabine River Authority, TX, 5.55% PCR Refunding Bonds (Texas
Utilities Electric Co.)/(FSA Insured), 5/1/2022 Aaa 204,154
---------------------------------------------------------------------
650,000 Sabine River Authority, TX, 5.85% PCR Revenue Bonds (Texas Utilities
Electric Co.)/(FGIC Insured), 5/1/2022 Aaa 631,514
---------------------------------------------------------------------
300,000 San Antonio, TX, 5.00% Electric & Gas Refunding Revenue Bonds (Series
B), 2/1/2016 AA 274,941
---------------------------------------------------------------------
400,000 San Antonio, TX, 5.00% Electric & Gas Refunding
Revenue Bonds, 2/1/2017 AA 365,832
---------------------------------------------------------------------
100,000 San Antonio, TX, 5.75% LT GO Bonds, Revenue Bonds,
8/1/2013 AA 100,724
---------------------------------------------------------------------
300,000 San Antonio, TX, 6.00% Electric & Gas Refunding
Revenue Bonds (Series B), 2/1/2014 AA 305,244
---------------------------------------------------------------------
200,000 Tarrant County, TX, 5.25% Health Facility Development Corporation
Revenue Bonds (Adventist Health System/Sun Belt, Inc.)/(Capital
Guaranty Insured), 11/15/2023 Aaa 186,354
---------------------------------------------------------------------
150,000 Tarrant County, TX, 5.75% Water Control & Improvement District Number
One, Revenue Bonds, 3/1/2013 Aaa 159,771
---------------------------------------------------------------------
200,000 Texas Municipal Power Agency, 5.25% Refunding Revenue Bonds (MBIA
Insured), 9/1/2012 AAA 194,464
---------------------------------------------------------------------
200,000 Texas State, 5.25%, 10/1/2011 AA 193,740
---------------------------------------------------------------------
200,000 Texas State, 5.50% Public Property Finance Corporation of Texas,
Acquisition and Refunding Revenue Bonds (Series 1993)/(Mental Health
and Mental Retardation Center)/ (Capital Guaranty Insured), 9/1/2013 Aaa 196,710
---------------------------------------------------------------------
1,000,000 Texas State, 5.70% Veterans Housing Assistance GO Bonds (Series
1994-B1), 12/1/2014 Aa 972,640
---------------------------------------------------------------------
$ 200,000 Tyler, TX, 6.75% Health Facility Development Corporation Revenue
Bonds (East Texas Medical Center Regulated Health-A), 11/1/2025 Baa $ 201,596
---------------------------------------------------------------------
120,000 Weslaco, TX, 5.375% Health Facility Development Corporation (Knapp
Medical Center Project B), 6/1/2023 AAA 111,830
---------------------------------------------------------------------
600,000 West Side Calhoun County, TX, 6.40% NAV District Solid Waste (Union
Carbide Chemicals Project)/(Subject to AMT), 5/1/2023 BBB 613,914
---------------------------------------------------------------------
100,000 West University Place, TX, 5.25% Permanent Improvement, LT GO Bonds,
2/1/2013 AA- 96,055
---------------------------------------------------------------------
100,000 Wharton County, TX, 5.00% LT GO Bonds (MBIA
Insured), 2/15/2011 AAA 94,845
--------------------------------------------------------------------- --------------
Total Long-Term Municipal Securities
(identified cost, $11,976,519) $ 11,785,750\
--------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ The cost of investments for federal tax purposes amounts to $11,976,519. The
net unrealized depreciation on a federal tax basis amounts to $190,769, which
is comprised of $22,865 appreciation and $213,634 depreciation at February 28,
1994.
Note: The category of investments is shown as a percentage of net assets
($10,952,097) at February 28, 1994.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
LT -- Limited Term
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- --------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $11,976,519) $ 11,785,750
- --------------------------------------------------------------------------------------------------
Cash 8,078
- --------------------------------------------------------------------------------------------------
Interest receivable 165,875
- --------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 149,308
- --------------------------------------------------------------------------------------------------
Receivable from adviser (Note 5) 25,000
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 18,415
- -------------------------------------------------------------------------------------------------- --------------
Total assets 12,152,426
- --------------------------------------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,006,967
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 88,810
- -----------------------------------------------------------------------------------
Dividends payable 37,024
- -----------------------------------------------------------------------------------
Payable to distributor (Note 5) 6,307
- -----------------------------------------------------------------------------------
Accrued expenses 61,221
- ----------------------------------------------------------------------------------- -------------
Total liabilities 1,200,329
- -------------------------------------------------------------------------------------------------- --------------
Net Assets for 1,078,674 shares of beneficial interest outstanding $ 10,952,097
- -------------------------------------------------------------------------------------------------- --------------
Net Assets Consist of:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 11,142,866
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (190,769)
- -------------------------------------------------------------------------------------------------- --------------
Total $ 10,952,097
- -------------------------------------------------------------------------------------------------- --------------
Net Asset Value and Offering Price per Share
($10,952,097/ 1,078,674 shares of beneficial interest outstanding) $10.15
- -------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds per Share (97/100 of $10.15)* $9.85
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 228,492
- ----------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 16,426
- ---------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 68,690
- ---------------------------------------------------------------------------------------
Custodian and recordkeeper fees and expenses 31,703
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 3,460
- ---------------------------------------------------------------------------------------
Fund share registration costs 6,233
- ---------------------------------------------------------------------------------------
Printing and postage 5,230
- ---------------------------------------------------------------------------------------
Legal fees 2,761
- ---------------------------------------------------------------------------------------
Auditing fees 16,000
- ---------------------------------------------------------------------------------------
Shareholder services fee (Note 5) 10,267
- ---------------------------------------------------------------------------------------
Distribution services fee (Note 5) 30,799
- ---------------------------------------------------------------------------------------
Insurance premiums 5,022
- ---------------------------------------------------------------------------------------
Miscellaneous 636
- --------------------------------------------------------------------------------------- -----------
Total expenses 197,227
- ---------------------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 16,426
- --------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 150,000 166,426
- -------------------------------------------------------------------------- ----------- -----------
Net expenses 30,801
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income 197,691
- ---------------------------------------------------------------------------------------------------- -----------
Realized and Unrealized Gain (Loss) on Investments:
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (281,412)
- ---------------------------------------------------------------------------------------------------- -----------
Change in net assets from operations $ (83,721)
- ---------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C>
1994* 1993**
Increase (Decrease) in Net Assets:
- ----------------------------------------------------------------------------------
Operations--
- ----------------------------------------------------------------------------------
Net investment income $ 197,691 $ 22,648
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (281,412) 90,643
- ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets from operations (83,721) 113,291
- ---------------------------------------------------------------------------------- -------------- -------------
Distributions to Shareholders (Note 3)--
- ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (197,691) (22,648)
- ----------------------------------------------------------------------------------
Distributions in excess of net investment income (30,801) (3,328)
- ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from distributions to shareholders (228,492) (25,976)
- ---------------------------------------------------------------------------------- -------------- -------------
Fund Share (Principal) Transactions (Note 4)--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 6,691,560 7,402,170
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 45,023 766
- ----------------------------------------------------------------------------------
Cost of shares redeemed (495,153) (2,467,371)
- ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from Fund share transactions 6,241,430 4,935,565
- ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets 5,929,217 5,022,880
- ----------------------------------------------------------------------------------
Net Assets:
- ----------------------------------------------------------------------------------
Beginning of period 5,022,880 --
- ---------------------------------------------------------------------------------- -------------- -------------
End of period $ 10,952,097 $ 5,022,880
- ---------------------------------------------------------------------------------- -------------- -------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** For the period from June 1, 1993 (date of intial public investment) to August
31, 1993.
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
Net asset value, beginning of period $ 10.43 $ 10.00
- ------------------------------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------------------------------
Net investment income 0.24 0.12
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.24) 0.44
- ------------------------------------------------------------------------------------ --------- ---------
Total from investment operations (0.00) 0.56
- ------------------------------------------------------------------------------------
Less distribution
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.24) (0.12)
- ------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.04)(a) (0.01)(a)
- ------------------------------------------------------------------------------------ --------- ---------
Total distributions (0.28) (0.13)
- ------------------------------------------------------------------------------------ --------- ---------
Net asset value, end of period $ 10.15 $ 10.43
- ------------------------------------------------------------------------------------ --------- ---------
Total return*** (0.01%) 5.67%
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------
Expenses 0.75%(b) 0.75%(b)
- ------------------------------------------------------------------------------------
Net investment income 4.81%(b) 5.10%(b)
- ------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 4.05%(b) 3.70%(b)
- ------------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $10,952 $5,023
- ------------------------------------------------------------------------------------
Portfolio turnover rate 0% 0%
- ------------------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from June 1, 1993 (date of initial public
investment) to August 31, 1993.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Distributions in excess of net investment income for the periods ended
February 28, 1994, and August 31, 1993 were a result of certain book and
tax timing differences. These distributions do not represent a return of
capital for federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
Texas Municipal Income Fund, a non-diversified portfolio of the Trust. The
financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, or any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at February 28, 1994, 24.1% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentage by financial institutions ranged from 2.6% to 10.5% of
total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and distribute to
shareholders each year all of its net investment income, including any net
realized gain on investments. Accordingly, no provision for federal income
tax is necessary. Dividends paid by the Fund from net interest earned on
tax-exempt municipal bonds are not includable by shareholders as gross
income for federal income tax purposes, because the Fund intends to meet
certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay tax-exempt
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax
preference item for shareholders.
D. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
E. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
Income distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. This difference
is primarily due to differing treatments for Distribution Services Fees which
resulted in distributions to shareholders in excess of net investment income,
which were recorded for Financial Statement purposes as a reduction of paid-in
capital. These distributions do not represent a return of capital for federal
income tax purposes for the six months ended February 28, 1994.
(4) 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).
Transactions in Fund shares were as follows:
Texas Municipal Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
- ----------------------------------------------------------------------------------------
Shares outstanding, beginning of period 481,753 --
- ----------------------------------------------------------------------------------------
Shares sold 640,143 721,782
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 4,337 74
- ----------------------------------------------------------------------------------------
Shares redeemed (47,559) (240,103)
- ---------------------------------------------------------------------------------------- ----------- -----------
Shares outstanding, end of period 1,078,674 481,753
- ---------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
*Six months ended February 28, 1994.
**For the period from June 1, 1993 (date of initial public investment) to August
31, 1993.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses ($30,100) and start-up administrative service expenses
($54,000) will be borne initially be Adviser. The Fund has agreed to reimburse
Adviser for the organizational expenses and start-up administrative service
expenses initially borne by Adviser during the five year period following May
23, 1993 (date the Trust's portfolio first became effective).
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $355,422 and $5,000,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .75 of 1% of the Fund's average
daily net assets.
Texas Municipal Income Fund
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund reimbursed FSC from the net assets of the
Fund for fees which FSC paid which relate to administrative support services of
the Fund's shares. The Services Plan provides that the Fund may incur
shareholder services expenses up to .25 of 1% of the average daily net assets of
the Fund. Under the terms of a shareholder service agreement with Federated
Shareholder Services ("FSS") which takes effect March 1, 1994, the Fund will pay
FSS a fee to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The fee is based on the level of average
net assets for the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
Purchases $ 7,532,354
- --------------------------------------------------------------------------------------------------- -------------
Sales --
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
VIRGINIA
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO OF FEDERATED SECURITIES CORP.] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4031011 (4/94)
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Virginia
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Virginia resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Virginia and it's municipalities. This income is earned by a quality portfolio
of investment-grade, long-term Virginia municipal securities.
During the past six months, the Fund paid a total of $0.25 per share in tax-free
dividends to shareholders. Reflecting the fact that, when interest rates rise,
bond prices decline, the Fund's net asset value declined from $10.00 to $9.73.
Since the Fund was introduced on September 1, 1993, total net assets have grown
to $3.0 million.
We believe that your investment in Virginia Municipal Income Fund is a wise way
to pursue tax-free earnings. We thank you for your confidence and encourage you
to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6% due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew to $3.0
million. Reflecting market activity, the net asset value per share of the Fund
grew from $10.00 on September 1, 1993 to $10.31 on October 15, 1993, then fell
to $9.73 on February 28, 1994. On that date, the credit breakdown of the
holdings of the Fund was: 25.8% in "Aaa" issues; 35.0% in "Aa" issues; 30.0% in
"A" issues; 9.2% in municipal cash equivalents within the highest rating
category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; water & sewer issues;
single-family mortgage revenue issues; local general obligation issues; and
university revenue issues. The average purchase yield for new investments by the
Fund was 5.48%.*
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Virginia Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ----------- -------------
Short-Term Municipal Securities--10.1%
- -------------------------------------------------------------------------------------
Virginia--10.1%
----------------------------------------------------------------------
$ 300,000 Peninsula Port Authority of Virginia, Daily VRDN (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC)/ (Subject to AMT)(at
amortized cost)(Note 2A) Aa2 $ 300,000
---------------------------------------------------------------------- -------------
Long-Term Municipal Securities--99.0%
- -------------------------------------------------------------------------------------
Virginia--99.0%
----------------------------------------------------------------------
150,000 Arlington County, VA, IDA 5.30% Hospital Facilities Revenue Bonds
(Arlington Hospital)/(Original Issue Yield: 5.47%), 9/1/2015 A1 143,151
----------------------------------------------------------------------
100,000 Arlington County, VA, IDA 5.00% Hospital Revenue Refunding Bonds
(Series 1993)/(Arlington Hospital)/(Original Issue Yield: 5.53%),
9/1/2021 A1 89,571
----------------------------------------------------------------------
100,000 Augusta County, VA, IDA 5.125% Hospital Revenue Bonds (Augusta
Hospital Corp.)/(AMBAC Insured)/(Original Issue Yield: 5.60%),
9/1/2021 AAA 92,977
----------------------------------------------------------------------
100,000 Augusta County, VA, Service Authority, 5.00% Water & Sewer System
Revenue Bonds (Series 1994)/(MBIA Insured)/ (Original Issue Yield:
5.42%), 11/1/2024 AAA 91,382
----------------------------------------------------------------------
200,000 City of Hampton, VA, IDA 5.125% Hospital Revenue Refunding Bonds
(Series 1994A)/(Sentara Hampton General Hospital)/(Original Issue
Yield: 5.55%), 11/1/2016 AA 183,072
----------------------------------------------------------------------
100,000 Fairfax County, VA, IDA 5.25% Hospital Revenue Refunding Bonds (Inova
Health System)/(Original Issue Yield: 5.35%), 8/15/2019 AA- 94,117
----------------------------------------------------------------------
100,000 Hampton Roads, VA, Sanitation District 5.00% Wastewater Refunding and
Capital Improvement Revenue Bonds (Series 1993)/(Original Issue Yield:
5.48%), 10/1/2023 AA 90,437
----------------------------------------------------------------------
$ 100,000 Harrisburg, VA, IDA 5.25% Hospital Revenue Bonds (Rockingham Memorial
Hospital)/(MBIA Insured)/(Original Issue Yield: 5.85%), 12/1/2022 A $ 94,067
----------------------------------------------------------------------
100,000 Alexandria, VA, IDA 5.375%, PCR Refunding Bonds (Potomac Electric
Power Co.)/(Original Issue Yield: 5.45%), 2/15/ 2024 A1 96,186
----------------------------------------------------------------------
100,000 Louisa, VA, IDA 5.45% PCR Bonds (Series 1994)/(Virginia Electric &
Power Co. Project), 1/1/2024 A 95,872
----------------------------------------------------------------------
100,000 Isle of Wight County, VA, 5.20% GO Unlimited School Improvement Bonds
(Original Issue Yield: 5.30%), 8/1/2010 A 97,516
----------------------------------------------------------------------
200,000 Lynchburg, VA, Redevelopment & Housing Authority 5.70% Revenue
Refunding Bonds (Series A)/(GNMA--Waldon Pond II)/(GNMA Guaranteed),
7/20/2023 AAA 191,512
----------------------------------------------------------------------
100,000 Portsmouth, VA, 5.50% UT GO Bonds (Original Issue Yield: 5.75%),
8/1/2013 AA- 99,405
----------------------------------------------------------------------
200,000 Prince William County, VA, 5.625% IDA Hospital Revenue Refunding Bonds
(Prince William Hospital)/(Original Issue Yield: 5.75%), 4/1/2012 A 200,396
----------------------------------------------------------------------
100,000 Prince William County, VA, Service Authority, 5.00% Water & Sewer
System Revenue Refunding Bonds (FGIC Insured)/ (Original Issue Yield:
5.25%), 7/1/2021 AAA 91,254
----------------------------------------------------------------------
100,000 Richmond, VA, 5.50% GO Public Improvement Bonds (Series B)/(Original
Issue Yield: 5.72%), 7/15/2023 AA 97,854
----------------------------------------------------------------------
100,000 Rivanna, VA, Water & Sewer Authority, 4.875% Regional Water and Sewer
System Revenue Refunding Bonds (Original Issue Yield: 5.13%),
10/1/2018 A+ 90,624
----------------------------------------------------------------------
100,000 Roanoke County, VA, 5.00% Water System Revenue
Refunding Bonds (FGIC Insured)/(Original Issue Yield:
5.267%), 7/1/2021 AAA 91,775
----------------------------------------------------------------------
$ 100,000 Roanoke, VA, IDA 5.25% Hospital Revenue Bonds (Series A)/(Roanoke
Memorial Hospital)/(MBIA Insured)/(Original Issue Yield: 5.65%),
7/1/2025 AAA $ 93,868
----------------------------------------------------------------------
100,000 Upper Occoquan, VA, Sewer Authority, 5.00% Regional Sewer System
Revenue Refunding Bonds (Series 1993)/ (FGIC Insured)/(Original Issue
Yield: 5.41%), 7/1/2021 AAA 91,254
----------------------------------------------------------------------
100,000 Virginia College Building Authority, 5.75% (Hampton
University)/(Original Issue Yield: 5.928%), 4/1/2014 A+ 99,907
----------------------------------------------------------------------
150,000 Virginia Education Loan Authority, 6.15% Graduate
Refunding Bonds (Series G)/(Subject to AMT), 9/1/2009 A 152,882
----------------------------------------------------------------------
100,000 Virginia Housing Development Authority, 5.30% Commonwealth Mortgage
Bonds SFM Revenue (Series 1992C),
1/1/2015 A+ 95,149
----------------------------------------------------------------------
200,000 Virginia Housing Development Authority, 5.75% Commonwealth Mortgage
Bonds SFM Revenue (Series B), 1/1/2027 A+ 195,250
----------------------------------------------------------------------
100,000 Virginia Resources Authority, 5.125% Water & Sewer System Revenue
Bonds (Series A)/(Buchanon County Public Sewer Authority)/(Original
Issue Yield: 5.30%), 5/1/2020 AA 91,862
----------------------------------------------------------------------
$ 100,000 Virginia Transportation Board, 5.50% Transportation Contract Revenue
Bonds (US Route 58 Corridor)/(Original Issue Yield: 5.75%), 5/15/2018 AA $ 98,348
---------------------------------------------------------------------- -------------
Total Long-Term Municipal Securities
(identified cost, $3,043,075) 2,949,688
---------------------------------------------------------------------- -------------
Total Municipal Securities (identified cost,
$3,343,075) $ 3,249,688\
---------------------------------------------------------------------- -------------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ The cost of investments for federal tax purposes amounts to $3,343,075. The
net unrealized depreciation on a federal tax basis amounts to $93,387, which
is comprised entirely of depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($2,978,585) at February 28, 1994.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GO -- General Obligation
IDA -- Industrial Development Authority
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
UT -- Unlimited Tax
VRDN -- Variable Rate Demand Note
(See Notes which are an integral part of the Financial Statements)
Virginia Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------------------------------
Investments, at value (Note 2A) (identified and tax cost; $3,343,075) $ 3,249,688
- ---------------------------------------------------------------------------------------------------
Cash 13,336
- ---------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 328,902
- ---------------------------------------------------------------------------------------------------
Interest receivable 39,578
- ---------------------------------------------------------------------------------------------------
Receivable from adviser (Note 5) 17,000
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 1,022
- --------------------------------------------------------------------------------------------------- -------------
Total assets 3,649,526
- ---------------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $ 479,395
- --------------------------------------------------------------------------------------
Payable for Fund shares redeemed 109,000
- --------------------------------------------------------------------------------------
Dividends payable 6,891
- --------------------------------------------------------------------------------------
Payable to adviser (Note 5) 3,556
- --------------------------------------------------------------------------------------
Accrued expenses 72,099
- -------------------------------------------------------------------------------------- -----------
Total liabilities 670,941
- --------------------------------------------------------------------------------------------------- -------------
Net Assets for 306,104 shares of beneficial interest outstanding $ 2,978,585
- --------------------------------------------------------------------------------------------------- -------------
Net Assets Consist of:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 3,071,972
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (93,387)
- --------------------------------------------------------------------------------------------------- -------------
Total $ 2,978,585
- --------------------------------------------------------------------------------------------------- -------------
Net Asset Value, and Offering Price per Share
($2,978,585 / 306,104 shares of beneficial interest outstanding) $9.73
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds per Share: (97/100 of $9.73)* $9.44
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Virginia Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994*
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 44,836
- ----------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 3,294
- -----------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 28,287
- -----------------------------------------------------------------------------------------
Custodian and recordkeeper fees and expenses 39,028
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 3,275
- -----------------------------------------------------------------------------------------
Fund share registration costs 1,845
- -----------------------------------------------------------------------------------------
Printing and postage 3,000
- -----------------------------------------------------------------------------------------
Legal fees 5,250
- -----------------------------------------------------------------------------------------
Shareholder services fee (Note 5) 3,486
- -----------------------------------------------------------------------------------------
Distribution services fee (Note 5) 6,176
- -----------------------------------------------------------------------------------------
Miscellaneous 829
- ----------------------------------------------------------------------------------------- ---------
Total expenses 94,470
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) $ 3,294
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 85,000 88,294
- ------------------------------------------------------------------------------ --------- ---------
Net expenses 6,176
- ---------------------------------------------------------------------------------------------------- ----------
Net investment income 38,660
- ---------------------------------------------------------------------------------------------------- ----------
Realized and Unrealized Gain (Loss) on Investments:
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (93,387)
- ---------------------------------------------------------------------------------------------------- ----------
Change in net assets from operations $ (54,727)
- ---------------------------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
Virginia Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
August 31, 1994*
<S> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------------------------------------------------
Operations--
- ------------------------------------------------------------------------------------------
Net investment income $ 38,660
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (93,387)
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets from operations (54,727)
- ------------------------------------------------------------------------------------------ ----------------------
Distributions to Shareholders (Note 3)--
- ------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (38,660)
- ------------------------------------------------------------------------------------------ ----------------------
Fund Share (Principal) Transactions (Note 4)--
- ------------------------------------------------------------------------------------------
Proceeds from sale of shares 5,141,507
- ------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 14,676
- ------------------------------------------------------------------------------------------
Cost of shares redeemed (2,084,211)
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets resulting from Fund share transactions 3,071,972
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets 2,978,585
- ------------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------ ----------------------
End of period $ 2,978,585
- ------------------------------------------------------------------------------------------ ----------------------
</TABLE>
*For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Virginia Municipal Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C>
1994*
Net asset value, beginning of period $ 10.00
- ---------------------------------------------------------------------------------------------------
Income from investment operations
- ---------------------------------------------------------------------------------------------------
Net investment income 0.25
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.27)
- --------------------------------------------------------------------------------------------------- -------------
Total from investment operations (0.02)
- ---------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.25)
- --------------------------------------------------------------------------------------------------- -------------
Net asset value, end of period $ 9.73
- --------------------------------------------------------------------------------------------------- -------------
Total return** (0.26%)
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------
Expenses 0.75%(a)
- ---------------------------------------------------------------------------------------------------
Net investment income 4.69%(a)
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 10.72%(a)
- ---------------------------------------------------------------------------------------------------
Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $2,979
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public investment) to February 28, 1994 (unaudited).
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Virginia Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The financial statements included herein are only those of Virginia
Municipal Income Fund (the "Fund"), a non-diversified portfolio of the Trust.
The financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, or any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors at February 28, 1994, 29.1% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institutions ranged from 2.9% to 9.2% of
total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
distribute to shareholders each year all of its net investment income,
including any net realized gain on investments. Accordingly, no provision
for federal tax is necessary. Dividends paid by the Fund from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as
gross income for federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Fund to pay tax-exempt
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax
preference item for shareholders.
D. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
E. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions if any, are recorded on
the ex-dividend date.
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year
Ended
August 31,
1994*
<S> <C>
- ----------------------------------------------------------------------------------------------
Shares outstanding, beginning of period --
- ----------------------------------------------------------------------------------------------
Shares sold 511,984
- ----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,475
- ----------------------------------------------------------------------------------------------
Shares redeemed (207,355)
- ---------------------------------------------------------------------------------------------- ---------------
Shares outstanding, end of period 306,104
- ---------------------------------------------------------------------------------------------- ---------------
</TABLE>
*For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994.
Virginia Municipal Income Fund
- --------------------------------------------------------------------------------
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses and start-up administrative service expenses incurred by
the Fund will be borne initially by the Adviser and are estimated at $33,100 and
$54,000, respectively. The Fund has agreed to reimburse the Adviser for the
organizational expenses and start-up administrative service expenses initially
borne by Adviser during the five year period following August 30, 1993 (date the
Fund portfolio first became effective).
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .75 of 1% of the Fund's average
daily net assets.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund reimbursed FSC from the net assets of the
Fund for fees which FSC paid which relate to administrative support services of
the Fund's shares. The Services Plan provides that the Fund may incur
shareholder services expenses up to .25 of 1% of the average daily net assets of
the Fund.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
period from September 1, 1993 (date of initial public investment) to February
28, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
Purchases $ 3,042,910
- --------------------------------------------------------------------------------------------------- -------------
Sales --
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
NEW YORK
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO]
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3799
4031009 (4/94)
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Fortress
Shares of New York Municipal Income Fund, (the "Fund") covering the six-month
period ended February 28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive New York resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the state of New
York and its municipalities. This income is earned by a quality portfolio of
investment-grade, long-term New York municipal securities.
During the past six months, the Fund paid a total of $0.29 per share in tax-free
distributions to shareholders. Reflecting the fact that, when interest rates
rise, bond prices decline, the Fund's net asset value declined from $10.92 to
$10.70 during the period. Due to increased investor participation in the Fund,
the Fund's total net assets have increased from $14.5 million to $23.1 million
between the first and last days of the reporting period.
We believe that your investment in New York Municipal Income Fund is a wise way
to pursue tax-free earnings. We thank you for your confidence and encourage you
to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993 and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6% respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From
October 15, 1993 to February 4, 1994--when the Federal Reserve Board raised the
Federal Funds target for the first time in five years to 3.25%--long Treasury
and municipal yields climbed to 6.30% and 5.49%, respectively. As of February
28, 1994, the thirty-year Treasury rate was 6.66%, while the Bond Buyer Revenue
Index was 6.07%. In summary, for the six month period ended February 28, 1994,
long Treasury bond prices were reduced by 7.4%, and long municipal bond prices
by 4.6% due to the ascent of market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$14.5 million to $23.1 million. Reflecting market activity, the net asset value
per share of the Fund grew from $10.92 on September 1, 1993 to $11.12 on October
15, 1993, then fell to $10.70 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 16.1% in "Aaa" issues; 27.8% in "Aa"
issues; 46.6% in "A" issues; 4.2% in "Baa" issues; 2.3% in "non-rated" issues;
and 3.0% in municipal cash equivalents within the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
water revenue issues; single-family mortgage revenue issues; pollution control
revenue issues; and local general obligation issues. The average purchase yield
for new investments by the Fund was 5.64%.
For the six-month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of 0.61%*. This performance was comprised of 2.62%
income and reinvestment return (net of Fund expenses) and of 2.01% depreciation
in the net asset value per share of the Fund--both on a non-annualized basis.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares when redeemed,
may be worth more or less than their original cost.
New York Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
<C> <S> <C> <C>
- ------------- --------------------------------------------------------------------- ----------- --------------
Short-Term Municipal Securities--3.0%
- ------------------------------------------------------------------------------------
$ 700,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs)(at amortized cost)(Note 2A) A-1+ $ 700,000
--------------------------------------------------------------------- --------------
Long-Term Municipal Securities--96.2%
- ------------------------------------------------------------------------------------
New York--94.0%
---------------------------------------------------------------------
250,000 Albany, NY, Municipal Water Finance Authority, 5.50% Water and Sewer
Refunding Revenue Bonds (Series 1993A)/(FGIC Insured)/(Original Issue
Yield: 5.95%),
12/1/2022 Aaa 248,903
---------------------------------------------------------------------
250,000 Buffalo, NY, 5.375% UT GO School Improvement Bonds (Series
1993B)/(MBIA Insured)/(Original Issue Yield: 5.55%), 2/15/2015 Aaa 249,565
---------------------------------------------------------------------
180,000 Dutchess County, NY, 5.25% Public Improvement Refunding Bonds (Series
1993)/(Original Issue Yield: 5.45%), 5/1/2011 Aa1 176,395
---------------------------------------------------------------------
180,000 Dutchess County, NY, 5.25% Public Improvement Refunding Bonds (Series
1993)/(Original Issue Yield: 5.45%), 5/1/2012 Aa1 175,865
---------------------------------------------------------------------
150,000 Dutchess County, NY, 5.25% Public Improvement Refunding Bonds (Series
1993)/(Original Issue Yield: 5.45%), 5/1/2013 Aa1 145,925
---------------------------------------------------------------------
150,000 New Rochelle, NY, 4.90% Public Improvement Bonds (AMBAC
Insured)/(Original Issue Yield: 5.55%),
3/15/2010 Aaa 144,192
---------------------------------------------------------------------
150,000 New Rochelle, NY, 5.00% Public Improvement Bonds (AMBAC
Insured)/(Original Issue Yield: 5.60%),
3/15/2011 Aaa 144,822
---------------------------------------------------------------------
150,000 New Rochelle, NY, 5.00% Public Improvement Bonds (AMBAC
Insured)/(Original Issue Yield: 5.60%),
3/15/2012 Aaa 144,639
---------------------------------------------------------------------
500,000 New York City, NY, 5.625% UT GO Bonds (Fiscal 1994)/ (Original Issue
Yield: 5.90%), 8/1/2011 A- 479,270
---------------------------------------------------------------------
1,000,000 New York City, NY, 5.75% UT GO Bonds (Fiscal 1994
Series D)/(Original Issue Yield: 6.03%), 8/15/2013 A- 967,330
---------------------------------------------------------------------
500,000 New York City, NY, 6.00% UT GO Bonds (Series E)/(Original Issue
Yield: 6.25%), 5/15/2020 A- 500,530
---------------------------------------------------------------------
1,985,000 New York City, NY, 6.00% UT GO Bonds (Original Issue Yield: 6.25%),
5/15/2021 A- 1,981,804
---------------------------------------------------------------------
500,000 New York City, NY, 6.75% UT GO Bonds (Fiscal 1993
Series B)/(Original Issue Yield: 7.15%), 10/1/2015 A- 540,055
---------------------------------------------------------------------
500,000 New York City, NY, Industrial Development Authority, 7.00% Civil
Facility Revenue Bonds (College of Mt. Saint Vincent)/(Series 1993),
5/1/2008 NR 531,010
---------------------------------------------------------------------
750,000 New York City, NY, Municipal Water Finance Authority, 5.50% Water and
Sewer System Revenue Bonds (Original Issue Yield: 6.25%), 6/15/2020 A- 718,785
---------------------------------------------------------------------
500,000 New York City, NY, Municipal Water Finance Authority, 5.50% Water and
Sewer System Revenue Bonds (Series 1994B)/(Original Issue Yield:
5.73%), 6/15/2019 A- 484,040
---------------------------------------------------------------------
500,000 New York City, NY, Municipal Water Finance Authority, 6.00% Water and
Sewer System Revenue Bonds (Original Issue Yield: 7.40%), 6/15/2019 A- 505,130
---------------------------------------------------------------------
500,000 New York City, NY, Municipal Water Finance Authority, 6.375% Water
and Sewer System Revenue Bonds (Series 1992B)/(Original Issue Yield:
6.57%), 6/15/2022 A- 522,115
---------------------------------------------------------------------
400,000 New York State, 5.30% GO Refunding Bonds (Series 1993A)/(Original
Issue Yield: 5.50%) 3/15/2018 A 379,680
---------------------------------------------------------------------
1,000,000 New York State, 5.50% Mortgage Agency Revenue Bonds (Series
32A)/(Subject to AMT), 10/1/2025 Aa 959,500
---------------------------------------------------------------------
500,000 New York State Dormitory Authority, 5.625% College and University
Refunding Revenue Bonds (University of Rochester)/(Original Issue
Yield: 5.70%), 7/1/2012 Aaa 499,955
---------------------------------------------------------------------
250,000 New York State Dormitory Authority, 5.625% College and University
Refunding Revenue Bonds (Series 1993)/
(Colgate University)/(FGIC Insured)/(Original Issue Yield:
5.75%), 7/1/2023 Aaa 253,010
---------------------------------------------------------------------
250,000 New York State Dormitory Authority, 5.75% College and University
Refunding Revenue Bonds (Series 1992)/(Columbia University)/(Original
Issue Yield: 6.129%), 7/1/2015 Aaa 253,780
---------------------------------------------------------------------
250,000 New York State Dormitory Authority, 6.00% College and University
Refunding Revenue Bonds (Series 1991)/(New York University)/(FGIC
Insured)/(Original Issue Yield: 6.85%), 7/1/2015 Aaa 260,870
---------------------------------------------------------------------
350,000 New York State Energy Research and Development Authority, 5.375%
Facilities Revenue Refunding Bonds (Consolidated Edison Company of
New York)/(Subject to AMT),
9/15/2022 Aa2 329,819
---------------------------------------------------------------------
200,000 New York State Energy Research and Development Authority, 6.00%
Facilities Revenue Bonds (Consolidated Edison Company of New
York)/(Subject to AMT)/(Original Issue Yield: 6.184%), 3/15/2028 Aa2 202,002
---------------------------------------------------------------------
500,000 New York State Energy Research and Development Authority, 6.375%
Facilities Revenue Bonds (Series 1992B)/(Consolidated Edison Company
of New York)/(Subject to AMT)/(Original Issue Yield: 6.521%),
12/1/2027 Aa2 525,385
---------------------------------------------------------------------
400,000 New York State Energy Research and Development Authority, 6.50% PCR
Bonds (Series 1992A)/(Rochester Gas & Electric Company)/(MBIA
Insured)/(Subject to AMT),
5/15/2032 Aaa 431,548
---------------------------------------------------------------------
1,000,000 New York State Environmental Facilities Corp. Solid Waste Disposal,
5.70% Revenue Bonds (Series 1993)/(Occidental Petroleum
Corp.)/(Original Issue Yield: 5.75%)/(Subject to AMT), 9/1/2028 BBB 966,020
---------------------------------------------------------------------
150,000 New York State Local Government Assistance Corporation, 5.50% Bonds
(Series C)/(Original Issue Yield: 5.70%),
4/1/2018 A 145,704
---------------------------------------------------------------------
400,000 New York State Local Government Assistance Corporation, 5.50% Bonds
(Series C)/(Original Issue Yield: 6.39%),
4/1/2022 A 383,436
---------------------------------------------------------------------
500,000 New York State Local Government Assistance Corporation, 6.25% Bonds
(Series 1992B)/(Original Issue Yield: 6.30%), 4/1/2021 A 522,410
---------------------------------------------------------------------
500,000 New York State Medical Care Facilities Finance Agency, 6.375%
Mortgage Revenue Bonds (Series 1993A)/(FHA
Insured), 8/15/2033 Aa 544,950
---------------------------------------------------------------------
500,000 New York State Mortgage Agency, 5.375% Revenue Bonds (Series
30A)/(Subject to AMT), 10/1/2024 Aa 475,185
---------------------------------------------------------------------
500,000 New York State Mortgage Agency, 6.65% Revenue Bonds (Series
30B)/(Subject to AMT), 10/1/2025 Aa 519,775
---------------------------------------------------------------------
250,000 New York State Power Authority, 6.00% Revenue and General Purpose
Bonds (Series 1991Y)/(Original Issue Yield: 6.96%), 1/1/2020 Aa 256,737
---------------------------------------------------------------------
500,000 New York State Throughway Authority, 5.75% Highway Improvement
Refunding Revenue Bonds (Series 1992)/ (Original Issue Yield: 6.08%),
1/1/2019 A1 505,950
---------------------------------------------------------------------
250,000 Niagra County, NY, 5.75% GO Public Improvement Bonds (Series
1993)/(MBIA Insured)/(Original Issue Yield: 5.90%), 8/15/2019 Aaa 255,875
---------------------------------------------------------------------
500,000 Port Authority of New York and New Jersey, 6.50% Refunding Revenue
Bonds (Series 76)/(Subject to AMT)/ (Original Issue Yield: 6.782%),
11/1/2026 A1 531,305
---------------------------------------------------------------------
250,000 Riverhead (Town), NY, 5.70% GO Public Improvement Refunding Bonds
(Series 1993)/(FGIC Insured)/(Original Issue Yield: 5.80%), 3/1/2023 Aaa 256,577
---------------------------------------------------------------------
300,000 Rochester, NY, 5.00% UT GO Bonds (Series A)/(AMBAC Insured)/(Original
Issue Yield: 5.40%), 8/15/2021 AAA 277,668
---------------------------------------------------------------------
300,000 Rochester, NY, 5.00% UT GO Bonds (Series A)/(AMBAC Insured)/(Original
Issue Yield: 5.40%), 8/15/2022 AAA 279,354
---------------------------------------------------------------------
250,000 Smithtown, NY, 5.55% UT GO Refunding Bonds (Series 1993A)/(MBIA
Insured)/(Original Issue Yield: 5.70%),
4/1/2010 Aaa 255,597
---------------------------------------------------------------------
500,000 Triborough Bridge and Tunnel Authority, NY, 6.00% Revenue Bonds
(Series Y)/(Original Issue Yield: 6.14%),
1/1/2012 Aa 537,620
---------------------------------------------------------------------
1,000,000 UFA Development Corp., NY, 5.95% FHA Insured Mortgage Revenue Bonds
(Series 1993)/(Loretto-Utica Project), 7/1/2035 Aa 968,580
---------------------------------------------------------------------
250,000 United Nations Development Corporation, NY, 6.00% Refunding Revenue
Bonds (Series 1992A)/(Original Issue Yield: 6.337%), 7/1/2012 A 256,388
---------------------------------------------------------------------
750,000 United Nations Development Corporation, NY, 6.00% Refunding Revenue
Bonds (Series A) (Original Issue Yield: 6.40%), 7/1/2026 A 764,138
---------------------------------------------------------------------
210,000 Yonkers, NY, 5.50% GO Bonds (Series 1993A)/(FGIC Insured)/(Original
Issue Yield: 5.60%), 3/1/2008 Aaa 217,186
--------------------------------------------------------------------- --------------
Total 21,676,379
--------------------------------------------------------------------- --------------
Puerto Rico--2.2%
---------------------------------------------------------------------
500,000 Puerto Rico Electric Power Authority, 6.25% Refunding Revenue Bonds
(Series R), 7/1/2017 A- 521,275
--------------------------------------------------------------------- --------------
Total Long-Term Municipal Securities
(identified cost, $22,004,002) 22,197,654
--------------------------------------------------------------------- --------------
Total Municipal Securities (identified cost,
$22,704,002) $ 22,897,654\
--------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ The cost of investments for federal tax purposes amounts to $22,704,002. The
net unrealized appreciation of investments on a federal tax basis amounts to
$193,652, which is comprised of $463,802 appreciation and $270,150
depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($23,064,877) at February 28, 1994.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
GO -- General Obligation
LOCs -- Letter(s) of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
New York Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $22,704,002) $ 22,897,654
- ---------------------------------------------------------------------------------------------------
Cash 29,316
- ---------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 395,128
- ---------------------------------------------------------------------------------------------------
Interest receivable 361,875
- ---------------------------------------------------------------------------------------------------
Receivable from Adviser (Note 5) 29,000
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 6,140
- --------------------------------------------------------------------------------------------------- -------------
Total assets 23,719,113
- ---------------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $ 565,402
- ---------------------------------------------------------------------------------------
Dividends payable 75,685
- ---------------------------------------------------------------------------------------
Payable for Fund shares redeemed 7,453
- ---------------------------------------------------------------------------------------
Payable to distributor (Note 5) 4,511
- ---------------------------------------------------------------------------------------
Accrued expenses 1,185
- --------------------------------------------------------------------------------------- ----------
Total liabilities 654,236
- --------------------------------------------------------------------------------------------------- -------------
Net Assets for 2,155,460 shares of beneficial interest outstanding $ 23,064,877
- --------------------------------------------------------------------------------------------------- -------------
Net Assets Consist of:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 22,871,225
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 193,652
- --------------------------------------------------------------------------------------------------- -------------
Total $ 23,064,877
- --------------------------------------------------------------------------------------------------- -------------
Net Asset Value ($23,064,877 / 2,155,460 shares of beneficial interest outstanding) $10.70
- --------------------------------------------------------------------------------------------------- -------------
Offering Price per Share (100/99 of $10.70)* $10.81
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds per Share (99/100 of $10.70)** $10.59
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Fortress Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
New York Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- -----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 537,534
- -----------------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 38,227
- -----------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 106,324
- -----------------------------------------------------------------------------------------
Trustees' fees 750
- -----------------------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 23,457
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,484
- -----------------------------------------------------------------------------------------
Fund share registration costs 10,506
- -----------------------------------------------------------------------------------------
Printing and postage 9,000
- -----------------------------------------------------------------------------------------
Legal fees 3,800
- -----------------------------------------------------------------------------------------
Distribution services fee (Note 5) 47,798
- -----------------------------------------------------------------------------------------
Auditing fees 9,000
- -----------------------------------------------------------------------------------------
Insurance premiums 2,605
- -----------------------------------------------------------------------------------------
Taxes 125
- -----------------------------------------------------------------------------------------
Miscellaneous 1,837
- ----------------------------------------------------------------------------------------- ----------
Total expenses 260,913
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) $ 38,227
- -----------------------------------------------------------------------------
Waiver of distribution services fee (Note 5) 23,899
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 174,000 236,126
- ----------------------------------------------------------------------------- ---------- ----------
Net expenses 24,787
- ----------------------------------------------------------------------------------------------------- ----------
Net investment income 512,747
- ----------------------------------------------------------------------------------------------------- ----------
Realized and Unrealized Gain (Loss) on Investments:
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (495,591)
- ----------------------------------------------------------------------------------------------------- ----------
Change in net assets from operations $ 17,156
- ----------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
New York Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C>
1994* 1993**
Increase (Decrease) in Net Assets:
- ---------------------------------------------------------------------------------
Operations--
- ---------------------------------------------------------------------------------
Net investment income $ 512,747 $ 349,935
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (495,591) 689,243
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from operations 17,156 1,039,178
- --------------------------------------------------------------------------------- -------------- --------------
Distributions to Shareholders (Note 3)--
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income (512,747) (349,935)
- --------------------------------------------------------------------------------- -------------- --------------
Fund Share (Principal) Transactions (Note 4)--
- ---------------------------------------------------------------------------------
Proceeds from sale of shares 9,444,384 19,352,830
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 113,813 73,239
- ---------------------------------------------------------------------------------
Cost of shares redeemed (492,812) (5,620,229)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Fund share transactions 9,065,385 13,805,840
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 8,569,794 14,495,083
- ---------------------------------------------------------------------------------
Net assets:
- ---------------------------------------------------------------------------------
Beginning of period 14,495,083 --
- --------------------------------------------------------------------------------- -------------- --------------
End of period $ 23,064,877 $ 14,495,083
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** For the period from December 2, 1992 (date of initial public investment) to
August 31, 1993.
(See Notes which are an integral part of the Financial Statements)
New York Municipal Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
Net asset value, beginning of period $ 10.92 $ 10.04
- ----------------------------------------------------------------------------------------
Income from investment operations
- ----------------------------------------------------------------------------------------
Net investment income 0.29 0.44
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.22) 0.88
- ---------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 0.07 1.32
- ----------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29) (0.44)
- ---------------------------------------------------------------------------------------- --------- ---------
Net asset value, end of period $ 10.70 $ 10.92
- ---------------------------------------------------------------------------------------- --------- ---------
Total return*** 0.61% 13.38%
- ----------------------------------------------------------------------------------------
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------
Expenses 0.26 (a) 0.25%(a)
- ----------------------------------------------------------------------------------------
Net investment income 5.36 (a) 5.53%(a)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 2.47 (a) 1.91%(a)
- ----------------------------------------------------------------------------------------
Supplemental Data
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,065 $14,495
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 0% 0%
- ----------------------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from December 2, 1992 (date of initial
public investment), to August 31, 1993.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
New York Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
New York Municipal Income Fund, a non-diversified portfolio of the Trust. The
financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. 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 it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at February 28, 1994, 20.4% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentage by financial institutions ranged from 2.4% to 5.4% of
total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and distribute to
shareholders each year all of its net investment income, including any net
realized gain on investments. Accordingly, no provision for federal income
tax is necessary. Dividends paid by the Fund from net interest earned on
tax-exempt municipal bonds are not includable by shareholders as gross
income for federal income tax purposes, because the Fund intends to meet
certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986, may be considered a tax preference item
for shareholders.
D. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
E. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
F. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended
August 31,
<S> <C> <C>
1994* 1993**
- ---------------------------------------------------------------------------------------
Shares outstanding, beginning of period 1,327,302 --
- ---------------------------------------------------------------------------------------
Shares sold 863,086 1,866,527
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 10,446 6,903
- ---------------------------------------------------------------------------------------
Shares redeemed (45,374) (546,128)
- --------------------------------------------------------------------------------------- ----------- -----------
Shares outstanding, end of period 2,155,460 1,327,302
- --------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
* Six months ended February 28, 1994.
** For the period from December 2, 1992 (date of initial public investment) to
August 31, 1993.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to 0.40 of 1% of the Fund's
average daily net assets. Adviser has
voluntarily agreed to waive its fee. In addition, Adviser has voluntarily
under-taken to reimburse the Fund for certain operating expenses of the Fund.
Adviser can modify or terminate this voluntary waiver and reimbursement of
expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fees received during
any fiscal year shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Organizational expenses ($24,367) and start-up administrative service expenses
($54,637) will be borne initially be Adviser. The Fund has agreed to reimburse
Adviser for the organization expenses and start-up administrative expenses
initially borne by Adviser during the five year period following November 24,
1992 (date the Trust's portfolio first became effective).
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940, amounting to $6,950,000 and $6,050,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .50 of 1% of the Fund's average
daily net assets.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the six
months ended
February 28, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
Purchases-- $ 8,642,811
- --------------------------------------------------------------------------------------------------- -------------
Sales-- --
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
OHIO
MUNICIPAL
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1994
[LOGO]
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3799
2032305 (4/94)
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Ohio
Municipal Income Fund, (the "Fund") covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Ohio resident, you will find that the Fund may deliver a high
level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and its municipalities. This income is earned by a quality portfolio of
investment-grade, long-term Ohio municipal securities.
Due to increased investor participation in the Fund, total net assets grew from
$80.3 million to $84.6 million between the first and last days of the report
period. Distributions paid to shareholders totaled $0.277 per share for Fortress
Shares, and $0.30 per share for Trust Shares. Reflecting the fact that, when
interest rates rise, bond prices decline, the net asset value of both Fortress
Shares and Trust Shares declined from $11.65 to $11.47 during the period.
We believe that your investment in Ohio Municipal Income Fund is a wise way to
pursue tax-free earnings. We thank you for your confidence and encourage you to
build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
Investment Review
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to
February 28, 1994, annual growth in real GDP, has, in fact, escalated from 2.9%
to 7.5%. In the meantime, however, increases for the Producer Price Index
remained miniscule--at yearly rates of 0.5% as of September 1, 1993 and of 0.2%
as of February 28, 1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6% respectively. These conditions, as well as on going
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world-- yields on thirty-year Treasury bonds descended from 6.07%
to 5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first
time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was
6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for the six
month period ended February 28, 1994, long Treasury bond prices were reduced by
7.4%, and long municipal bond prices by 4.6% due to the ascent of market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$80.3 million to $84.6 million. Reflecting market activity, the net asset value
per share of both Fortress Shares and Trust Shares grew from $11.65 on September
1, 1993 to $11.90 on October 15, 1993, and then fell to $11.47 on February 28,
1994. On that date, the credit breakdown of the holdings of the Fund was: 37.6%
in "Aaa" issues; 34.0% in "Aa" issues; 23.4% in "A" issues; 3.7% in "Baa"
issues; and 1.3% in municipal cash equivalents within the highest rating
category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; pollution control revenue
issues of investor-owned utilities; and water and sewer system revenue issues.
The average purchase yield for new investments by the Fund was 5.70%.
For the six-month period ended February 28, 1994, an investor in Fortress Shares
of the Fund experienced a "total return" of 0.81%.* The performance of Fortress
Shares was comprised of 2.36% income and reinvestment return (net of expenses)
and 1.55% depreciation in the net asset value per share-both on a non-annualized
basis.
For the six-month period ended February 28, 1994, an investor in Trust Shares of
the Fund experienced a "total return" of 1.02%.* The performance of Trust Shares
was comprised of 2.57% income and reinvestment return (net of expenses) and
1.55% depreciation in the net asset value per share-both on a non-annualized
basis.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Ohio Municipal Income Fund
Portfolio of Investments
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
<C> <S> <C> <C>
- -------------- -------------------------------------------------------------------- ----------- --------------
Short-Term Municipal Securities--1.3%
- ------------------------------------------------------------------------------------
$ 1,100,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit
Suisse and Sumitomo Bank Ltd. LOCs)/(at amortized cost)(Note 2A) A-1+ $ 1,100,000
-------------------------------------------------------------------- --------------
Long-Term Municipal Securities--96.6%
- ------------------------------------------------------------------------------------
Ohio--96.6%
--------------------------------------------------------------------
1,000,000 Akron, Bath & Copley Joint Townships, OH, 5.25% Hospital Revenue
Refunding Bonds (Children's Hospital and Medical Centre of
Akron)/(AMBAC Insured)/(Original
Issue Yield: 5.54%), 11/15/2020 AAA 948,390
--------------------------------------------------------------------
550,000 Akron, Bath & Copley Joint Townships, OH, 6.50% Health Care Revenue
Bonds (Series 1991)/(Akron General Medical Centre)/(AMBAC Insured),
1/1/2019 Aaa 597,668
--------------------------------------------------------------------
200,000 Akron, Bath & Copley Joint Townships, OH, 7.45% Health Care Revenue
Bonds (Series 1990)/(Children's Hospital and Medical Centre of
Akron)/(AMBAC Insured)/(Original Issue Yield: 7.70%), 11/15/2020 Aaa 235,914
--------------------------------------------------------------------
400,000 Akron, Bath & Copley Joint Townships, OH, 7.45% Health Care Revenue
Bonds (Series 1990)/(Children's Hospital and Medical Centre of
Akron)/(Original Issue Yield: 7.70%), 11/15/2020 A+ 471,404
--------------------------------------------------------------------
1,750,000 Akron, OH, 6.30% LT Various Purpose GO Bonds,
12/1/2013 A 1,865,290
--------------------------------------------------------------------
750,000 Ashland County, OH, 7.00% LT GO Bonds (Series 1991), 12/1/2011 A 850,950
--------------------------------------------------------------------
1,000,000 Bay Village, OH, City School District, 7.35% UT GO School
Improvement Bonds (Series 1990), 12/1/2011 Aa 1,158,210
--------------------------------------------------------------------
300,000 Bellefontaine, OH, 7.05% LT GO Bonds (Storm Water
Utility)/(Series 1991), 6/1/2011 A 337,362
--------------------------------------------------------------------
520,000 Berea, OH, City School District, 5.625% School Improvement Bonds
(AMBAC Insured)/(Original Issue Yield: 5.75%), 12/15/2012 Aaa 525,086
--------------------------------------------------------------------
500,000 Berea, OH, City School District, 5.625% School Improvement Bonds
(Series 1993)/(AMBAC Insured)/(Original
Issue Yield: 5.70%), 12/15/2009 Aaa 514,515
--------------------------------------------------------------------
1,750,000 Bowling Green State University, OH, 6.35% General
Receipt Bonds (Series 1992), 6/1/2008 A 1,846,338
--------------------------------------------------------------------
900,000 Brunswick, OH, 7.35% UT GO Municipal Recreation and Community Center
Bonds, 12/1/2010 A 1,033,947
--------------------------------------------------------------------
1,000,000 Clermont County, OH, Hospital Facilities Authority, 5.875% Revenue
Refunding Bonds (Series 1993B)/(Mercy Health Care System)/(AMBAC
Insured), 9/1/2015 Aaa 1,020,960
--------------------------------------------------------------------
800,000 Clermont County, OH, Hospital Facilities Authority, 7.50% Revenue
Bonds (Series 1989A)/(Mercy Health Care System)/(AMBAC Insured),
9/1/2019 Aaa 922,096
--------------------------------------------------------------------
500,000 Cleveland, OH, Waterworks, 6.50% Revenue Bonds
(Series F), 1/1/2021 A1 564,665
--------------------------------------------------------------------
3,000,000 Columbus, OH, 5.25% UT GO Bonds (Series 1993-1)/ (Original Issue
Yield: 5.69%), 9/15/2018 Aa 2,887,800
--------------------------------------------------------------------
1,000,000 Columbus, OH, 5.50% LT GO Bonds (Series C)/(Original Issue Yield:
5.55%), 9/15/2008 Aa1 1,021,410
--------------------------------------------------------------------
1,500,000 Columbus, OH, Water System, 6.375% Refunding Revenue Bonds (Series
1991)/(Original Issue Yield: 6.65%),
11/1/2010 A1 1,508,248
--------------------------------------------------------------------
800,000 Cuyahoga County, OH, 7.00% UT GO Bonds (Jail Facilities)/(Series
1991)/(Original Issue Yield: 7.065%),
10/1/2013 Aa 930,408
--------------------------------------------------------------------
500,000 Cuyahoga County, OH, 8.00% Revenue Bonds (Cleveland Clinic
Foundation)/(Original Issue Yield: 8.045%),
12/1/2015 Aa 564,880
--------------------------------------------------------------------
800,000 Cuyahoga County, OH, Health System, 6.50% Hospital Revenue Bonds
(Series 1992)/(University Hospital of Cleveland), 1/15/2019 Aa 863,456
--------------------------------------------------------------------
780,000 Cuyahoga County, OH, Health System, 6.875% Revenue Bonds (Series
1989A)/(University Hospital of Cleveland)/ (BIGI Insured), 1/15/2019 Aaa 857,696
--------------------------------------------------------------------
1,000,000 Cuyahoga County, OH, Hospital Facilities Authority, 6.25% Revenue
Bonds (Series 1993)/(Health Cleveland, Inc.), 8/15/2010 A 1,046,010
--------------------------------------------------------------------
800,000 Eastlake, OH, 5.60% LT GO Bonds, 12/1/2017 A1 799,920
--------------------------------------------------------------------
1,000,000 Eaton, OH, IDA, 6.50% Refunding Revenue Bonds (Baxter International,
Inc.)/(Series 1992), 12/1/2012 A3 1,050,420
--------------------------------------------------------------------
500,000 Franklin County, OH, 5.375% LT GO Refunding Bonds (Series
1993)/(Original Issue Yield: 5.62%), 12/1/2020 Aaa 486,470
--------------------------------------------------------------------
1,000,000 Franklin County, OH, 5.50% LT GO Refunding Bonds (Original Issue
Yield: 5.582%), 12/1/2013 Aaa 1,000,760
--------------------------------------------------------------------
2,500,000 Franklin County, OH, 5.75% Hospital Facility Refunding Revenue Bonds
(Series 1993A)/(Riverside United Methodist Hospital)/(Original Issue
Yield: 6.10%), 5/15/2020 Aa 2,520,300
--------------------------------------------------------------------
250,000 Franklin County, OH, 6.375% LT GO Bonds (Public Im-
provement)/(Series 1991)/(Original Issue Yield: 6.50%), 12/1/2012 Aaa 281,670
--------------------------------------------------------------------
900,000 Franklin County, OH, 6.375% UT GO Bonds (Courthouse Project)/(Series
1991)/(Original Issue Yield: 6.60%),
12/1/2020 Aaa 1,014,012
--------------------------------------------------------------------
400,000 Franklin County, OH, 6.80% UT GO Bonds (Series 1990), 12/1/2008 Aaa 456,560
--------------------------------------------------------------------
500,000 Franklin County, OH, 7.25% Revenue Refunding and Improvement Bonds
(Riverside United Methodist Hospital)/ (MBIA Insured)/(Original
Issue Yield: 7.29%), 5/15/2020 Aaa 566,470
--------------------------------------------------------------------
260,000 Franklin County, OH, 7.50% Revenue Refunding and Improvement Bonds
(Riverside United Methodist Hospital)/ (Original Issue Yield:
7.60%), 5/15/2008 Aa 303,919
--------------------------------------------------------------------
3,000,000 Franklin County, OH, 7.60% Hospital Facility Refunding and
Improvement Revenue Bonds (Riverside United Methodist
Hospital)/(Original Issue Yield: 7.68%), 5/15/2020 Aa 3,525,690
--------------------------------------------------------------------
1,000,000 Franklin County, OH, 7.65% Hospital Revenue Refunding Bonds, Holy
Cross Health Systems (Mt. Carmel Hospital)/ (Original Issue Yield:
7.85%), 6/1/2010 A1 1,177,670
--------------------------------------------------------------------
2,750,000 Franklin County, OH, Convention Facilities Authority, 5.80% Lease
Revenue Bonds (Series 1992)/(MBIA
Insured)/(Original Issue Yield: 6.12%), 12/1/2013 Aaa 2,809,317
--------------------------------------------------------------------
500,000 Franklin County, OH, Convention Facilities Authority, 7.00% Lease
Revenue Bonds (MBIA Insured)/(Original
Issue Yield: 7.195%), 12/1/2019 Aaa 578,550
--------------------------------------------------------------------
1,500,000 Hamilton County, OH, 6.25% Hospital Facility Revenue Refunding Bonds
(Series 1992A)/(Bethesda Hospital),
1/1/2012 A 1,582,035
--------------------------------------------------------------------
500,000 Hamilton County, OH, 6.50% UT GO Bonds (Museum Centre)/(Series
1991A), 12/1/2009 Aaa 538,880
--------------------------------------------------------------------
700,000 Hamilton County, OH, 7.00% Hospital Facility Revenue Refunding and
Improvement Bonds (Deaconess Hospital of Cincinnati)/(Series
1992)/(Original Issue Yield: 7.046%), 1/1/2012 A 783,328
--------------------------------------------------------------------
450,000 Hamilton County, OH, Hospital Facilities Authority, 6.25% Revenue
Refunding Bonds (Bethesda Hospital), 1/1/2008 A 477,621
--------------------------------------------------------------------
1,000,000 Hamilton County, OH, Sewer System, 5.25% Revenue Bonds (Series
1993A)/(FGIC Insured)/(Original Issue Yield: 5.656%), 12/1/2016 Aaa 965,160
--------------------------------------------------------------------
945,000 Hamilton County, OH, Sewer System, 6.70% Improvement and Refunding
Revenue Bonds (Metropolitan Sewer District of Greater
Cincinnati)/(Original Issue Yield: 6.80%), 12/1/2013 A1 1,075,372
--------------------------------------------------------------------
400,000 Hilliard, OH, City School District, 7.00% UT GO Bonds (Original
Issue Yield: 7.267%), 12/1/2013 A1 462,076
--------------------------------------------------------------------
500,000 Kenton, OH, Local School District, 6.30% UT GO Bonds (School
Improvement)/(Series 1992)/(Original Issue Yield: 6.40%), 12/1/2008 A1 522,925
--------------------------------------------------------------------
700,000 Lakewood, OH, 6.00% Hospital Improvement Revenue Bonds (Lakewood
Hospital)/(BIGI Insured)/(Original Issue Yield: 6.90%), 2/15/2010 Aaa 719,894
--------------------------------------------------------------------
1,300,000 Lakewood, OH, 6.50% Various Purpose LT GO Bonds
(Series 1992), 12/1/2012 Aa 1,421,602
--------------------------------------------------------------------
1,000,000 Lakota, OH, Local School District, 6.00% UT GO School Improvement
Bonds (Series 1993)/(Original Issue Yield: 6.18%), 12/1/2015 A1 1,040,330
--------------------------------------------------------------------
1,000,000 Lakota, OH, Local School District, 6.00% UT GO School Improvement
Bonds (Series 1993)/(Original Issue Yield: 6.20%), 12/1/2015 A1 1,040,330
--------------------------------------------------------------------
500,000 Lebanon, OH, Waterworks System, 7.10% Mortgage Improvement and
Refunding Revenue Bonds (Series 1991), 3/1/2008 A 556,510
--------------------------------------------------------------------
1,760,000 Loveland, OH, City School District, 6.65% UT GO School Improvement
Bonds (Original Issue Yield: 6.70%),
12/1/2015 A 1,970,549
--------------------------------------------------------------------
1,750,000 Madison, OH, Local School District, 6.00% UT GO School Improvement
Bonds (Original Issue Yield: 6.06%)/(FGIC Insured), 12/1/2015 Aaa 1,827,385
--------------------------------------------------------------------
420,000 Marysville, OH, Sewer System, 7.15% Improvement
Revenue Bonds (Series 1991), 12/1/2011 A 477,683
--------------------------------------------------------------------
1,000,000 Middleburg Heights, OH, 7.20% LT GO Bonds, 12/1/2011 Aa 1,132,210
--------------------------------------------------------------------
1,000,000 Montgomery County, OH, 6.625% Health Care Revenue Bonds (Series
1991A)/(Sisters of Charity Health Care System, Inc.)/(MBIA
Insured)/(Original Issue Yield: 6.80%), 5/15/2021 Aaa 1,085,270
--------------------------------------------------------------------
500,000 Montgomery County, OH, 6.75% Various Purpose LT GO Bonds (Series
1991A), 9/1/2011 Aa 562,270
--------------------------------------------------------------------
500,000 Montgomery County, OH, Sewer System, 5.60% Revenue Bonds (Series
1993)/(FGIC Insured), 9/1/2011 Aaa 505,140
--------------------------------------------------------------------
1,750,000 Northeast, OH, Regional Sewer District, 6.50% Wastewater System
Improvement Revenue Bonds (Series 1991)/ (AMBAC Insured)/(Original
Issue Yield: 6.85%),
11/15/2016 Aaa 1,882,702
--------------------------------------------------------------------
2,705,000 Ohio Housing Finance Agency, 7.65% Single Family Housing Mortgage
Revenue Bonds (Series 1989A)/(GNMA
Collateralized)/(Subject to AMT), 3/1/2029 AAA 2,899,760
--------------------------------------------------------------------
425,000 Ohio Housing Finance Agency, 7.80% Single Family Housing Mortgage
Revenue Bonds (GNMA Collateralized)/ (Subject to AMT)/(MBIA
Insured), 3/1/2030 AAA 455,719
--------------------------------------------------------------------
1,500,000 Ohio Municipal Electric Generation Agency, 5.375% Revenue Bonds
(AMBAC Insured)/(Original Issue Yield: 5.680%), 2/15/2024 Aaa 1,449,090
--------------------------------------------------------------------
1,500,000 Ohio State Air Quality Development Authority, 5.95% PCR Bonds (Ohio
Edison Company), 5/15/2029 BBB- 1,452,195
--------------------------------------------------------------------
1,250,000 Ohio State Air Quality Development Authority, 7.45% PCR Bonds (Ohio
Edison Company)/(FGIC Insured),
3/1/2016 Aaa 1,415,363
--------------------------------------------------------------------
1,500,000 Ohio State Higher Education Facilities Authority, 6.00% Revenue
Bonds (Case Western Reserve University)/(Original Issue Yield:
6.222%), 10/1/2022 Aa 1,536,510
--------------------------------------------------------------------
600,000 Ohio State University, 5.875% General Receipts Bonds
(Series 1992A)/(Original Issue Yield: 6.07%), 12/1/2012 A1 613,620
--------------------------------------------------------------------
2,000,000 Ohio State Water Development Authority, 5.50% Revenue Bonds,
12/1/2011 A1 2,006,240
--------------------------------------------------------------------
500,000 Ohio State Water Development Authority, 5.50% Revenue Refunding and
Improvement Bonds (AMBAC Insured)/ (Original Issue Yield: 6.30%),
12/1/2018 AAA 495,280
--------------------------------------------------------------------
1,700,000 Ohio State Water Development Authority, 5.95% PCR Bonds (Ohio Edison
Co.), 5/15/2029 BBB- 1,641,129
--------------------------------------------------------------------
650,000 Ohio State Water Development Authority, 7.00% Revenue Bonds
(Original Issue Yield: 7.65%), 12/1/2014 A 717,567
--------------------------------------------------------------------
1,000,000 Revere, OH, Local School District, 6.00% UT GO Bonds (Series
1993)/(AMBAC Insured), 12/1/2016 Aaa 1,047,180
--------------------------------------------------------------------
350,000 Rocky River, OH, City School District, 6.90% Special Tax GO Bonds
(Original Issue Yield: 6.97%), 12/1/2011 Aa 396,386
--------------------------------------------------------------------
1,000,000 Solon, OH, 6.15% Various Purpose Improvement UT GO Bonds (Series
1992), 12/1/2012 Aa 1,055,430
--------------------------------------------------------------------
500,000 South Euclid, OH, 7.00% UT GO Bonds (Recreational
Facilities Improvement Series), 12/1/2011 A1 570,765
--------------------------------------------------------------------
500,000 Stark County, OH, 5.00% Hospital Revenue Bonds (Timken Mercy Medical
Center)/(MBIA Insured)/(Original Issue Yield: 5.431%), 12/1/2019 AAA 458,660
--------------------------------------------------------------------
500,000 Tiffin, OH, 7.10% LT GO Bonds (Sanitary Sewer System Improvement
Series), 12/1/2011 A 561,955
--------------------------------------------------------------------
1,000,000 University of Cincinnati, OH, 5.15% General Receipts Bonds (Series
M)/(Original Issue Yield: 5.229%),
6/1/2014 AA- 937,740
--------------------------------------------------------------------
500,000 University of Cincinnati, OH, 6.50% General Receipt Bonds (Series
12)/(Original Issue Yield: 6.613%),
6/1/2011 AA- 533,970
--------------------------------------------------------------------
500,000 University of Cincinnati, OH, 7.00% General Receipt Bonds (Original
Issue Yield: 7.05%), 6/1/2011 AA- 565,870
--------------------------------------------------------------------
1,100,000 Wilmington, OH, 6.05% Municipal Building LT GO Bonds (Series 1992),
8/1/2017 A 1,133,374
-------------------------------------------------------------------- --------------
Total Long-Term Municipal Securities
(identified cost, $76,930,744) 81,717,506
-------------------------------------------------------------------- --------------
Total Municipal Securities
(identified cost, $78,030,744) $ 82,817,506\
-------------------------------------------------------------------- --------------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
\ The cost of investments for federal tax purposes amounts to $78,030,744. The
unrealized appreciation of investments on a federal tax basis amounts to
$4,786,762, which is comprised of $5,003,491 appreciation and $216,729
depreciation at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($84,624,068) at February 28, 1994.
Ohio Municipal Income Fund
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
BIGI -- Bond Investors Guaranty Inc.
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GO -- General Obligation
LOCs -- Letter of Credits
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $78,030,744) $ 82,817,506
- ---------------------------------------------------------------------------------------------------
Cash 58,739
- ---------------------------------------------------------------------------------------------------
Interest receivable 1,395,823
- ---------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 911,239
- ---------------------------------------------------------------------------------------------------
Receivable from adviser (Note 5) 9,635
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 8,251
- --------------------------------------------------------------------------------------------------- -------------
Total assets 85,201,193
- ---------------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 278,726
- ---------------------------------------------------------------------------------------
Dividends payable 229,169
- ---------------------------------------------------------------------------------------
Payable to Distributor (Note 5) 24,031
- ---------------------------------------------------------------------------------------
Accrued expenses 45,199
- --------------------------------------------------------------------------------------- ----------
Total liabilities 577,125
- --------------------------------------------------------------------------------------------------- -------------
Net Assets for 7,376,769 shares of beneficial interest outstanding $ 84,624,068
- --------------------------------------------------------------------------------------------------- -------------
Net Assets Consist of:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 79,831,678
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,786,762
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 2,922
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments 2,706
- --------------------------------------------------------------------------------------------------- -------------
Total $ 84,624,068
- --------------------------------------------------------------------------------------------------- -------------
Net Asset Value:
- ---------------------------------------------------------------------------------------------------
Fortress Shares ($77,906,789 / 6,791,026 shares of beneficial interest outstanding) $11.47
- --------------------------------------------------------------------------------------------------- -------------
Trust Shares ($6,717,279 / 585,743 shares of beneficial interest outstanding) $11.47
- --------------------------------------------------------------------------------------------------- -------------
Offering Price per Share:
- ---------------------------------------------------------------------------------------------------
Fortress Shares (100/99 of $11.47)* $11.59
- --------------------------------------------------------------------------------------------------- -------------
Trust Shares $11.47
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds per Share:
- ---------------------------------------------------------------------------------------------------
Fortress Shares (99/100 of $11.47)** $11.36
- --------------------------------------------------------------------------------------------------- -------------
Trust Shares $11.47
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Statement of Operations
Six Months Ended February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 2,378,975
- ----------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 165,180
- ----------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 149,753
- ----------------------------------------------------------------------------------------
Trustees' fees 1,600
- ----------------------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 38,400
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 17,327
- ----------------------------------------------------------------------------------------
Fund share registration costs 22,313
- ----------------------------------------------------------------------------------------
Printing and postage 13,000
- ----------------------------------------------------------------------------------------
Legal fees 5,799
- ----------------------------------------------------------------------------------------
Auditing fees 8,750
- ----------------------------------------------------------------------------------------
Distribution services fee (Note 5) 152,494
- ----------------------------------------------------------------------------------------
Insurance premiums 3,597
- ----------------------------------------------------------------------------------------
Taxes 250
- ----------------------------------------------------------------------------------------
Miscellaneous 3,489
- ---------------------------------------------------------------------------------------- ----------
Total expenses 581,952
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 165,180
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 57,810 222,990
- ---------------------------------------------------------------------------- ---------- ----------
Net expenses 358,962
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 2,020,013
- ---------------------------------------------------------------------------------------------------- ------------
Realized and Unrealized Gain (Loss) on Investments:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 12,632
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (1,424,044)
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized (loss) on investments (1,411,412)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 608,601
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C>
1994* 1993
Increase (Decrease) in Net Assets:
- ------------------------------------------------------------------------------------
Operations--
- ------------------------------------------------------------------------------------
Net investment income $ 2,020,013 $ 2,892,393
- ------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($12,632 and $50
net gains, respectively, as computed for federal tax purposes) 12,632 (210)
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (1,424,044) 4,715,102
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets resulting from operations 608,601 7,607,285
- ------------------------------------------------------------------------------------ ------------- -------------
Net equalization credits (Note 2D) 4,743 46,834
- ------------------------------------------------------------------------------------ ------------- -------------
Distributions to Shareholders (Note 3)--
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Fortress Shares (1,813,094) (2,685,573)
- ------------------------------------------------------------------------------------
Trust Shares (162,998) (255,290)
- ------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Fortress Shares (3,351) (45,258)
- ------------------------------------------------------------------------------------
Trust Shares -- --
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets resulting from distributions to shareholders (1,979,443) (2,986,121)
- ------------------------------------------------------------------------------------ ------------- -------------
Fund Share (Principal) Transactions (Exclusive of amounts
allocated to net investment income) (Note 4)--
- ------------------------------------------------------------------------------------
Proceeds from sale of shares 14,002,066 50,841,231
- ------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 667,931 1,136,955
- ------------------------------------------------------------------------------------
Cost of shares redeemed (8,958,376) (6,951,397)
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets resulting from Fund share transactions 5,711,621 45,026,789
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets 4,345,522 49,694,787
- ------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------
Beginning of period 80,278,546 30,583,759
- ------------------------------------------------------------------------------------ ------------- -------------
End of period (including net undistributed net investment income of $2,922 and $0,
respectively) $ 84,624,068 $ 80,278,546
- ------------------------------------------------------------------------------------ ------------- -------------
</TABLE>
* Six months ended February 28, 1994 (unaudited)
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C> <C>
1994** 1993 1992 1991***
Net asset value, beginning of period $ 11.65 $ 10.89 $ 10.40 $ 10.00
- ----------------------------------------------------------
Income from investment operations
- ----------------------------------------------------------
Net investment income 0.276 0.57 0.61 0.57
- ----------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.176) 0.77 0.49 0.41
- ---------------------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.100 1.34 1.10 0.98
- ----------------------------------------------------------
Less distributions
- ----------------------------------------------------------
Dividends to shareholders from net investment income (0.276) (0.57) (0.61) (0.57)
- ----------------------------------------------------------
Distributions in excess of net investment income (0.001)(a) (0.01 (a) -- (0.01)(a)
- ---------------------------------------------------------- --------- --------- --------- -----------
Total distributions (0.277) (0.58) (0.61) (0.58)
- ---------------------------------------------------------- --------- --------- --------- -----------
Net asset value, end of period $ 11.47 $ 11.65 $ 10.89 $ 10.40
- ---------------------------------------------------------- --------- --------- --------- -----------
Total return* 0.81% 12.69% 10.91% 10.01%
- ----------------------------------------------------------
Ratios to Average Net Assets
- ----------------------------------------------------------
Expenses 0.90%(b) 0.87% 0.73% 0.28%(b)
- ----------------------------------------------------------
Net investment income 4.86%(b) 5.13% 5.79% 6.35%(b)
- ----------------------------------------------------------
Expense waiver/reimbursement (c) 0.52%(b) 0.83% 1.35% 1.66%(b)
- ----------------------------------------------------------
Supplemental Data
- ----------------------------------------------------------
Net assets, end of period (000 omitted) $77,907 $73,973 $28,924 $19,840
- ----------------------------------------------------------
Portfolio turnover rate 2% 0% 0% 11%
- ----------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Six months ended February 28, 1994 (unaudited).
*** Reflects operations for the period from October 12, 1990 (date of initial
public investment) to August 31, 1991.
(a) Distributions in excess of net investment income for the six months ended
February 28, 1994, the fiscal year ended August 31, 1993 and for the period
ended August 31, 1991 were a result of certain book and tax timing
differences. These distributions do not represent a return of capital for
federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Financial Highlights--Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C>
1994* 1993 1992**
Net asset value, beginning of period $ 11.65 $ 10.89 $ 10.53
- ----------------------------------------------------------------------------
Income from investment operations
- ----------------------------------------------------------------------------
Net investment income 0.30 0.61 0.26
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.18) 0.76 0.36
- ---------------------------------------------------------------------------- --------- --------- ---------
Total from investment operations 0.12 1.37 0.62
Less distributions
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.30) (0.61) (0.26)
- ---------------------------------------------------------------------------- --------- --------- ---------
Net asset value, end of period $ 11.47 $ 11.65 $ 10.89
- ---------------------------------------------------------------------------- --------- --------- ---------
Total return*** 1.02% 13.05% 6.35%
- ----------------------------------------------------------------------------
Ratios to Average Net Assets
- ----------------------------------------------------------------------------
Expenses 0.50 (a) 0.50% 0.50%(a)
- ----------------------------------------------------------------------------
Net investment income 5.27 (a) 5.65% 5.76%(a)
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.52 (a) 0.80% 1.29%(a)
- ----------------------------------------------------------------------------
Supplemental Data
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 6,717 $ 6,306 $ 1,660
- ----------------------------------------------------------------------------
Portfolio turnover rate 2% 0% 0%
- ----------------------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from March 24, 1992 (date of initial
public investment) to August 31, 1992.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Ohio Municipal Income Fund
Notes to Financial Statements
February 28, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Financial Statements included herein are only those of
Ohio Municipal Income Fund, a non-diversified portfolio of the Trust. The
Financial Statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
Effective March 23, 1992, (the effective date for the Trust Shares Class) Ohio
Municipal Income Fund provides two classes of shares "Fortress Shares" (formerly
"Investment Shares") and "Trust Shares". Trust Shares are identical in all
respects to Fortress Shares except that Fortress Shares are sold pursuant to a
distribution plan ("Plan") adopted in accordance with Investment Company Act
Rule 12b-1, and are subject to certain sales and redemption charges.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, or any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at February 28, 1994, 26.9% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The
aggregate percentage by financial institutions ranged from 1.04% to 11.64%
of total investments.
B. Income--Interest income is recorded on the accrual basis. Interest income
includes interest earned, net of premium, and original issue discount as
required by the Internal Revenue Code.
C. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to investment companies and to distribute
to shareholders each year all of its net investment income, including any
net realized gain on investments. Accordingly, no provision for federal
income tax is necessary. Dividends paid by the Fund from net interest
earned on tax-exempt municipal bonds are not includable by shareholders as
gross income for federal income tax purposes, because the Fund intends to
meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Fund to pay tax-exempt
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax
preference item for shareholders.
At August 31, 1993, the Fund for federal tax purposes, had a capital loss
carryforward of $9,665 which expires in 2000 which will reduce the Fund's
taxable income arising from future net realized gains on investments, if
any, to the extent permitted by the Internal Revenue 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
income tax. Additionally, net capital losses of $260 attributable to
security transactions incurred after October 31, 1992 are treated as
arising on the first day (September 1, 1993) of the Fund's next taxable
year.
D. Equalization--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of Fund shares equivalent, on a per share basis, to the amount
of undistributed net investment income on the date of the transaction is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
E. When-Issued and Delayed Delivery Transactions--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain 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.
F. Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends
Dividends from net investment income are declared and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
The amount shown in the Financial Statements for distributions to shareholders
for the six months ended February 28, 1994, differs from those determined for
tax purposes because of certain book and tax timing differences. This resulted
in distributions to shareholders in excess of net investment income. These
distributions do not represent a return of capital for federal income tax
purposes.
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C> <C>
1994* 1993
<CAPTION>
Trust Shares Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 541,173 $ 5,920,835 152,427 $ 1,634,133
- ------------------------------------------------------
Shares sold 320,006 3,744,729 522,626 5,775,096
- ------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 2,704 31,540 10,195 113,377
- ------------------------------------------------------
Shares redeemed (278,140) (3,257,217) (144,075) (1,601,771)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, end of period 585,743 $ 6,439,887 541,173 $ 5,920,835
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
<S> <C> <C> <C> <C>
1994* ]1993
<CAPTION>
Fortress Shares Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 6,348,242 $ 68,199,222 2,655,970 $ 27,459,135
- ------------------------------------------------------
Shares sold 876,617 10,257,337 4,077,428 45,066,135
- ------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 54,578 636,391 91,777 1,023,578
- ------------------------------------------------------
Shares redeemed (488,411) (5,701,159) (476,933) (5,349,626)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Shares outstanding, end of period 6,791,026 $ 73,391,791 6,348,242 $ 68,199,222
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
* Six months ended February 28, 1994.
Ohio Municipal Income Fund
- --------------------------------------------------------------------------------
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses ($29,070) and start-up administrative service expenses
($97,677) were borne initially by Federated Administrative Services, Inc.,
former Administrator to the Fund. The Fund has agreed to reimburse the
Administrator, at an annual rate of .005 of 1% of average daily net assets for
organizational expenses and .01 of 1% of average daily net assets for start-up
costs, until the organizational expenses and start-up costs initially borne by
the Administrator are reimbursed or the expiration of five years from October
10, 1990, the date the Trust's portfolio became effective, whichever occurs
earlier. For the six months ended February 28, 1994, the Fund paid $2,051 and
$4,102, respectively, pursuant to this agreement.
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $5,800,000 and $8,136,320
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .40 of 1% of the Funds average
daily net assets.
Under the terms of a shareholder service arrangement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the six
months ended
February 28, 1994, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
Purchases $ 5,404,858
- --------------------------------------------------------------------------------------------------- -------------
Sales $ 1,226,320
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
FLORIDA MUNICIPAL INCOME FUND
Semi-Annual Report to Shareholders
Dated February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
4031006 (4/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Florida
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Florida resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the Florida intangibles tax. This income is earned by a
quality portfolio of investment-grade, long-term Florida municipal securities.
The value of your investment is free from the Florida intangibles tax.
During the past six months, the Fund paid a total of 0.29 per share in tax-free
distributions to shareholders. Reflecting the fact that, when interests rates
rise, bond prices decline, the Funds net asset value declined from $10.35 to
$10.02. Since the Fund was introduced on June 1, 1993, total net assets have
grown to $9 million.
We believe that your investment in Florida Municipal Income Fund is a wise way
to pursue tax-free earnings. We thank you for your confidence and encourage you
to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world--yields on thirty-year Treasury bonds descended from 6.07% to
5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 28,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6% due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$3.0 million to $9.0 million. Reflecting market activity, the net asset value
per share of the Fund grew from $10.35 on September 1, 1993 to $10.55 on October
15, 1993, then fell to $10.02 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 30.6% in "Aaa" issues; 16.8% in "Aa"
issues; 6.5% in "A" issues; 41.2% in "Baa" issues; and 4.9% in municipal cash
equivalents within the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/servicing pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
- --------------------------------------------------------------------------------
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; electric revenue issues;
single-family mortgage revenue issues; pollution control revenue issues; and
toll road revenue issues. The average purchase yield for new investments by the
Fund was 5.69%.
For the six-month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of negative 0.47%*. This performance was comprised
of 2.72% income and reinvestment return (net of Fund expenses), and of 3.19%
depreciation in the net asset value per share of the Fund--both on a non-
annualized basis.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
FLORIDA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--5.0%
- ------------------------------------------------------------------------
$ 450,000 Government Development Bank of Puerto Rico, Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) (at amortized
cost) (Note 2A) A-1+ $ 450,000
---------------------------------------------------------- ----------
LONG-TERM MUNICIPAL SECURITIES--96.3%
- ------------------------------------------------------------------------
FLORIDA--94.2%
----------------------------------------------------------
240,000 Alachua County, FL, Health Facilities Authority 6.05%
Revenue Bonds (Santa Fe Healthcare Facility Project),
11/15/2016 BBB+ 234,504
----------------------------------------------------------
600,000 Bradford County, FL, Health Facility Authority, 6.05%
Revenue Bonds (Santa Fe Healthcare Facility Project),
11/15/2016 BBB+ 586,260
----------------------------------------------------------
100,000 Broward County, FL, Solid Waste System, 6.00% Revenue
Bonds (Series B)/(MBIA Insured), 7/1/2013 AAA 104,340
----------------------------------------------------------
200,000 City of Miami Health Facilities Authority, FL, 5.125%
Health Refunding Revenue Bonds (Mercy Hospital
Project)/(MBIA Insured), 8/15/2000 AAA 184,378
----------------------------------------------------------
100,000 Dade County, FL, Health Facility Authority, 5.25%
Refunding Revenue Bonds (Baptist Hospital, Miami)/(MBIA
Insured), 5/15/2021 AAA 93,284
----------------------------------------------------------
300,000 Denedin, FL, 5.375% Hospital Revenue Refunding Bonds
(Mease Health Care)/(MBIA Insured), 11/15/2021 AAA 288,081
----------------------------------------------------------
1,000,000 Escambia County, FL, 5.875%, PCR Bonds (Champion
International Corp. Project), 6/1/2022 BBB 977,510
----------------------------------------------------------
200,000 Escambia County, FL, Health Facility Authority, 6.00%
Refunding Revenue Bonds (Baptist Hospital, Inc.),
10/1/2014 BBB+ 195,668
----------------------------------------------------------
100,000 Florida Keys Aqueduct Authority, FL, 5.25% Water Refunding
Revenue Bonds (AMBAC Insured), 9/1/2021 AAA 94,782
----------------------------------------------------------
250,000 Florida HFA, 5.875% Single Family Mortgage Revenue Bonds
(Series B)/(Subject to AMT), 1/1/2027 AA 239,985
----------------------------------------------------------
</TABLE>
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
FLORIDA--CONTINUED
----------------------------------------------------------
$ 300,000 Florida State, Board of Education Capital Outlay 5.40% UT
GO Bonds, 6/1/2018 AA $ 290,901
----------------------------------------------------------
100,000 Florida State, Department of Transportation, 5.50% UT GO
Bonds, 7/1/2023 AA 97,854
----------------------------------------------------------
300,000 Florida State Municipal Power Agency, 5.10% Revenue Bonds
(AMBAC Insured), 10/1/2025 AAA 276,216
----------------------------------------------------------
100,000 Florida State Municipal Power Agency, 5.75% Refunding
Revenue Bonds (Tri County Project)/(AMBAC Insured),
10/1/2014 AAA 101,005
----------------------------------------------------------
150,000 Florida State Turnpike Authority, 5.00% Turnpike Refunding
Revenue Bonds (Department of Transportation)/(FGIC
Insured), 7/1/2015 AAA 139,038
----------------------------------------------------------
100,000 Florida State Turnpike Authority, 5.00% Turnpike Revenue
Bonds (Department of Transportation)/(FGIC Insured),
7/1/2019 AAA 91,794
----------------------------------------------------------
100,000 Gainesville, FL, Utilities System, 5.50% Revenue Bonds
(Series B), 10/1/2013 AA 99,875
----------------------------------------------------------
100,000 Hillsborough County, FL, 5.50% Parks & Recreational
Program,
UT GO Bonds, 7/1/2023 AA- 96,880
----------------------------------------------------------
100,000 Indian River County, FL, School District 5.40% UT GO Bonds
(FSA Insured), 4/1/2010 AAA 98,830
----------------------------------------------------------
100,000 Jacksonville, FL, 5.75% Excise Tax Revenue Bonds
(FGIC Insured)/(Subject to AMT), 10/1/2020 AAA 100,582
----------------------------------------------------------
100,000 Jacksonville, FL, Electric Authority, 5.50% Refunding
Revenue Bonds (St. John's River Authority), 10/1/2014 AA 99,143
----------------------------------------------------------
200,000 Jacksonville, FL, Electric Authority, 5.25% Electric
System Revenue Bonds (Series 3-B), 10/1/2019 AA 186,926
----------------------------------------------------------
100,000 Jacksonville, FL, Electric Authority, 5.25% Electric
Revenue Bonds, 10/1/2028 AA 92,102
----------------------------------------------------------
</TABLE>
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
FLORIDA--CONTINUED
----------------------------------------------------------
$ 250,000 Jacksonville, FL, Health Facilities Authority, 6.40%
Revenue Bonds (National Benevolent Association Cypress
Project), 12/1/2016 Baa $ 251,617
----------------------------------------------------------
425,000 Kissimmee, FL, Utilities Authority, 5.25% Refunding
Revenue Bonds (Electric System), 10/1/2018 AAA 403,882
----------------------------------------------------------
450,000 Leesburg, FL, 6.125% Hospital Refunding Revenue Bonds
(Leesburg Regional Medical Center), 7/1/2018 BBB+ 438,066
----------------------------------------------------------
700,000 Leesburg, FL, 5.625% Hospital Revenue Bonds (Leesburg
Regional Medical Center Project B), 7/1/2013 BBB+ 654,444
----------------------------------------------------------
100,000 Leesburg, FL, 5.70% Hospital Revenue Bonds (Leesburg
Regional Medical Center Project B), 7/1/2018 BBB+ 93,054
----------------------------------------------------------
250,000 Leesburg, FL, 5.65% Hospital Refunding Revenue Bonds
(Leesburg Regional Medical Center), 7/1/2008 BBB+ 243,433
----------------------------------------------------------
150,000 Orange County, FL, 5.25% Sales Tax Refunding Revenue Bonds
(Series 1993A), 1/1/2013 A+ 144,940
----------------------------------------------------------
150,000 Orlando, FL, Utilities Commission, Water & Electric
System, 5.50% Revenue Bonds, 10/1/2026 AA- 144,070
----------------------------------------------------------
200,000 Orlando, FL, Utilities Commission, Water & Electric
System, 5.25% Revenue Bonds, 10/1/2023 AA- 186,114
----------------------------------------------------------
100,000 Orlando and Orange County Expressway Authority, FL, 5.50%
Expressway Refunding Revenue Bonds (Senior Lien)/
(FGIC Insured), 7/1/2018 AAA 98,540
----------------------------------------------------------
130,000 Orlando and Orange County Expressway Authority, FL, 5.25%
Revenue Bonds (FGIC Insured), 7/1/2023 AAA 123,024
----------------------------------------------------------
150,000 Orlando and Orange County Expressway Authority, FL, 5.25%
Revenue Bonds (Junior Lien A)/(FGIC Insured), 7/1/2019 AAA 142,439
----------------------------------------------------------
250,000 Palm Beach County Health Facilities Authority, FL,
5.80% Hospital Refunding Revenue Bonds (Series 1993)/
(JFK Medical Center, Inc.)/(FSA Insured), 12/1/2018 AAA 252,095
----------------------------------------------------------
</TABLE>
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
FLORIDA--CONTINUED
----------------------------------------------------------
$ 250,000 Palm Beach County Health Facilities Authority, FL,
6.30% Hospital Revenue Bonds (Series 1993)/Good Samaritan
Health System Inc. Project) 10/1/2022 A 1 $ 259,730
----------------------------------------------------------
100,000 St. Petersburg, FL, Public Utility Authority, 5.60%
Revenue
Bonds, 10/1/2015 AA- 100,247
----------------------------------------------------------
100,000 Seacoast, FL, Utility Authority, 5.50% Water & Sewer
Revenue Bonds, 3/1/2015 AAA 100,123
----------------------------------------------------------
100,000 Vera Beach, FL, 5.38% Electric Refunding Revenue Bonds
(Series A)/(MBIA Insured), 12/1/2021 AAA 96,024
---------------------------------------------------------- ----------
Total 8,501,780
---------------------------------------------------------- ----------
PUERTO RICO--2.1%
----------------------------------------------------------
200,000 Puerto Rico Electric Power Authority, 5.00% Revenue Bonds,
7/1/2012 A- 188,364
---------------------------------------------------------- ----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $8,869,428) $8,690,144
---------------------------------------------------------- ----------
TOTAL MUNICIPAL SECURITIES
(IDENTIFIED COST $9,319,428) $9,140,144+
---------------------------------------------------------- ----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $9,319,428. The
net unrealized depreciation on a federal tax basis amounts to $179,284, which
is comprised of $10,091 appreciation and $189,375 depreciation at February 28,
1994.
Note: The categories of investments are shown as a percentage of net assets
($9,023,776) at
February 28, 1994.
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligations
LOC's --Letter of Credit(s)
HFA --Housing Finance Authority/Agency
IDA --Industrial Development Authority
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
UT --Unlimited Tax
VRDN's --Variable Rate Demand Note
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $9,319,428) $ 9,140,144
- -------------------------------------------------------------------------------------
Cash 36,771
- -------------------------------------------------------------------------------------
Receivable for Fund shares sold 655,077
- -------------------------------------------------------------------------------------
Interest receivable 156,274
- -------------------------------------------------------------------------------------
Receivable from adviser (Note 5) 50,000
- -------------------------------------------------------------------------------------
Deferred expenses 3,326
- ------------------------------------------------------------------------------------- -----------
Total assets 10,041,592
- -------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------
Payable for investments purchased $895,740
- --------------------------------------------------------------------------
Dividends payable 33,919
- --------------------------------------------------------------------------
Payable for Fund shares redeemed 17,130
- --------------------------------------------------------------------------
Payable to distributor (Note 5) 4,698
- --------------------------------------------------------------------------
Accrued expenses 66,329
- -------------------------------------------------------------------------- --------
Total liabilities 1,017,816
- ------------------------------------------------------------------------------------- -----------
NET ASSETS FOR 900,259 shares of beneficial interest outstanding $ 9,023,776
- ------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------
Paid-in capital $ 9,211,785
- -------------------------------------------------------------------------------------
Net unrealized depreciation of investments (179,284)
- -------------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (8,725)
- ------------------------------------------------------------------------------------- -----------
Total $ 9,023,776
- ------------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Offering Price per Share
($9,023,776 / 900,259 shares of beneficial interest outstanding) $10.02
- ------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (100/97 of $10.02)* $10.33
- ------------------------------------------------------------------------------------- -----------
</TABLE>
* See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 161,929
- ---------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 11,414
- ---------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 82,206
- ---------------------------------------------------------------------------------
Trustees' fees 250
- ---------------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 30,463
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 6,976
- ---------------------------------------------------------------------------------
Fund share registration costs 3,013
- ---------------------------------------------------------------------------------
Printing and postage 6,000
- ---------------------------------------------------------------------------------
Legal fees 2,500
- ---------------------------------------------------------------------------------
Auditing fees 8,057
- ---------------------------------------------------------------------------------
Shareholder services fee (Note 5) 7,134
- ---------------------------------------------------------------------------------
Distribution services fees (Note 5) 21,402
- ---------------------------------------------------------------------------------
Insurance premiums 2,523
- ---------------------------------------------------------------------------------
Miscellaneous 878
- --------------------------------------------------------------------------------- --------
Total expenses 182,816
- ---------------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 11,414
- ----------------------------------------------------------------------
Reimbursement of other operating expenses by adviser (Note 5) 150,000 161,414
- ---------------------------------------------------------------------- -------- --------
Net expenses 21,402
- --------------------------------------------------------------------------------------------- ---------
Net investment income 140,527
- --------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (8,725)
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (260,456)
- --------------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (269,181)
- --------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $(128,654)
- --------------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1994** 1993*
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------
Net investment income $ 140,527 $ 23,113
- -------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($8,725 net
loss and $0, respectively, as computed for federal tax purposes) (8,725) --
- -------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (260,456) 81,173
- ------------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations (128,654) 104,286
- ------------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------
Dividends to shareholders from net investment income (140,527) (23,113)
- -------------------------------------------------------------------
Distributions in excess of net investment income (21,402) (3,466)
- ------------------------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions to shareholders (161,929) (26,579)
- ------------------------------------------------------------------- ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------
Proceeds from sale of shares 7,326,341 4,230,998
- -------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 17,902 4,064
- -------------------------------------------------------------------
Cost of shares redeemed (1,048,176) (1,294,477)
- ------------------------------------------------------------------- ----------- -----------
Change in net assets resulting from Fund share transactions 6,296,067 2,940,585
- ------------------------------------------------------------------- ----------- -----------
Change in net assets 6,005,484 3,018,292
- -------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------
Beginning of period 3,018,292 --
- ------------------------------------------------------------------- ----------- -----------
End of period $ 9,023,776 $ 3,018,292
- ------------------------------------------------------------------- ----------- -----------
</TABLE>
* For the period from June 1, 1993 (date of initial public investment) to
August 31, 1993.
** Six months ended February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1994* 1993**
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.35 $10.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.28 0.12
- ---------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.32) 0.36
- --------------------------------------------------------------- ---------- ----------
Total from investment operations (0.04) 0.48
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (0.28) (0.12)
- ---------------------------------------------------------------
Distributions in excess of net investment income (0.01) (a) (0.01)(a)
- --------------------------------------------------------------- ---------- ----------
Total distributions (0.29) (0.13)
- ---------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.02 $10.35
- --------------------------------------------------------------- ---------- ----------
Total return*** (0.47) % 4.83%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.75%(b) 0.75% (b)
- ---------------------------------------------------------------
Net investment income 4.92%(b) 5.00% (b)
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 5.66%(b) 0.54% (b)
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $9,024 $3,018
- ---------------------------------------------------------------
Portfolio turnover rate 7 % 0 %
- ---------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from June 1, 1993 (date of initial public
investment) to August 31, 1993.
*** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Distributions in excess of net investment income for the six months ended
February 28, 1994, and for the period ended August 31, 1993, were a result
of certain book and tax timing differences. These distributions do not
represent a return of capital for federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements).
FLORIDA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
Florida Municipal Income Fund, a non-diversified portfolio of the Trust. The
financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service
taking into consideration yield, liquidity, risk, credit, quality, coupon, maturity, type
of issue, or any other factors or market data it deems relevant in determining valuations
for normal institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which approximates value.
Since the Fund may invest a substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely affecting issuers of that state
than would be a comparable general tax-exempt mutual fund. In order to reduce the risk
associated with such factors, at February 28, 1994, 31.7% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The aggregate
percentages by financial institutions ranged from 1.0% to 4.9% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned, net of premium, and original issue discount as required by the Internal
Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and distribute to shareholders each year
all of its net investment income, including any net realized gain on investments.
Accordingly, no provision for federal income tax is necessary. Dividends paid by the Fund
from net interest earned on tax-exempt municipal bonds are not includable by shareholders
as gross income for federal income tax purposes, because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment companies
which will enable the Fund to pay tax-exempt interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item for shareholders.
</TABLE>
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
Income distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. This difference
is primarily due to differing treatment for Distribution Services Fees which
resulted in distributions to shareholders in excess of net investment income,
which were recorded for Financial Statement purposes as a reduction of paid-in
capital. These distributions do not represent a return of capital for federal
income tax purposes for the six months ended February 28, 1994.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and a fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------
1994** 1993*
- -------------------------------------------------------------------- -------- --------
<S> <C> <C>
Shares outstanding, beginning of period 291,754 --
- --------------------------------------------------------------------
Shares sold 707,357 419,085
- --------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,744 397
- --------------------------------------------------------------------
Shares redeemed (100,596) (127,728)
- -------------------------------------------------------------------- -------- --------
Shares outstanding, end of period 900,259 291,754
- -------------------------------------------------------------------- -------- --------
</TABLE>
* For the period from June 1, 1993 (date of initial public investment) to
August 31, 1993.
** Six months ended February 28, 1994.
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses ($30,100) and start up administrative service expenses
($54,000) were borne initially by Federated Administrative Services, Inc. The
Fund has agreed to reimburse the Administrator, at an annual rate of .005 of 1%
of average daily net assets for organizational expenses and .01 of 1% of average
daily net assets for start up costs, until the organizational expenses and
start-up costs initially borne by the Administrator are reimbursed or the
expiration of five years from May 23, 1993, the date the Trust's portfolio
became effective, whichever occurs earlier.
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940, amounting to $3,510,133 and $2,800,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .75 of 1% of the Fund's average
daily net asset value of the shares.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund reimbursed FSC from the net assets of the
Fund for fees which FSC paid which relate to administrative support services of
the Fund's shares. The Services Plan provides that the Fund may incur
shareholder services expenses up to .25 of 1% of the Fund's average daily net
assets. Under the terms of a shareholder service agreement with Federated
Shareholder Services ("FSS"), which takes effect March 1, 1994, the Fund will
pay FSS a fee to obtain certain personal services for shareholders and the
maintenance of shareholders accounts. The fee is based on the level of average
net assets for the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
FLORIDA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term securities, for the
six months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES $6,388,515
- -------------------------------------------------------------------------------- ----------
SALES $ 394,982
- -------------------------------------------------------------------------------- ----------
</TABLE>
TRUSTEES OFFICERS
John F. Donahue John F. Donahue
Chairman
John T. Conroy, Jr. Richard B. Fisher
President
William J. Copeland J. Christopher Donahue
Vice President
J. Christopher Donahue Edward C. Gonzales
Vice President and Treasurer
James E. Dowd John W. McGonigle
Vice President and Secretary
Lawrence D. Ellis, M.D. John A. Staley, IV
Vice President
Edward L. Flaherty, Jr. David M. Taylor
Assistant Treasurer
Peter E. Madden J. Crilley Kelly
Assistant Secretary
Gregor F. Meyer
Wesley W. Posvar
Marjorie P. Smuts
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
- --------------------------------------------------------------------------------
MARYLAND
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
DATED FEBRUARY 28, 1994
---------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
---------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4031007 (4/94)
---------------------------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Maryland
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Maryland resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the State of
Maryland and it's municipalities. This income is earned by a quality portfolio
of investment-grade, long-term Maryland municipal securities.
During the past six months, the Fund paid a total of $0.26 per share in tax-free
distributions to shareholders. Reflecting the fact that, when interest rates
rise, bond prices decline, the Fund's net asset value declined from $10.00 to
$9.64. Since the Fund was introduced on September 1, 1993, total net assets have
grown to $4.3 million.
We believe that your investment in Maryland Municipal Income Fund is a wise way
to pursue tax-free earnings. We thank you for your confidence and encourage you
to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for the
real GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the long-term,
fixed-income world--yields on thirty-year Treasury bonds descended from 6.07% to
5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six-month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6% due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew to $4.3
million. Reflecting market activity, the net asset value per share of the Fund
grew from $10.00 on September 1, 1993 to $10.13 on October 15, 1993, then fell
to $9.64 on February 28, 1994. On that date, the credit breakdown of the
holdings of the Fund was: 21.5% in "Aaa" issues; 14.6% in "Aa" issues; 44.7% in
"A" issues; 14.9% in "Baa" issues; and 4.3% in municipal cash equivalents within
the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; university revenue issues;
multi-family housing revenue issues; and pollution control revenue issues. The
average purchase yield for new investments by the Fund was 5.59%.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
MARYLAND MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--7.0%
- ------------------------------------------------------------------------
$200,000 Government Development Bank of Puerto Rico, Weekly VRDNs,
(Credit Suisse and Sumitomo Bank Ltd. LOCs) VMIG1 $ 200,000
-----------------------------------------------------------
100,000 Montgomery County, MD, Educational Development Authority,
Weekly VRDNs, (Chemical Bank LOC) VMIG1 100,000
----------------------------------------------------------- ----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST)(NOTE 2A) 300,000
----------------------------------------------------------- ----------
LONG-TERM MUNICIPAL SECURITIES--100.3%
- ------------------------------------------------------------------------
MARYLAND--100.3%
-----------------------------------------------------------
150,000 Anne Arundel County, MD, 5.00%, UT GO Bonds, (Construction
Water & Sewer)/(Series 1994)/(Original Issue Yield: 5.15%),
2/1/2018 Aa 139,328
-----------------------------------------------------------
100,000 Baltimore, MD, 5.35% PCR Bonds (General Motors Corp.),
4/1/2008 BBB+ 99,268
-----------------------------------------------------------
100,000 Calvert County, MD, 5.55% PCR Refunding Bonds (Baltimore
Gas & Electric Co.)/(Original Issue Yield: 5.60%),
7/15/2014 A 98,910
-----------------------------------------------------------
100,000 City of Baltimore, MD, 5.00% Refunding Revenue Bonds (Water
Projects)/(Series 1994-A)/(FGIC Insured)/(Original Issue
Yield: 5.40%), 7/1/2024 Aaa 91,828
-----------------------------------------------------------
500,000 City of Gaithersburg, MD, 5.50% Refunding Revenue Bonds
(First Mortgage Economic Development)/(Asbury Methodist
Homes)/(Original Issue Yield: 6.05%), 1/1/2020 NR 458,900
-----------------------------------------------------------
100,000 Maryland State Community Development Administration 5.60%
Multi-Family Housing Revenue Bonds, 5/15/2026 Aa 96,946
-----------------------------------------------------------
150,000 Maryland Health and Higher Education Facilities Authority,
5.00% Revenue Bonds (Greater Baltimore Medical Center)/
(FGIC Insured)/(Original Issue Yield: 5.619%), 7/1/2013 Aaa 140,617
-----------------------------------------------------------
</TABLE>
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
MARYLAND--CONTINUED
-----------------------------------------------------------
$100,000 Maryland Health and Higher Education Facilities Authority,
5.00% Revenue Bonds (University of Maryland Medical
System)/(FGIC Insured)/(Original Issue Yield: 5.72%),
7/1/2020 AAA $ 92,166
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.00% Revenue Bonds (Peninsula Regional Medical Center)/
(AMBAC Insured)/(Original Issue Yield: 5.448%), 7/1/2023 AAA 91,263
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.00% Revenue Bonds (Montgomery General Hospital)/ (Connie
Lee Insured)/(Original Issue Yield: 5.70%), 7/1/2023 AAA 89,283
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.00% Revenue Bonds (Frederick Memorial Hospital)/ (FGIC
Insured)/(Original Issue Yield: 5.56%), 7/1/2023 AAA 91,263
-----------------------------------------------------------
325,000 Maryland Health and Higher Education Facilities Authority,
5.125% Refunding Revenue Bonds (Suburban Hospital)/
(Original Issue Yield: 5.50%), 7/1/2021 A 297,564
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.25% Revenue Bonds (Sinai Hospital of Baltimore)/ (AMBAC
Insured)/(Original Issue Yield: 5.74%), 7/1/2019 AAA 94,895
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.25% Refunding Revenue Bonds (Sinai Hospital of
Baltimore)/ (AMBAC Insured)/(Original Issue Yield: 5.75%),
7/1/2023 Aaa 94,156
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.50% Revenue Bonds (Doctors Community Hospital)/ (Original
Issue Yield: 6.17%), 7/1/2024 BBB- 91,865
-----------------------------------------------------------
250,000 Maryland Health and Higher Education Facilities Authority,
5.50% Revenue Bonds (Series 1993)/(Howard County General
Hospital Issue)/(Original Issue Yield: 5.80%), 7/1/2025 BBB 228,137
-----------------------------------------------------------
100,000 Maryland Health and Higher Education Facilities Authority,
5.625% Refunding Revenue Bonds (Jr. Lien-Francis Scott
Key)/ (John Hopkins Guaranteed), 7/1/2025 Aa 98,185
-----------------------------------------------------------
</TABLE>
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
MARYLAND--CONTINUED
-----------------------------------------------------------
$100,000 Maryland Industrial Development Financing Authority, 5.50%
EDA Revenue Bonds (Holy Cross Health System)/ (Original
Issue Yield: 5.80%), 12/1/2015 AA- $ 98,002
-----------------------------------------------------------
250,000 Maryland Industrial Development Financing Authority, 6.625%
Revenue Bonds (Series 1992)/(American Center for Physics
Headquarters Facility)/(Original Issue Yield: 6.80%),
1/1/2017 (restricted issue) BBB 262,263
-----------------------------------------------------------
200,000 Montgomery County, MD, 5.375% PCR Refunding Bonds (Potomac
Electric Power Co.)/(Original Issue Yield: 5.443%),
2/15/2024 A1 192,092
-----------------------------------------------------------
500,000 Montgomery County, MD, Housing Opportunities Commission
5.75% Multi-Family Housing Revenue Bonds, 7/1/2034 A 480,305
-----------------------------------------------------------
200,000 Montgomery County, MD, Housing Opportunities Commission
5.80% Multi-Family Housing Revenue Bonds, (1994 Issue A),
7/1/2024 AAA 200,000
-----------------------------------------------------------
450,000 Prince Georges County, MD, 5.30%, Refunding Revenue Bonds
(Dimensions Health Corp.)/(Original Issue Yield: 5.60%),
7/1/2024 A 416,205
-----------------------------------------------------------
100,000 University of Maryland System, 5.10% Auxiliary Facility and
Tuition, Revenue Bonds (1993 Refunding Series C), 10/1/2014 AA+ 96,053
-----------------------------------------------------------
150,000 Washington Suburban Sanitary District, MD, 5.00%, UT GO
Bonds, (Water Supply System)/(Original Issue Yield: 5.20%),
6/1/2015 Aa1 140,296
----------------------------------------------------------- ----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $4,405,279) 4,279,790
----------------------------------------------------------- ----------
TOTAL INVESTMENTS (IDENTIFIED COST $4,705,279) $4,579,790+
----------------------------------------------------------- ----------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
+ The cost of investments for federal tax purposes amounts to $4,705,279. The
net unrealized depreciation on a federal tax basis amounts to $125,489, which
is comprised of $1,686 appreciation and $127,175 depreciation at February 28,
1994.
Note: The categories of investments are shown as a percentage of net assets
($4,267,727)
at February 28, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
EDA --Economic Development Authority
FGIC --Financial Guaranty Insurance Co.
GO --General Obligation
LOCs --Letter of Credit(s)
NR --Not Rated
PCR --Pollution Control Revenue
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $4,705,279) $4,579,790
- ---------------------------------------------------------------------------------
Cash 22,252
- ---------------------------------------------------------------------------------
Receivable for Fund shares sold 401,162
- ---------------------------------------------------------------------------------
Interest receivable 45,423
- ---------------------------------------------------------------------------------
Receivable from adviser (Note 5) 17,000
- ---------------------------------------------------------------------------------
Deferred expenses (Note 2E) 4,410
- --------------------------------------------------------------------------------- ----------
Total assets 5,070,037
- ---------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------
Payable for Fund shares redeemed $518,000
- ----------------------------------------------------------------------
Payable for investments purchased 201,224
- ----------------------------------------------------------------------
Dividends payable 5,085
- ----------------------------------------------------------------------
Accrued expenses 78,001
- ---------------------------------------------------------------------- --------
Total liabilities 802,310
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 442,877 shares of beneficial interest outstanding $4,267,727
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $4,400,222
- ---------------------------------------------------------------------------------
Net unrealized depreciation on investments (125,489)
- ---------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (7,006)
- --------------------------------------------------------------------------------- ----------
Total $4,267,727
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE and Offering Price Per Share
($4,267,727 / 442,877 shares of beneficial interest outstanding) $9.64
- --------------------------------------------------------------------------------- -----
REDEMPTION PROCEEDS per Share (97/100 of $9.64)* $9.35
- --------------------------------------------------------------------------------- -----
</TABLE>
* See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2B) $ 51,238
- ------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 3,439
- -------------------------------------------------------------------------
Administrative personnel and services (Note 5) 34,950
- -------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 32,458
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 5,276
- -------------------------------------------------------------------------
Fund share registration costs 3,345
- -------------------------------------------------------------------------
Printing and postage 3,000
- -------------------------------------------------------------------------
Distribution services fee (Note 5) 6,449
- -------------------------------------------------------------------------
Legal fees 5,250
- -------------------------------------------------------------------------
Taxes 250
- -------------------------------------------------------------------------
Miscellaneous 471
- ------------------------------------------------------------------------- -------
Total expenses 94,888
- -------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 3,439
- ---------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 85,000 88,439
- --------------------------------------------------------------- ------- -------
Net expenses 6,449
- ------------------------------------------------------------------------------------ ---------
Net investment income 44,789
- ------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (7,006)
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (125,489)
- ------------------------------------------------------------------------------------ ---------
Net realized and unrealized loss on investments (132,495)
- ------------------------------------------------------------------------------------ ---------
Change in net assets from operations $ (87,706)
- ------------------------------------------------------------------------------------ ---------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
1994*
-----------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 44,789
- -------------------------------------------------------------------------------
Net realized loss on investment transactions ($7,006 net loss, as computed for
federal tax purposes) (Note 2C) (7,006 )
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (125,489 )
- ------------------------------------------------------------------------------- ----------
Change in net assets from operations (87,706 )
- ------------------------------------------------------------------------------- ----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income (44,789 )
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (6,449 )
- ------------------------------------------------------------------------------- ----------
Change in net assets resulting from distributions to shareholders (51,238 )
- ------------------------------------------------------------------------------- ----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 8,329,202
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 25,677
- -------------------------------------------------------------------------------
Cost of shares redeemed (3,948,208 )
- ------------------------------------------------------------------------------- ----------
Change in net assets resulting from Fund share transactions 4,406,671
- ------------------------------------------------------------------------------- ----------
Change in net assets 4,267,727
- ------------------------------------------------------------------------------- ----------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------- ----------
End of period $4,267,727
- ------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1994*
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.25
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.35)
- ----------------------------------------------------------------------- -----------
Total from investment operations (0.10)
- ----------------------------------------------------------------------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.25)
- -----------------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a)
- ----------------------------------------------------------------------- -----------
Total distributions (0.26)
- ----------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.64
- ----------------------------------------------------------------------- -----------
TOTAL RETURN** (1.00)%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.75%(b)
- -----------------------------------------------------------------------
Net investment income 5.21%(b)
- -----------------------------------------------------------------------
Expense waiver/reimbursement (c) 10.29%(b)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 4,268
- -----------------------------------------------------------------------
Portfolio turnover rate 17%
- -----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public investment) to February 28, 1994 (unaudited).
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements).
MARYLAND MUNICIPAL INCOME FUND
NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, an open-end, management investment
company. The financial statements included herein are only those of Maryland
Municipal Income Fund (the "Fund"), a non-diversified portfolio of the Trust.
The financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. 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 it deems relevant in determining
valuations for normal institutional size trading units of debt securities. The
independent pricing service does not rely exclusively on quoted prices. Debt securities
with remaining maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely affecting issuers of that state
than would be a comparable general tax-exempt mutual fund. In order to reduce the risk
associated with such factors, at February 28, 1994, 21.8% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The aggregate
percentages by financial institutions ranged from 2.2% to 9.1% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned net of premium, and original issue discount as required by the Internal
Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and distribute to shareholders
each year all of its net investment income, including any net realized gain on
investments. Accordingly, no provision for federal tax is necessary. Dividends paid by
the Fund from net interest earned on tax-exempt municipal bonds are not includable by
shareholders as gross income for federal tax purposes because the Fund intends to meet
certain requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay tax-exempt interest dividends.
</TABLE>
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The portion of such interest, if any, earned on private activity bonds issued after
August 7, 1986, may be considered a tax preference item for shareholders.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain 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.
E. DEFERRED EXPENSES--Costs incurred by the Fund with respect to registration of its shares
in its first fiscal year excluding the initial expense of registering the shares, have
been deferred and are being amortized using the straight-line method over a period of
five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gains distributions, if any, are recorded
on the ex-dividend date.
Income distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. This difference
is primarily due to differing treatments for Distribution Services Fees which
resulted in distributions to shareholders in excess of net investment income,
which were recorded for Financial Statement purposes as a reduction of paid-in
capital. These distributions do not represent a return of capital for federal
income tax purposes for the six months ended February 28, 1994.
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1994*
- ------------------------------------------------------------------------ ------------------
<S> <C>
Shares outstanding, beginning of period 0
- ------------------------------------------------------------------------
Shares sold 838,509
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,609
- ------------------------------------------------------------------------
Shares redeemed (398,241)
-------
- ------------------------------------------------------------------------
Shares outstanding, end of period 442,877
-------
- ------------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
February 28, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. 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.
Organizational expenses ($14,124) and start-up administrative service expenses
($57,000) will be borne initially by the Adviser. The Fund has agreed to
reimburse the Adviser for the organizational expenses and start-up
administrative services expenses initially borne by the Adviser during the five-
year period following August 30, 1993 (date the Fund's portfolio first became
effective).
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940, amounting to $2,200,000 and $1,900,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund, for the fees it paid which relate to the distribution and
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
administration of the Fund's shares. The Plan provides that the Fund will incur
distribution expenses up to 0.75 of 1% of the average daily net assets of the
Fund's shares annually, to pay commissions, maintenance fees and to compensate
FSC.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund will reimburse FSC from the net assets of
the Fund for fees paid which relate to administrative support services of the
Fund's shares. The Services Plan provides that the Fund may incur shareholder
services expenses up to 0.25 of 1% of the average daily net assets of the Fund's
shares.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES $4,808,385
- -------------------------------------------------------------------------------- ----------
SALES $ 396,360
- -------------------------------------------------------------------------------- ----------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue
John F. Donahue
Chairman
John T. Conroy, Jr.
Richard B. Fisher
William J. Copeland
President
J. Christopher Donahue
J. Christopher Donahue
James E. Dowd
Vice President
Lawrence D. Ellis, M.D.
Edward C. Gonzales
Vice President and Treasurer
Edward L. Flaherty, Jr.
John W. McGonigle
Peter E. Madden
Vice President and Secretary
Gregor F. Meyer
John A. Staley, IV
Wesley W. Posvar
Vice President
Marjorie P. Smuts
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
MICHIGAN
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
DATED FEBRUARY 28, 1994
---------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
---------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3032802 (4/94)
---------------------------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Michigan
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive Michigan resident, you will find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the state of
Michigan and its municipalities. This income is earned by a quality portfolio of
investment-grade, long-term Michigan municipal securities.
During the past six months, the Fund paid a total of $0.26 per share in tax-free
income to shareholders. Due to increased investor participation in the Fund,
total net assets grew to $60.5 million. Reflecting the fact that, when interest
rates rise, bond prices decline, the net asset value of the Fund declined from
$11.02 to $10.90.
We believe that your investment in Michigan Municipal Income Fund is a wise way
to pursue tax-free earnings. We thank you for your confidence and encourage you
to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six-month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993, and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6%, respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the intermediate-term, fixed-income
markets, as well as the Federal Reserve Board, held fears of a renewed
inflation--the "usual" bane of economic recovery--despite actual gains in unit
labor costs below 2.0% per year over the past six months.
From September 1, 1993 to October 15, 1993, all was well in the
intermediate-term, fixed-income world--yields on ten-year Treasury bonds
descended from 5.45% to 5.18%, while rates for ten-year "A"-rated general
obligation municipal issues fell from 4.70% to 4.55%. From October 15, 1993 to
February 4, 1994--when the Federal Reserve Board raised the Federal Funds target
for the first time in five years to 3.25%--intermediate Treasury and municipal
yields climbed to 5.88% and 4.64%, respectively. As of February 28, 1994, the
ten-year Treasury rate was 6.13%, while the ten-year municipal bond quote was
4.87%. In summary, for the six-month period ended February 28, 1994,
intermediate Treasury and municipal bond prices were reduced by 4.8% and 1.3%
due to the ascent of market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$50.6 million to $60.5 million. Reflecting market activity, the net asset value
per share of the Fund grew from $11.02 on September 1, 1993 to $11.24 on October
15, 1993, then fell to $10.90 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 37.0% in "Aaa" issues; 52.4% in "Aa"
issues; 10.4% in "A" issues; and 0.2% in municipal cash equivalents within the
highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the investment adviser also examines issuer cash flow generation, sensitivity to
product/servicing pricing, competition and industry/sector make-up, debt
structure, debt service coverage, financial flexibility, and contingent
liabilities.
- --------------------------------------------------------------------------------
Securities bought by the Fund during the past six months consisted largely of:
hospital revenue issues--both insured and uninsured; water & sewer revenue
issues; single-family mortgage revenue issues; airport revenue issues--insured;
and local school district general obligation issues. The average purchase yield
for new investments by the Fund was 4.94%. Because of the uncertainty
surrounding the funding mechanisms for local school districts in Michigan, the
Fund has avoided "limited tax" issues of those issuers.
For the six-month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of 1.27%*. This performance was comprised of 2.36%
income and reinvestment return (net of Fund expenses), and of 1.09% depreciation
in net asset value per share of the Fund--both on a non-annualized basis.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
MICHIGAN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--0.2%
- -----------------------------------------------------------------------
$ 125,000 Michigan State Building Authority, 6.50% Revenue
Refunding Bonds (Series 1988)/(Ferris State University)/
(AMBAC Insured), 4/1/94 (at amortized cost)(Note 2A) Aaa $ 125,433
--------------------------------------------------------- -----------
LONG-TERM MUNICIPAL SECURITIES--99.6%
- -----------------------------------------------------------------------
100,000 Alpena County, MI, 8.00% UT GO Bonds (Series 1985B)/
(AMBAC Insured), 6/1/95 Aaa 105,611
---------------------------------------------------------
160,000 Alpena County, MI, 8.15% UT GO Bonds (Series 1985B)/
(AMBAC Insured), 6/1/96 Aaa 172,338
---------------------------------------------------------
230,000 Ann Arbor (City-Washtenaw County), MI, 6.00% UT GO Bonds
(Environmental Protection Series 1992B), 9/1/2000 A1 246,463
---------------------------------------------------------
215,000 Ann Arbor (City-Washtenaw County), MI, 6.00% UT GO Bonds
(Environmental Protection Series 1992B), 9/1/2001 A1 230,962
---------------------------------------------------------
225,000 Ann Arbor, MI, 5.00% UT GO Environmental Bonds (Series
C)/(Original Issue Yield: 5.05%), 9/1/2002 A1 226,937
---------------------------------------------------------
250,000 Ann Arbor, MI, 5.10% UT GO Environmental Bonds (Series
C)/(Original Issue Yield: 5.15%), 9/1/2003 A1 252,248
---------------------------------------------------------
500,000 Ann Arbor, MI, 5.20% UT GO Environmental Bonds (Series
C)/(Original Issue Yield: 5.25%), 9/1/2004 A1 504,025
---------------------------------------------------------
100,000 Ann Arbor, MI, School District, 6.50% UT GO Bonds (Series
1988)/(Q-SBLF Program)/(Original Issue Yield: 6.70%),
5/1/99 A1 107,522
---------------------------------------------------------
100,000 Auburn Hills (City), MI, 6.50% LT GO Bonds, (Series
1989)/ (Public Improvement Purpose), 5/1/97 A 107,069
---------------------------------------------------------
600,000 Avondale, MI, School District, 5.40% UT GO Bonds (Series
1992)/(School Building)/(Q-SBLF Program)/
(Original Issue Yield: 5.45%), 5/1/2003 A1 616,110
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 500,000 Avondale, MI, School District, 6.75% UT GO Refunding
Bonds (Series 1991)/(Q-SBLF Program)/(Original Issue
Yield: 6.90%), 5/1/2014 A1 $ 537,825
---------------------------------------------------------
500,000 Battle Creek (Calhoun County), MI, Building Authority,
6.00% LT Bonds, (Series 1992)/(Justice Centre), 4/1/2002 A 535,810
---------------------------------------------------------
500,000 Battle Creek (Calhoun County), MI, Building Authority,
6.10% LT Bonds (Series 1992)/(Justice Centre), 4/1/2003 A 535,675
---------------------------------------------------------
100,000 Battle Creek, MI, 6.90% Water Supply System Revenue Bonds
(Series 1990B), 9/1/2001 A 112,247
---------------------------------------------------------
335,000 Calhoun County, MI, 6.60% UT GO Bonds (Series 1990-II)/
(AMBAC Insured), 7/1/2002 Aaa 358,671
---------------------------------------------------------
600,000 Chippewa Valley, MI, School District, 4.70% UT GO
Refunding Bonds (Original Issue Yield: 4.80%)/
(FGIC Insured), 5/1/2005 AAA 576,738
---------------------------------------------------------
1,600,000 Chippewa Valley, MI, School District, 4.90% UT GO
Refunding Bonds (Original Issue Yield: 5.00%)/
(FGIC Insured), 5/1/2004 AAA 1,564,464
---------------------------------------------------------
350,000 Chippewa Valley, MI, School District, 7.00% UT GO Bonds
(Series 1990)/(AMBAC Insured), 5/1/2001 Aaa 398,744
---------------------------------------------------------
100,000 Detroit, MI, City School District, 7.15% UT GO Refunding
Bonds, (Series 1987A)/(BIG Insured), 5/1/98 Aaa 110,335
---------------------------------------------------------
1,000,000 Eastern Michigan University, 6.10% College and University
Revenue Bonds (Series 1992)/(AMBAC Insured)/
(Original Issue Yield: 6.15%), 6/1/2004 Aaa 1,077,420
---------------------------------------------------------
270,000 Economic Development Corporation of the City of Dearborn,
MI, 5.10% Revenue Refunding Bonds (Oakwood Obligated
Group)/(MBIA Insured)/(Original Issue Yield: 5.20%),
8/15/2006 AAA 265,596
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 500,000 Economic Development Corporation of the City of Detroit,
MI, 6.875% Resource Recovery Revenue Bonds (Series
1991A)/(FSA Insured)/(Original Issue Yield: 7.00%),
5/1/2009 Aaa $ 550,473
---------------------------------------------------------
200,000 Farmington Hills, MI, Hospital Finance Authority, 6.60%
Revenue Bonds (Series 1991A)/(Botsford General Hospital)/
(MBIA Insured), 2/15/2000 Aaa 219,996
---------------------------------------------------------
500,000 Fitzgerald, MI, Public School District, 4.60% UT GO Bonds
(MBIA Insured), 5/1/2003 AAA 486,825
---------------------------------------------------------
585,000 Fitzgerald, MI, Public School District, 4.60% UT GO Bonds
(MBIA Insured)/(Original Issue Yield: 4.70%), 5/1/2004 AAA 562,864
---------------------------------------------------------
455,000 Fitzgerald, MI, Public School District, 4.80% UT GO Bonds
(MBIA Insured)/(Original Issue Yield: 4.90%), 5/1/2006 AAA 436,718
---------------------------------------------------------
425,000 Forest Hills, MI, Public School District, 7.375% UT GO
Bonds (Series 1990), 5/1/2015 Aa 490,837
---------------------------------------------------------
1,200,000 Grand Rapids, MI, Public School District, 5.00% UT GO
Bonds, (1992 School Building & Site)/(Original Issue
Yield: 5.40%), 5/1/2002 Aa 1,221,672
---------------------------------------------------------
400,000 Grand Rapids, MI, Sanitary Sewer System, 5.30%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.35%), 1/1/2001 A1 411,988
---------------------------------------------------------
250,000 Grand Rapids, MI, Sanitary Sewer System, 5.40%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.45%), 1/1/2002 A1 258,367
---------------------------------------------------------
300,000 Grand Rapids, MI, Sanitary Sewer System, 5.50%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.55%), 1/1/2003 A1 310,590
---------------------------------------------------------
250,000 Grand Rapids, MI, Sanitary Sewer System, 5.60%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.65%), 1/1/2004 A1 259,362
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 130,000 Grand Valley, MI, 6.60% State College Housing Revenue
Bonds (Series 1986)/(ETM), 10/1/96 AAA $ 138,562
---------------------------------------------------------
150,000 Huron Valley, MI, 6.50% School District UT GO Refunding
Bonds (Series 1991)/(Q-SBLF Program), 5/1/2002 A1 168,158
---------------------------------------------------------
550,000 Huron, MI, Utility Authority, 4.80% Sewer System GO Bonds
(AMBAC Insured)/(Original Issue Yield: 4.90%), 5/1/2002 Aaa 544,467
---------------------------------------------------------
270,000 Ingham County, MI, 5.70% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2003 A1 285,341
---------------------------------------------------------
360,000 Ingham County, MI, 5.80% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2004 A1 380,369
---------------------------------------------------------
465,000 Ingham County, MI, 5.90% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2005 A1 492,109
---------------------------------------------------------
500,000 Jackson County, MI, Hospital Finance Authority, 4.70%
Revenue Bonds (Series A)/(W.A. Foote Memorial Hospital)/
(Original Issue Yield: 4.80%)/(FGIC Insured), 6/1/2004 AAA 484,915
---------------------------------------------------------
100,000 Kalamazoo, MI, Hospital Finance Authority, 7.10% Revenue
Bonds (Series 1988)/(Borgess Medical Centre)/
(FGIC Insured)/(Prerefunded), 1/1/97 (@102) Aaa 107,749
---------------------------------------------------------
255,000 Kent County, MI, Wyoming Public Schools, 5.00% UT GO
Bonds (1993 School Building & Site)/(Q-SBLF Program),
5/1/2002 A1 257,109
---------------------------------------------------------
295,000 Kent County, MI, Wyoming Public Schools, 5.10% UT GO
Bonds (1993 School Building & Site)/(Q-SBLF Program),
5/1/2003 A1 297,561
---------------------------------------------------------
365,000 Kent County, MI, Wyoming Public Schools, 5.20% UT GO
Bonds (1993 School Building & Site)/(Q-SBLF Program),
5/1/2004 A1 367,840
---------------------------------------------------------
265,000 Kent, MI, Hospital Finance Authority, 6.30% Revenue
Refunding Bonds (Pine Rest Christian Hospital)/ (Series
1992)/(Original Issue Yield: 6.40%)/(FGIC Insured),
11/1/2003 Aaa 289,984
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 415,000 Kent, MI, Hospital Finance Authority, 6.30% Revenue
Refunding Bonds (Pine Rest Christian Hospital)/ (Series
1992)/(Original Issue Yield: 6.45%)/(FGIC Insured),
11/1/2004 Aaa $ 451,072
---------------------------------------------------------
100,000 Michigan Higher Education Student Loan Authority, 7.10%
Student Loan Revenue Refunding Bonds (Series X1)/ (AMBAC
Insured)/(Subject to AMT), 10/1/97 Aaa 109,291
---------------------------------------------------------
1,500,000 Michigan Municipal Bond Authority, 6.00% Revenue
Refunding Bonds (Qualified School District Bond Program)/
(Original Issue Yield: 6.10%), 5/1/2002 A1 1,608,870
---------------------------------------------------------
1,000,000 Michigan Public Power Agency, 5.10% Revenue Refunding
Bonds (Series 1993A)/(Belle River)/(Original Issue Yield:
5.15%), 1/1/2003 AA- 1,012,710
---------------------------------------------------------
1,000,000 Michigan Public Power Agency, 5.20% Revenue Refunding
Bonds (Belle River)/(Original Issue Yield: 5.25%),
1/1/2004 AA- 1,012,220
---------------------------------------------------------
1,000,000 Michigan Public Power Agency, 5.70% Revenue Refunding
Bonds (Series 1992)/(Belle River)/(Original Issue Yield:
5.80%), 1/1/2003 AA- 1,053,830
---------------------------------------------------------
1,000,000 Michigan State Environmental Program, 5.75% GO Bonds
(Series 1992)/(Original Issue Yield: 5.80%), 11/1/2001 A1 1,065,590
---------------------------------------------------------
1,000,000 Michigan State Hospital Finance Authority, 4.90% Revenue
Bonds (Oakwood Hospital)/(FGIC Insured)/(Original Issue
Yield: 5.05%), 11/1/2002 AAA 1,003,430
---------------------------------------------------------
750,000 Michigan State Hospital Finance Authority, 4.90% Revenue
Refunding Bonds (Detroit Medical Center)/(AMBAC
Insured)/(Original Issue Yield: 5.10%), 18/15/2005 AAA 728,212
---------------------------------------------------------
600,000 Michigan State Hospital Finance Authority, 4.90% Revenue
Refunding Bonds (Series 1993P)/(Sisters of Mercy Health
Corp.)/(MBIA Insured)/(Original Issue Yield: 5.10%),
8/15/2005 AAA 582,570
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 400,000 Michigan State Hospital Finance Authority, 5.00% Revenue
Bonds (Crittenton Hospital)/(Original Issue Yield:
5.10%), 3/1/2003 Aa $ 387,592
---------------------------------------------------------
500,000 Michigan State Hospital Finance Authority, 5.50% Revenue
Bonds (Series 1992A)/(Henry Ford Health System)/
(Original Issue Yield: 5.55%), 9/1/2001 Aa 536,490
---------------------------------------------------------
1,500,000 Michigan State Hospital Finance Authority, 5.50% Revenue
Refunding Bonds (St. Johns Hospital), 5/15/2001 Aa 1,564,185
---------------------------------------------------------
800,000 Michigan State Hospital Finance Authority, 5.95% Revenue
Bonds (Oakwood Hospital Group)/(FGIC Insured)/
(Original Issue Yield: 6.05%), 5/1/2002 Aaa 855,960
---------------------------------------------------------
415,000 Michigan State Hospital Finance Authority, 6.15% Revenue
Bonds (Series 1992A)/(Crittenton Hospital), 3/1/2001 A 453,939
---------------------------------------------------------
440,000 Michigan State Hospital Finance Authority, 6.25% Revenue
Bonds, (Series 1992A)/(Crittenton Hospital), 3/1/2002 A 486,002
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 6.70% Revenue
Refunding Bonds (Series 1988A)/(Henry Ford Health
System), 5/1/96 Aa 105,606
---------------------------------------------------------
375,000 Michigan State Hospital Finance Authority, 6.85% Revenue
Refunding Bonds (Series 1989)/(Oakland General
Hospital)/(AMBAC Insured), 7/1/2000 Aaa 418,140
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 6.90% Revenue
Refunding Bonds (Series 1988A)/(Henry Ford Health
System), 5/1/97 Aa 108,248
---------------------------------------------------------
500,000 Michigan State Hospital Finance Authority, 7.00% Revenue
Bonds (Series 1991)/(Daughters of Charity National Health
System Providence Hospital)/(Original Issue Yield:
7.04%), 11/1/2021 Aa 559,670
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 100,000 Michigan State Hospital Finance Authority, 7.10% Revenue
Refunding Bonds (Series 1988A)/(Sisters of Mercy Health
System)/(Original Issue Yield: 7.15%)/(MBIA Insured),
8/15/97 Aaa $ 109,796
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 7.20% Revenue
Refunding Bonds (Series 1988A)/(Mercy Memorial Hospital)/
(BIG Insured), 6/1/97 Aaa 109,484
---------------------------------------------------------
430,000 Michigan State Housing Development Authority, 6.25%
Single Family Housing Mortgage Revenue Bonds (Series
1992A)/ (Subject to AMT), 6/1/2002 AA- 458,819
---------------------------------------------------------
280,000 Michigan State Housing Development Authority, 6.30%
Single Family Housing Mortgage Revenue Bonds (Series A),
12/1/2003 AA- 299,746
---------------------------------------------------------
200,000 Michigan State Housing Development Authority, 6.95%
Single Family Housing Mortgage Revenue Bonds (Series B)/
(Subject to AMT), 12/1/2020 AA- 212,194
---------------------------------------------------------
100,000 Michigan State Housing Development Authority, 7.00%
Single Family Housing Mortgage Revenue Bonds (Series
1988B)/ (Subject to AMT), 6/1/96 AA- 103,754
---------------------------------------------------------
200,000 Michigan State Housing Development Authority, 7.00%
Single Family Housing Mortgage Revenue Bonds (Series
1991A)/ (Subject to AMT), 12/1/2005 AA- 209,534
---------------------------------------------------------
1,850,000 Michigan State South Central Power Agency, 5.00% Supply
System Revenue Refunding Bonds (Original Issue Yield:
7.20%)/(AMBAC Insured), 11/1/2009 AAA 1,757,241
---------------------------------------------------------
800,000 Michigan State South Central Power Agency, 5.70% Supply
System Revenue Refunding Bonds (Original Issue Yield:
5.80%)/(MBIA Insured), 11/1/2004 AAA 845,144
---------------------------------------------------------
250,000 Michigan State Strategic Fund, 7.10% Limited Obligation
Revenue Bonds (Series 1992A)/(Ford Motor Company)/
(Original Issue Yield: 7.125%), 2/1/2006 A2 287,950
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 100,000 Michigan State, 5.50% Comprehensive Transportation
Revenue Refunding Bonds (Series 1988II), 11/1/97 A1 $ 108,183
---------------------------------------------------------
1,000,000 Michigan State, 5.50% Comprehensive Transportation
Revenue Refunding Bonds (Series 1992B)/(Original Issue
Yield: 5.60%), 5/15/2002 A1 1,044,210
---------------------------------------------------------
100,000 Michigan State, 6.55% Comprehensive Transportation
Revenue Refunding Bonds (Series 1988I), 9/1/97 A1 107,845
---------------------------------------------------------
925,000 Novi, MI, 4.75% UT GO Bonds (Series 1993)/(Original Issue
Yield: 4.80%), 10/1/2004 A1 907,610
---------------------------------------------------------
950,000 Novi, MI, 4.80% UT GO Bonds (Series 1993)/(Original Issue
Yield: 4.90%), 10/1/2005 A1 928,492
---------------------------------------------------------
300,000 Oakland County, MI, 4.60% UT GO Bonds (Series 1993)/
(Pontiac-Clinton River Drainage District #3)/(Original
Issue Yield: 4.70%), 5/1/2003 AA- 293,391
---------------------------------------------------------
250,000 Oakland County, MI, 4.70% UT GO Bonds (Series 1993)/
(Pontiac-Clinton River Drainage District #3)/(Original
Issue Yield: 4.80%), 5/1/2004 AA- 243,667
---------------------------------------------------------
250,000 Oakland County, MI, 4.80% UT GO Bonds (Series 1993)/
(Pontiac-Clinton River Drainage District #3)/(Original
Issue Yield: 4.90%), 5/1/2005 AA- 243,652
---------------------------------------------------------
1,750,000 Oakland County, MI, 5.45% UT GO School Building & Site
Bonds (Novi Community Schools)/(Original Issue Yield:
5.50%), 5/1/2003 A1 1,812,458
---------------------------------------------------------
250,000 Oakland County, MI, 6.30% LT GO Bonds (Series 1991)/
(Evergreen Farmington Sewer Disposal System), 5/1/2005 A 265,903
---------------------------------------------------------
300,000 Oakland, MI, 6.65% LT GO Bonds (Series 1991)/(Community
College District)/(Original Issue Yield: 6.745%),
5/1/2011 A 331,101
---------------------------------------------------------
1,000,000 Oakland, MI, Community College. 4.80% Improvement
Refunding Bonds, 5/1/2004 AA- 981,000
---------------------------------------------------------
1,000,000 Oakland, MI, Community College. 5.00% Improvement
Refunding Bonds, 5/1/2006 AA- 981,160
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 610,000 Okemos, MI, Public School District, 6.00% UT GO Bonds
(Q-SBLF Program), 5/1/2002 A1 $ 656,403
---------------------------------------------------------
795,000 Ottawa County, MI, 5.40% Water System Revenue Bonds
(Series 1992)/(Northwest Ottawa Water Supply)/
(Original Issue Yield: 5.45%), 8/1/2002 A1 824,351
---------------------------------------------------------
220,000 Ottawa County, MI, 6.50% Water System Revenue Bonds
(Series 1990)/(Northwest Ottawa Water Supply), 10/1/2001 A1 238,583
---------------------------------------------------------
140,000 Ottawa County, MI, 6.50% Water System Revenue Bonds
(Series 1990)/(Northwest Ottawa Water Supply)/
(Original Issue Yield: 6.55%), 10/1/2002 A1 151,344
---------------------------------------------------------
100,000 Ottawa County, MI, 6.85% Water System Revenue Bonds
(Series 1990)/(Northwest Ottawa Water Supply), 5/1/2000 A1 107,866
---------------------------------------------------------
400,000 Plymouth-Canton, MI, Community School District (Wayne &
Washtenaw Counties), 6.00% UT GO Bonds (Series 1992C)/
(Q-SBLF Program)/(Original Issue Yield: 6.10%), 5/1/2003 A1 429,416
---------------------------------------------------------
500,000 Plymouth-Canton, MI, Community School District
(Wayne & Washtenaw Counties), 6.80% UT GO Bonds
(Q-SBLF Program)/(Original Issue Yield: 6.90%), 5/1/2017 A1 565,555
---------------------------------------------------------
570,000 Riverview, MI, Community School District (Wayne County),
6.20% UT GO Bonds (School Building Series 1992)/
(FGIC Insured), 5/1/2003 Aaa 631,640
---------------------------------------------------------
615,000 Riverview, MI, Community School District (Wayne County),
6.20% UT GO Bonds (School Building Series 1992)/ (FGIC
Insured), 5/1/2004 Aaa 681,506
---------------------------------------------------------
795,000 Riverview, MI, Community School District, 4.85% Refunding
UT GO Bonds (Series 1994)/(Original Issue Yield: 4.95%)/
(AMBAC Insured), 5/1/2005 AAA 780,825
---------------------------------------------------------
350,000 Rochester, MI, Community School District (Counties of
Macomb and Oakland), 6.50% UT GO Bonds (Series 1991)/
(Q-SBLF Program)/(Original Issue Yield: 6.60%), 5/1/2007 A1 390,582
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 250,000 Rochester, MI, Community School District (Counties of
Macomb and Oakland), MI, 6.50% UT GO Bonds (Series
1991)/(Q-SBLF Program)/(Original Issue Yield: 6.75%),
5/1/2011 A1 $ 278,988
---------------------------------------------------------
710,000 Rochester, MI, Community School District 5.25% UT GO
Bonds (Q-SBLF Program)/(Original Issue Yield: 5.30%),
5/1/2004 A1 720,572
---------------------------------------------------------
600,000 Royal Oak, MI, Hospital Finance Authority, 6.75% Revenue
Bonds (Series 1991A)/(William Beaumont Hospital)/
(Original Issue Yield: 7.078%), 1/1/2020 Aa 654,816
---------------------------------------------------------
270,000 Shelby Township (Macomb County), MI, Building Authority,
6.25% LT GO Bonds, (Series 1991)/(AMBAC Insured)/
(Original Issue Yield: 6.45%) 11/1/2006 Aaa 292,442
---------------------------------------------------------
230,000 Shelby Township (Macomb County), MI, Building Authority,
6.25% LT GO Bonds (Series 1991)/(AMBAC Insured)/
(Original Issue Yield: 6.50%) 11/1/2007 Aaa 247,899
---------------------------------------------------------
500,000 Troy, MI, City School District, 4.90% UT GO Refunding
Bonds (Original Issue Yield: 5.00%)/(AMBAC Insured),
5/1/2005 AAA 493,200
---------------------------------------------------------
1,000,000 University of Michigan Board of Regents, 5.00% Student
Fee Bonds (Original Issue Yield: 5.10%), 4/1/2003 AA+ 1,007,950
---------------------------------------------------------
1,000,000 University of Michigan Board of Regents, 5.20% Student
Fee Bonds (Series B)/(Original Issue Yield: 5.33%),
4/1/2004 AA+ 1,015,650
---------------------------------------------------------
250,000 University of Michigan Board of Regents, 7.00%
Revenue Bonds (Series 1990A)/(University Hospital)/
(Original Issue Yield: 7.25%), 12/1/2021 Aa 288,540
---------------------------------------------------------
1,500,000 University of Michigan, 5.70% Revenue Bonds (Series
1990A), 12/1/2004 Aa 1,585,140
---------------------------------------------------------
1,000,000 Wayne County, MI, 5.00% Airport Revenue Refunding Bonds
(Series B)/(MBIA Insured)/(Original Issue Yield: 5.10%)/
(Subject to AMT), 12/1/2004 AAA 991,710
---------------------------------------------------------
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
$ 750,000 Wayne County, MI, Livonia Public School District, 6.00%
UT GO Bonds (School Building Series 1992), 5/1/2001 A1 $ 807,325
---------------------------------------------------------
1,000,000 Western Michigan University, 5.50% General Revenue Bonds
(Series 1992A)/(FGIC Insured)/(Original Issue Yield:
5.55%), 11/15/2002 Aaa 1,048,560
---------------------------------------------------------
885,000 Wyandotte (Wayne County), MI, Electric System, 6.10%
Revenue Refunding Bonds (Series 1992)/(MBIA Insured),
10/1/2002 Aaa 963,225
--------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $58,027,140) 60,266,715
--------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $58,152,573) $60,392,148+
--------------------------------------------------------- -----------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for an
explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $58,152,573. The
net unrealized appreciation on a federal tax basis amounts to $2,239,575,
which is comprised of $2,523,986 appreciation and $284,411 depreciation at
February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($60,525,293) at February 28, 1994.
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
BIG --Bond Investors Guaranty
ETM --Escrowed to Maturity
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
LT --Limited Tax
MBIA --Municipal Bond Investors Assurance
Q-SBLF --Qualified State Bond Loan Fund
UT --Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $58,152,573) $60,392,148
- --------------------------------------------------------------------------------
Cash 191,776
- --------------------------------------------------------------------------------
Interest receivable 1,001,611
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 360,765
- --------------------------------------------------------------------------------
Receivable from Adviser (Note 5) 11,000
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 11,705
- -------------------------------------------------------------------------------- -----------
Total assets 61,969,005
- --------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------
Payable for investments purchased $863,600
- ---------------------------------------------------------------------
Payable for Fund shares redeemed 322,589
- ---------------------------------------------------------------------
Dividends payable 222,361
- ---------------------------------------------------------------------
Accrued expenses 35,162
- --------------------------------------------------------------------- --------
Total liabilities 1,443,712
- -------------------------------------------------------------------------------- -----------
NET ASSETS FOR 5,552,807 shares of beneficial interest outstanding $60,525,293
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $58,315,354
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,239,575
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (29,636)
- -------------------------------------------------------------------------------- -----------
Total $60,525,293
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE: ($60,525,293 / 5,552,807 shares of beneficial interest
outstanding) $10.90
- -------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/97 of $10.90)* $11.24
- -------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99.5/100 of $10.90)** $10.85
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income (Note 2B) $1,480,802
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------
Investment advisory fee (Note 5) $112,492
- -----------------------------------------------------------------------
Administrative personnel and services (Note 5) 131,862
- -----------------------------------------------------------------------
Trustees' fees 1,700
- -----------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 40,679
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 11,755
- -----------------------------------------------------------------------
Fund share registration costs 14,379
- -----------------------------------------------------------------------
Printing and postage 6,174
- -----------------------------------------------------------------------
Legal fees 5,507
- -----------------------------------------------------------------------
Auditing fees 8,250
- -----------------------------------------------------------------------
Insurance premiums 2,880
- -----------------------------------------------------------------------
Taxes 373
- -----------------------------------------------------------------------
Miscellaneous 2,096
- ----------------------------------------------------------------------- --------
Total expenses 338,147
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $112,492
- ------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note
5) 85,034 197,526
- ------------------------------------------------------------ -------- --------
Net expenses 140,621
- ----------------------------------------------------------------------------------- ----------
Net investment income 1,340,181
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- (13,632)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (794,211)
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (807,843)
- ----------------------------------------------------------------------------------- ----------
Change in net assets from operations $ 532,338
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------
1994* 1993
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 1,340,181 $ 1,972,851
- -----------------------------------------------------------------
Net realized gain (loss) from investment transactions ($13,632
net loss and $0 respectively, as computed for federal tax
purposes) (Note 2C) (13,632) (3,738)
- -----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (794,211) 2,434,646
- ----------------------------------------------------------------- ----------- ------------
Change in net assets from operations 532,338 4,403,759
- ----------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (1,340,181) (1,972,851)
- ----------------------------------------------------------------- ----------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------
Proceeds from sale of shares 16,831,241 32,334,217
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 123,015 177,979
- -----------------------------------------------------------------
Cost of shares redeemed (6,245,980) (11,316,461)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from Fund share transactions 10,708,276 21,195,735
- ----------------------------------------------------------------- ----------- ------------
Change in net assets 9,900,433 23,626,643
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 50,624,860 26,998,217
- ----------------------------------------------------------------- ----------- ------------
End of period $60,525,293 $ 50,624,860
- ----------------------------------------------------------------- ----------- ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1994* 1993 1992**
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.02 $10.38 $10.00
- ----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------
Net investment income 0.26 0.55 0.56
- ----------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.12) 0.64 0.38
- ---------------------------------------------------------------- ------ ------ -----
Total from investment operations 0.14 1.19 0.94
- ---------------------------------------------------------------- ------ ------ -----
LESS DISTRIBUTIONS
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (0.26) (0.55) (0.56 )
- ---------------------------------------------------------------- ------ ------ -----
NET ASSET VALUE, END OF PERIOD $10.90 $11.02 $10.38
- ---------------------------------------------------------------- ------ ------ -----
Total return*** 1.27% 11.73% 9.60 %
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------
Expenses 0.50%(a) 0.37% 0.07 %(a)
- ----------------------------------------------------------------
Net investment income 4.77%(a) 5.11% 5.66 %(a)
- ----------------------------------------------------------------
Expense waiver/reimbursement (b) 0.71%(a) 1.06% 1.26 %(a)
- ----------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------
Net assets, end of period (000 omitted) $60,525 $50,625 $26,998
- ----------------------------------------------------------------
Portfolio turnover rate 1% 3% 26 %
- ----------------------------------------------------------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** Reflects operations for the period from September 18, 1991 (date of initial
public investment) to August 31, 1992.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
<TABLE>
<C> <S>
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 5).
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
Michigan Municipal Income Fund, a non-diversified portfolio of the Trust. The
financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. 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 it deems relevant in determining
valuations for normal institutional size trading units of debt securities. The
independent pricing service does not rely exclusively on quoted prices. Debt securities
with remaining maturities of sixty days or less are stated at amortized cost, which
approximates value.
Since the Fund may invest a substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely affecting issuers of that state
than would be a comparable general tax-exempt mutual fund. In order to reduce the risk
associated with such factors, at February 28, 1994, 35.0% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The aggregate
percentages by financial institutions ranged from 0.4% to 12.6% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned, net of premium, and original issue discount as required by the Internal
Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and distribute to shareholders each year
all of its net investment income, including any net realized gain on investments.
Accordingly, no provision for federal income tax is necessary. Dividends paid by the Fund
from net interest earned on tax-exempt municipal bonds are not includable by shareholders
as gross income for federal income tax purposes, because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment companies
which will enable the Fund to pay tax-exempt
</TABLE>
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
interest dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986, may be considered a tax preference item for
shareholders.
At August 31, 1993, the Fund for federal tax purposes, had a capital loss carryforward of
$12,267 which expires in 2001 and will reduce the Fund's taxable income arising from
future net realized gains on investments, if any, to the extent permitted by the Internal
Revenue 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 income tax.
Additionally, net capital losses of $3,738 attributable to security transactions incurred
after October 31, 1992, are treated as arising on the first day (September 1, 1993) of
the Fund's next taxable year.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and a fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1994* 1993
- ---------------------------------------------------------------- --------- ----------
<S> <C> <C>
Shares outstanding, beginning of period 4,594,049 2,600,614
- ----------------------------------------------------------------
Shares sold 1,513,920 3,040,690
- ----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 11,090 16,535
- ----------------------------------------------------------------
Shares redeemed (566,252) (1,063,790)
- ---------------------------------------------------------------- --------- ----------
Shares outstanding, end of period 5,552,807 4,594,049
- ---------------------------------------------------------------- --------- ----------
</TABLE>
* Six months ended February 28, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fees received during
any fiscal year shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Organizational expenses and start-up costs incurred by the Fund of $29,550 and
$82,009, respectively, were borne initially by Federated Administrative
Services, Inc., Administrator to the Fund. The Fund has agreed to reimburse the
Administrator, at an annual rate of .005 of 1% of average daily net assets for
organizational expenses and .01 of 1% of average daily net assets for start-up
costs, until the organizational expenses and start-up costs initially borne by
the Administrator are reimbursed or the expiration of five years after the
Trust's portfolio first becomes effective, whichever occurs earlier. For the six
months ended February 28, 1994, the Fund paid $1,369 and $2,741, respectively,
pursuant to this agreement.
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940, amounting to $11,950,000 and $11,750,000,
respectively. These purchases and sales were con-
MICHIGAN MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
ducted on an arms-length basis insofar as they were transacted for cash
considerations only, at independent current market prices, and without brokerage
commission, fee, or other remuneration.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above mentioned Corporations.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $12,218,988
- ------------------------------------------------------------------------------- -----------
SALES $ 636,122
- ------------------------------------------------------------------------------- -----------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue
John F. Donahue
Chairman
John T. Conroy, Jr.
Richard B. Fisher
William J. Copeland
President
J. Christopher Donahue
J. Christopher Donahue
James E. Dowd
Vice President
Lawrence D. Ellis, M.D.
Edward C. Gonzales
Vice President and Treasurer
Edward L. Flaherty, Jr.
John W. McGonigle
Peter E. Madden
Vice President and Secretary
Gregor F. Meyer
John A. Staley, IV
Wesley W. Posvar
Vice President
Marjorie P. Smuts
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
DOCUMENT DESCRIPTION
DOCUMENT TYPE
COUNT 14
- --------------------------------------------------------------------------------
CALIFORNIA
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
3030817A (4/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Fortress
Shares of California Municipal Income Fund (the "Fund"), covering the six-month
period ended February 28, 1994.
This report begins with an investment review of the economy and the municipal
market. Following the Investment Review are the Fund's portfolio holdings and
Financial Statements.
As a tax-sensitive California resident, you'll find that the Fund may deliver a
high level of relief in the form of monthly income that is exempt from federal
regular income tax and the personal income taxes imposed by the state of
California and its municipalities. This income is earned by a quality portfolio
of investment-grade, long-term California municipal securities.
During the past six months, the Fund paid a total of $0.29 per share in tax-free
income to shareholders. Due to increased investor participation in the Fund, the
Fund's total net assets grew from $11.5 million to $16.9 million between the
first and last days of the report period. Reflecting the fact that, when
interest rates rise, bond prices decline, the Fund's net asset value declined
from $10.92 to $10.73.
We believe that your investment in California Municipal Income Fund is a wise
way to pursue tax-free earnings. We thank you for your confidence and encourage
you to build up share holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Investors in fixed-income securities passed through market conditions whose
turbulence was spawned by erratic, yet undeniable strength in the economy.
For the six month period ended February 28, 1994, overall economic growth
accelerated while inflation--the scourge of fixed-income investing--was subdued.
Real (inflation-adjusted) Gross Domestic Product ("GDP") grew over the past six
months at an annual pace of 5.2%. From September 1, 1993 to February 28, 1994,
annual growth in real GDP, has, in fact, escalated from 2.9% to 7.5%. In the
meantime, however, increases for the Producer Price Index remained miniscule--at
yearly rates of 0.5% as of September 1, 1993 and of 0.2% as of February 28,
1994.
The growth in the economy was achieved by increased productivity of capital and
labor. Capacity utilization of the nation's mines and factories increased
modestly from 81.4% to 83.2%. Meanwhile, the growth in real per capita
disposable income and in total non-farm payroll was far less than that for real
GDP--2.1% and 1.6% respectively. These conditions, as well as ongoing
announcements by major corporations for personnel reduction, did not portend any
spurt in underlying inflation. Nonetheless, the long-term, fixed-income markets,
as well as the Federal Reserve Board, held fears of a renewed inflation--the
"usual" bane of economic recovery--despite actual gains in unit labor costs
below 2.0% per year over the past six months.
From September 1, 1993, to October 15, 1993, all was well in the long-term,
fixed-income world--yields on thirty-year Treasury bonds descended from 6.07% to
5.79%, and the Bond Buyer Revenue Index of "A"-rated, thirty-year municipal
issues dropped from 5.56% to 5.41%. From October 15, 1993 to February 4,
1994--when the Federal Reserve Board raised the Federal Funds target for the
first time in five years to 3.25%--Long Treasury and municipal yields climbed to
6.30% and 5.49%, respectively. As of February 28, 1994, the thirty-year Treasury
rate was 6.66%, while the Bond Buyer Revenue Index was 6.07%. In summary, for
the six month period ended February 28, 1994, long Treasury bond prices were
reduced by 7.4%, and long municipal bond prices by 4.6% due to the ascent of
market yields.
From September 1, 1993 to February 28, 1994, net assets of the Fund grew from
$11.5 million to $16.9 million. Reflecting market activity, the net asset value
per share of the Fund grew from $10.92 on September 1, 1993 to $11.14 on October
15, 1993, then fell to $10.73 on February 28, 1994. On that date, the credit
breakdown of the holdings of the Fund was: 14.4% in "Aaa" issues; 58.8% in "Aa"
issues; 19.4% in "A" issues; 6.8% in "Baa" issues; and 0.6% in municipal cash
equivalents within the highest rating category.
When ascertaining the credit quality of issues for potential investment by the
Fund, the investment adviser focuses upon a variety of economic and financial
parameters. For general obligation issues, analysis is directed towards
demographic constitution, income distribution, property value levels and growth,
provision of governmental services, and debt authorization. For revenue issues,
the adviser also examines issuer cash flow generation, sensitivity to
product/service pricing, completion and industry/sector make-up, debt structure,
debt service coverage, financial flexibility, and contingent liabilities.
- --------------------------------------------------------------------------------
Securities bought by the Fund during the past six months consisted largely of;
hospital revenue issues; water & sewer revenue issues; single-family mortgage
revenue issues; pollution control revenue issues; and sales tax revenue issues.
The average purchase yield for new investments in the fund was 5.64%.*
For the six month period ended February 28, 1994, an investor in the Fund
experienced a "total return" of 0.87%.* This performance was comprised of 2.61%
income and reinvestment return (net of Fund expenses) and of 1.74% depreciation
in the net asset value per share of the Fund--both on a non-annualized basis.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--0.6%
- -----------------------------------------------------------------------
PUERTO RICO--0.6%
----------------------------------------------------------
$100,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) (at amortized
cost) (Note 2A) A-1+ $ 100,000
---------------------------------------------------------- -----------
LONG-TERM MUNICIPAL SECURITIES--98.2%
- ----------------------------------------------------------------------
CALIFORNIA--96.7%
----------------------------------------------------------
400,000 ABAG Finance Authority, CA, 5.25% COPS (Series 1993)/
(Stanford University Hospital), 11/1/2020 Aa 371,820
----------------------------------------------------------
400,000 Beverly Hills, CA, Public Finance Authority, 6.00% Water
Revenue Bonds (Series A), 6/1/2022 Aa1 409,492
----------------------------------------------------------
250,000 California Educational Facilities Authority, 6.00% Revenue
Bonds (Series 1991J)/(Stanford University), 11/1/2016 Aaa 260,590
----------------------------------------------------------
1,000,000 California Health Facilities Finance Authority, 5.75%
Revenue Bonds (Series A)/(St. Francis Medical
Center)/(Original Issue Yield: 5.839%), 10/1/2023 Aa 987,500
----------------------------------------------------------
250,000 California Health Facilities Finance Authority, 6.125%
Refunding Revenue Bonds (Series 1992)/(San Diego Hospital
Association)/(MBIA Insured), 8/1/2022 Aaa 258,648
----------------------------------------------------------
250,000 California Health Facilities Finance Authority, 6.25%
Revenue Bonds (Kaiser Permanente), 3/1/2021 Aa2 259,045
----------------------------------------------------------
400,000 California HFA Multi Family Housing, 5.50% Revenue Bonds
(Series A), 8/1/2015 A+ 381,832
----------------------------------------------------------
750,000 California HFA, 5.70% Revenue Bonds (Series B)/(Original
Issue Yield: 5.75%), 2/1/2025 A+ 725,640
----------------------------------------------------------
1,000,000 California HFA, 5.625% Revenue Bonds (Series C)/(Original
Issue: 5.70%), 8/1/2017 A+ 965,270
----------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
CALIFORNIA--CONTINUED
----------------------------------------------------------
$500,000 California Pollution Control Facilities Financing
Authority, 6.35% Revenue Bonds (Pacific Gas & Electric
Co.)/ (Series 1992B)/(Subject to AMT), 6/1/2009 A1 $ 527,045
----------------------------------------------------------
900,000 California Pollution Control Financing Authority, 5.50%
PCR Bonds (General Motors Corp.), 4/1/2008 BBB+ 883,206
----------------------------------------------------------
300,000 California Pollution Control Financing Authority, 5.85%
Refunding Revenue Bonds (Series 1993B)/(Subject to AMT),
12/1/2023 A 302,505
----------------------------------------------------------
500,000 California Pollution Control Financing Authority, 5.875%
Refunding Revenue Bonds (Subject to AMT), 6/1/2023 A 505,075
----------------------------------------------------------
500,000 California Pollution Control Financing Authority, 6.40%
Refunding Revenue Bonds (Series 1992)/(Southern California
Edison Co.)/Subject to AMT), 12/1/2024 A+ 528,625
----------------------------------------------------------
500,000 California State, 6.25% UT GO Bonds (Series C), 10/1/2019 Aa 561,705
----------------------------------------------------------
250,000 California Statewide Community Development Authority,
6.00%, Refunding Revenue Bonds (Series 1992)/(Sutter
Health Obligated Group)/(AMBAC Insured), 8/15/2012 Aaa 261,458
----------------------------------------------------------
500,000 Chula Vista, CA, 6.40% IDR Bonds (San Diego Gas & Electric
Co.)/(Series 1992A)/(Subject to AMT), 12/1/2027 Aa3 529,455
----------------------------------------------------------
500,000 East Bay, CA, Municipal Utility District, 6.00% Water
System Revenue Bonds (Series 1992), 6/1/2020 A1 517,365
----------------------------------------------------------
250,000 Fairfield, CA, PFA, 6.30% Revenue Bonds (Municipal Park
Improvement District #1)/(Series 1993)/(FGIC Insured),
7/1/2023 Aaa 261,972
----------------------------------------------------------
200,000 Fresno, CA, Health Facilities Authority, 5.625% Revenue
Bonds (Original Issue: 5.85%)/(Holy Cross Health System
Corp), 12/1/2018 AA- 193,370
----------------------------------------------------------
250,000 Industry, CA, 6.00% UT GO Bonds (Series A)/(FGIC Insured),
7/1/2016 Aaa 257,808
----------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
CALIFORNIA--CONTINUED
----------------------------------------------------------
$500,000 Kings River Conservation District, CA, 5.50% Revenue Bonds
(Pine Flat Power)/(Original Issue Yield: 6.376%), 1/1/2020 Aa $ 490,495
----------------------------------------------------------
200,000 Los Angeles, CA, Community Redevelopment Financing
Authority, 5.90% Qualified Redevelopment Bonds (Series
1993A)/(Original Issue Yield: 6.00%)/(Subject to AMT),
12/1/2026 A 191,878
----------------------------------------------------------
500,000 Los Angeles, CA, Department of Water & Power 6.00%
(Electric Plant Revenue Bonds), 8/15/2032 Aa 508,985
----------------------------------------------------------
500,000 Los Angeles, CA, Transportation Commission, 6.75% Second
Senior Lien Revenue Bonds (Series 1992), 7/1/2019 A1 575,680
----------------------------------------------------------
500,000 Marin, CA, Municipal Water District, 5.65% Water Revenue
Bonds, 7/1/2023 AA 493,605
----------------------------------------------------------
600,000 Metropolitan Water District of Southern California, 5.50%
System Refunding Revenue Bonds (Series 1992), 7/1/2019 Aa 584,748
----------------------------------------------------------
400,000 Northern California Transmission Agency, 5.25% Refunding
Revenue Bonds (Series 1993A)/(MBIA Insured), 5/1/2000 Aaa 376,156
----------------------------------------------------------
500,000 Riverside, CA, Electric System, 6.00% Power Supply Revenue
Bonds (Series 1991), 10/1/2015 Aa 515,625
----------------------------------------------------------
250,000 San Diego County, CA, Water Authority, 6.40% Revenue Bonds
(Series 1991A), 5/1/2008 Aa 267,317
----------------------------------------------------------
250,000 San Francisco, CA, City & County, 6.10% Refunding Revenue
Bonds (San Francisco International Airport)/(MBIA
Insured)/ (Subject to AMT), 5/1/2013 Aaa 262,803
----------------------------------------------------------
400,000 San Francisco, CA, Public Utility Commission, 6.00% Water
System Refunding Revenue Bonds (Series 1992), 11/1/2015 Aa 413,056
----------------------------------------------------------
250,000 San Mateo County, CA, Transit District, 5.00% Limited Tax
Bonds (MBIA Insured)/(Original Issue Yield: 5.50%),
6/1/2012 AAA 238,460
----------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
CALIFORNIA--CONTINUED
----------------------------------------------------------
$250,000 San Mateo County, CA, Transit District, 5.25% Limited Tax
Bonds (Series 1993A)/(MBIA Insured)/(Original Issue Yield:
5.55%), 6/1/2018 Aaa $ 239,402
----------------------------------------------------------
500,000 Sequoia, CA, Hospital District, 5.375% Refunding Bonds
(Original Issue Yield: 5.55%), 8/15/2013 A- 475,385
----------------------------------------------------------
300,000 Sequoia, CA, Hospital District, 5.375% Refunding Bonds
(Original Issue Yield: 5.65%), 8/15/2023 A- 276,933
----------------------------------------------------------
500,000 Southern California Public Power Authority, 6.00%
Refunding Revenue Bonds (Series 1991)/(Hydro-electric
Hoover Uprating Program), 10/1/2017 Aa 510,030
---------------------------------------------------------- -----------
Total 16,369,984
---------------------------------------------------------- -----------
PUERTO RICO--1.5%
----------------------------------------------------------
250,000 Puerto Rico Electric Power Authority, 6.25% Refunding
Revenue Bonds (Series R), 7/1/2017 A-- 260,637
---------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $16,302,206) $16,630,621
---------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $16,402,206) $16,730,621+
---------------------------------------------------------- -----------
</TABLE>
* Please refer to the appendix of the Statement of Additional Information for
an explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $16,402,206. The
net unrealized appreciation on a federal tax basis amounts to $328,415, which
is comprised of $454,183 appreciation and $125,768 depreciation at February
28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($16,936,600) at
February 28, 1994.
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
COPS --Certificates of Participation
FGIC --Financial Guaranty Insurance Company
GO --General Obligation
HFA --Housing Finance Authority/Agency
IDR --Industrial Development Revenue
LOCs --Letters of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
PFA --Public Facility Authority
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $16,402,206) $16,730,621
- -------------------------------------------------------------------------------------
Cash 12,239
- -------------------------------------------------------------------------------------
Receivable for investments sold 974,323
- -------------------------------------------------------------------------------------
Interest receivable 226,778
- -------------------------------------------------------------------------------------
Receivable for Fund shares sold 55,069
- -------------------------------------------------------------------------------------
Receivable from Adviser (Note 5) 29,000
- -------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 8,094
- ------------------------------------------------------------------------------------- -----------
Total assets 18,036,124
- -------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------
Payable for investments purchased $987,500
- --------------------------------------------------------------------------
Payable for Fund shares redeemed 56,802
- --------------------------------------------------------------------------
Dividends payable 51,950
- --------------------------------------------------------------------------
Payable to distributor (Note 5) 3,272
- -------------------------------------------------------------------------- --------
Total liabilities 1,099,524
- ------------------------------------------------------------------------------------- -----------
NET ASSETS FOR 1,578,149 shares of beneficial interest outstanding $16,936,600
- ------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------
Paid-in capital $16,636,324
- -------------------------------------------------------------------------------------
Net unrealized appreciation of investments 328,415
- -------------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (28,139)
- ------------------------------------------------------------------------------------- -----------
Total $16,936,600
- ------------------------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($16,936,600 / 1,578,149 shares of
beneficial interest outstanding) $10.73
- ------------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/99 of $10.73)* $10.84
- ------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99/100 of $10.73)** $10.62
- ------------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------
Interest income (Note 2B) $ 404,895
- --------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 29,237
- --------------------------------------------------------------------------
Administrative personnel and services (Note 5) 109,296
- --------------------------------------------------------------------------
Trustees' fees 750
- --------------------------------------------------------------------------
Custodian, and recordkeeping fees and expenses 13,684
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 8,674
- --------------------------------------------------------------------------
Fund share registration costs 14,280
- --------------------------------------------------------------------------
Printing and postage 11,000
- --------------------------------------------------------------------------
Legal fees 3,500
- --------------------------------------------------------------------------
Auditing fees 8,057
- --------------------------------------------------------------------------
Distribution services fee (Note 5) 36,545
- --------------------------------------------------------------------------
Insurance premiums 2,594
- --------------------------------------------------------------------------
Taxes 50
- --------------------------------------------------------------------------
Miscellaneous 2,115
- -------------------------------------------------------------------------- --------
Total expenses 239,782
- --------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 29,237
- ---------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 5) 174,000
- ---------------------------------------------------------------
Waiver of distribution services fee (Note 5) 18,272 221,509
- --------------------------------------------------------------- -------- --------
Net expenses 18,273
- -------------------------------------------------------------------------------------- ---------
Net investment income 386,622
- -------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (28,139)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (307,729)
- -------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (335,868)
- -------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 50,754
- -------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------
1994* 1993**
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------
Net investment income $ 386,622 $ 326,733
- ------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($28,139 net
loss
and $0, respectively, as computed for federal tax purposes) (28,139) --
- ------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (307,729) 636,144
- ------------------------------------------------------------------ ----------- ------------
Change in net assets resulting from operations 50,754 962,877
- ------------------------------------------------------------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------------
Dividends to shareholders from net investment income (386,622) (326,733)
- ------------------------------------------------------------------ ----------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------------
Proceeds from sale of shares 7,535,418 21,292,789
- ------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 128,634 97,272
- ------------------------------------------------------------------
Cost of shares redeemed (1,905,010) (10,512,779)
- ------------------------------------------------------------------ ----------- ------------
Change in net assets resulting from Fund share transactions 5,759,042 10,877,282
- ------------------------------------------------------------------ ----------- ------------
Change in net assets 5,423,174 11,513,426
- ------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------
Beginning of period 11,513,426 --
- ------------------------------------------------------------------ ----------- ------------
End of period $16,936,600 $ 11,513,426
- ------------------------------------------------------------------ ----------- ------------
</TABLE>
* Six months ended February 28, 1994 (unaudited).
** For the period from December 2, 1992 (date of initial public investment) to
August 31, 1993.
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1994** 1993***
------ -------
<S> <C> <C>
- -------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.92 $10.00
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income 0.29 0.44
- -------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.19 ) 0.92
- ------------------------------------------------------------- ----- -------
Total from investment operations 0.10 1.36
- -------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Dividends to shareholders from net investment income (0.29 ) (0.44 )
- ------------------------------------------------------------- ----- -------
NET ASSET VALUE, END OF PERIOD $10.73 $10.92
- ------------------------------------------------------------- ----- -------
Total return* 0.87 % 14.08 %
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 0.25 %(a) 0.25 %(a)
- -------------------------------------------------------------
Net investment income 5.29 %(a) 5.58 %(a)
- -------------------------------------------------------------
Expense waiver/reimbursement (b) 3.03 %(a) 1.98 %(a)
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $16,937 $11,513
- -------------------------------------------------------------
Portfolio turnover rate 7 % 0 %
- -------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Six months ended February 28, 1994 (unaudited).
*** Reflects operations for the period from December 2, 1992 (date of initial
public investment) to August 31, 1993.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The financial statements included herein are only those of
California Municipal Income Fund, a non-diversified portfolio of the Trust. The
financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service
taking into consideration yield, liquidity, risk, credit, quality, coupon, maturity, type
of issue, or any other factors or market data it deems relevant in determining valuations
for normal institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at amortized cost, which approximates value.
Since the Fund may invest a substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely affecting issuers of that state
than would be a comparable general tax-exempt mutual fund. In order to reduce the risk
associated with such factors, at February 28, 1994, 13.9% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies. The aggregate
percentage by financial institutions ranged from .60% to 8.22% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest earned, net of premium, and original issue discount as required by the Internal
Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and distribute to shareholders each year
all of its net investment income, including any net realized gain on investments.
Accordingly, no provision for federal income tax is necessary. Dividends paid by the Fund
from net interest earned on tax-exempt municipal bonds are not includable by shareholders
as gross income for federal income tax purposes, because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated investment companies
which will enable the Fund to pay tax-exempt
</TABLE>
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
interest dividends. The portion of such interest, if any, earned on private activity
bonds issued after August 7, 1986, may be considered a tax preference item for
shareholders.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) 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).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------
1994* 1993**
- ------------------------------------------------------------------
<S> <C> <C>
Shares outstanding, beginning of period 1,053,878 --
- ------------------------------------------------------------------
Shares sold 686,801 2,063,128
- ------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 11,778 9,157
- ------------------------------------------------------------------
Shares redeemed (174,308 ) (1,018,407)
- ------------------------------------------------------------------ ----------- ----------
Shares outstanding, end of period 1,578,149 1,053,878
- ------------------------------------------------------------------ ----------- ----------
</TABLE>
* Six months ended February 28, 1994.
** For the period from December 2, 1992 (date of initial public investment) to
August 31, 1993.
CALIFORNIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Fund's
average daily net assets. Adviser has voluntarily agreed to waive its fee. In
addition, Adviser has voluntarily undertaken to reimburse the Fund for certain
operating expenses of the Fund. Adviser can modify or terminate this voluntary
waiver and reimbursement of expenses at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fee received during any
fiscal year shall be at least $125,000 per portfolio on a $30,000 per each
additional class of shares.
Organizational expenses ($26,245) and start-up administrative service expenses
($54,398) were borne initially by Adviser. The Fund has agreed to reimburse
Adviser for the organization expenses and start-up administrative expenses
initially borne by Adviser during the five year period following November 24,
1992 (date the Trust's portfolio first became effective).
During the six months ended February 28, 1994, the Fund engaged in purchase and
sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7
of the Investment Company Act of 1940 amounting to $5,600,000 and $5,500,000,
respectively. These purchases and sales were conducted on an arms-length basis
insofar as they were transacted for cash consideration only, at independent
current market prices and without brokerage commission, fee or other
remuneration.
The Fund has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, up to .50 of 1% of the average daily
net assets of the Fortress Shares.
Under the terms of a shareholder service arrangement with Federated Shareholder
Services ("FSS") which takes effect March 1, 1994, the Fund will pay FSS a fee
to obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The fee is based on the level of average net assets for
the period.
Certain Officers and Trustees of the Trust are Officers and Directors of the
above Corporations.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES-- $6,617,237
- -------------------------------------------------------------------------------- ----------
SALES-- $ 957,240
- -------------------------------------------------------------------------------- ----------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue
John F. Donahue
Chairman
John T. Conroy, Jr.
Richard B. Fisher
William J. Copeland
President
J. Christopher Donahue
J. Christopher Donahue
James E. Dowd
Vice President
Lawrence D. Ellis, M.D.
Edward C. Gonzales
Vice President and Treasurer
Edward L. Flaherty, Jr.
John W. McGonigle
Peter E. Madden
Vice President and Secretary
Gregor F. Meyer
John A. Staley, IV
Wesley W. Posvar
Vice President
Marjorie P. Smuts
David M. Taylor
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not obligations of or insured by any bank, nor are
they insured by the federal government or any of its agencies. Investment
in these shares involves risk, including the possible loss of
principal. This report is authorized for distribution to prospective
investors only when preceded or accompanied by the Fund's prospectus, which
contains facts concerning its objective and policies, management fees, expenses
and other information.
