- --------------------------------------------------------------------------------
VIRGINIA
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
(A Portfolio of Municipal Securities Income Trust)
SUPPLEMENT TO PROSPECTUS
DATED AUGUST 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
Distributor
4010714A (2/94)
February 28, 1994
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
A. Please revise the last sentence of the fourth paragraph on the cover page of
the prospectus to read as follows:
"You may request a copy of the Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or make
inquiries about the Fund, contact the Fund at the address listed in the back
of this prospectus."
B. Please insert the following "Financial Highlights" table as page 2 following
the "Summary of Fund Expenses" and before the section entitled "General
Information." In addition, please add the heading "Financial Highlights" to
the Table of Contents on page I following the heading "Summary of Fund
Expenses."
VIRGINIA 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 0.14
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.07
- --------------------------------------------------------------------------------- ------------
Total from investment operations 0.21
- --------------------------------------------------------------------------------- ------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.14)
- ---------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 3) (0.02)
- --------------------------------------------------------------------------------- ------------
TOTAL DISTRIBUTIONS (0.16)
- --------------------------------------------------------------------------------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.05
- --------------------------------------------------------------------------------- ------------
TOTAL RETURN** 2.10%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses 0.75%(a)
- ---------------------------------------------------------------------------------
Net investment income 4.59%(a)
- ---------------------------------------------------------------------------------
Expense waiver/reimbursements (b) 12.11%(a)
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------
Net assets, end of period (000 omitted) 2,193
- ---------------------------------------------------------------------------------
Portfolio turnover rate 0%
- ---------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public investment) to December 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)
C. Please revise the section of the prospectus entitled "Legal Counsel" on page
16, to read as follows:
"Legal Counsel
Legal counsel is provided by Houston, Houston & Donnelly, 2510 Centre City
Tower, Pittsburgh, Pennsylvania, and Dickstein Shapiro & Morin, 2101 L.
Street, N.W., Washington, D.C."
D. Please revise the section of the prospectus entitled "Virginia Taxes" on page
19, to read in its entirety as follows:
"VIRGINIA TAXES
Under existing Virginia law, shareholders of the Fund will not be subject to
individual or corporate Virginia income taxes on distributions received from the
Fund to the extent that such distributions are attributable to interest earned
on (1) obligations issued by or on behalf of the Commonwealth of Virginia or any
political subdivision thereof; or (2) obligations issued by a territory or
possession of the United States or any political subdivision thereof which
federal law exempts from state income taxes. Distributions, if any, derived from
capital gains or other sources generally will be taxable for Virginia income tax
purposes to shareholders of the Fund who are subject to Virginia income tax."
E. Please insert the following financial statements at the end of the prospectus
beginning on page 21. In addition, please add the heading "Financial
Statements" to the Table of Contents on page I, immediately before
"Addresses."
VIRGINIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--4.5%
- ------------------------------------------------------------------------
VIRGINIA--100%
-----------------------------------------------------------
$100,000 Peninsula Port Authority of Virginia, Daily VRDNs, (Kinyo
Virginia, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC)/
(Subject to AMT) Aa2 $ 100,000
----------------------------------------------------------- ----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (IDENTIFIED COST
$100,000) 100,000
----------------------------------------------------------- ----------
LONG-TERM MUNICIPAL SECURITIES--98.6%
- ------------------------------------------------------------------------
VIRGINIA--100%
-----------------------------------------------------------
150,000 Arlington County, VA, 5.30% IDA Hospital Facilities Revenue
Bonds, (Arlington Hospital)/(Original Issue Yield: 5.47%),
9/1/2015 A1 145,662
-----------------------------------------------------------
100,000 Arlington County, VA, 5.00% IDA Hospital Facilities Revenue
Refunding Bonds, (Series 1993)/(Arlington
Hospital)/(Original Issue Yield: 5.53%), 9/1/2021 A1 91,602
-----------------------------------------------------------
100,000 Augusta County, VA, 5.125% IDA Hospital Revenue Bonds,
(Augusta Hospital Corp.)/(AMBAC Insured)/(Original Issue
Yield: 5.60%), 9/1/2021 AAA 96,065
-----------------------------------------------------------
100,000 Fairfax County, VA, 5.25% IDA Hospital Revenue Refunding
Bonds, (Inova Health System)/(Original Issue Yield: 5.35%),
8/15/2019 AA- 96,979
-----------------------------------------------------------
</TABLE>
VIRGINIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
VIRGINIA--CONTINUED
-----------------------------------------------------------
$100,000 Hampton Roads, VA, 5.00% Sanitation District Wastewater
Refunding and Capital Improvement Revenue Bonds, (Series
1993)/(Original Issue Yield: 5.48%), 10/1/2023 AA $ 95,238
-----------------------------------------------------------
100,000 Harrisburg, VA, 5.25% IDA Hospital Revenue Bonds,
(Rockingham Memorial Hospital)/(MBIA Insured)/(Original
Issue Yield: 5.85%), 12/1/2022 AAA 98,675
-----------------------------------------------------------
100,000 Isle of Wight County, VA, 5.20% GO Unlimited School
Improvement Bonds, (Original Issue Yield: 5.30%), 8/1/2010 A 100,658
-----------------------------------------------------------
100,000 Portsmouth, VA, 5.50% UT GO Bonds (Original Issue Yield:
5.75%), 8/1/2013 AA- 101,970
-----------------------------------------------------------
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 203,398
-----------------------------------------------------------
100,000 Prince William County, VA, Service Authority, 5.00% Water
and Sewer System Revenue Refunding Bonds, (FGIC Insured)/
(Original Issue Yield: 5.25%), 7/1/2021 AAA 96,242
-----------------------------------------------------------
100,000 Richmond, VA, 5.50% GO Public Improvement Bonds, (Series
B)/(Original Issue Yield: 5.72%), 7/15/2023 AA 100,080
-----------------------------------------------------------
100,000 Rivanna, VA, Water and Sewer Authority, 4.875% Regional
Water and Sewer System Refunding Revenue Bonds, (Original
Issue Yield: 5.13%), 10/1/2018 A+ 91,468
-----------------------------------------------------------
100,000 Roanoke County, VA, 5.00% Water System Revenue Refunding
Bonds, (FGIC Insured)/(Original Issue Yield: 5.267%),
7/1/2021 AAA 96,242
-----------------------------------------------------------
100,000 Roanoke, VA, 5.25% IDA Hospital Revenue Bonds, (Series A)/
(Roanoke Memorial Hospital)/(MBIA Insured)/(Original Issue
Yield: 5.65%), 7/1/2025 AAA 98,037
-----------------------------------------------------------
100,000 Upper Occoquan, VA Sewage Authority, 5.00% Regional Sewage
System Refunding Revenue Bonds, (Series 1993)/(FGIC
Insured)/(Original Issue Yield: 5.41%), 7/1/2021 AAA 95,542
-----------------------------------------------------------
</TABLE>
VIRGINIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
VIRGINIA--CONTINUED
-----------------------------------------------------------
$100,000 Virginia College Building Authority, 5.75% Revenue Bonds
(Hampton University), 4/1/2014 A $ 101,544
-----------------------------------------------------------
150,000 Virginia Education Loan Authority, 6.15% Refunding Bonds,
(Series G)/(Subject to AMT), 9/1/2009 A 156,008
-----------------------------------------------------------
100,000 Virginia Housing Development Authority, 5.30% Mortgage
Revenue Bonds, (Series 1992 C), 1/1/2015 A+ 97,891
-----------------------------------------------------------
100,000 Virginia Resources Authority, 5.125% Water and Sewer System
Revenue Bonds, (Buchanon County Public Sewer Authority)/
(Original Issue Yield: 5.30%), 5/1/2020 AA 97,257
-----------------------------------------------------------
100,000 Virginia Transportation Board, 5.50% Transportation
Contract Revenue Bonds, (US Route 58 Corridor)/(Original
Issue Yield: 5.75%), 5/15/2018 AA 100,750
----------------------------------------------------------- ----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $2,166,264) 2,161,308
----------------------------------------------------------- ----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $2,266,264) $2,261,308+
----------------------------------------------------------- ----------
</TABLE>
* See Notes to Portfolio of Investments on pages 6 and 7.
+ The cost of investments for federal tax purposes amounts to $2,266,264. The
net unrealized depreciation of investments on a federal tax basis amounts to
$4,956, which is comprised of $9,772 appreciation and $14,728 depreciation at
December 31, 1993.
Note: The categories of investments are shown as a percentage of net assets
($2,192,622) at
December 31, 1993.
VIRGINIA 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 Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
VRDNs --Variable Rate Demand Note
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL INCOME FUND
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
The municipal bonds rated by Moody's Investors Services, Inc. ("Moody's") in
which the Fund may invest are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to municipal
bonds which are of "high quality by all standards," but as to which margins of
protection or other elements make long-term risks appear somewhat larger than
Aaa-rated municipal bonds. The Aaa and Aa-rated municipal bonds comprise what
are generally known as "high-grade bonds." Municipal bonds which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A-rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class. Municipal bonds which are rated
Baa by Moody's are considered medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. The letter ratings carry numerical modifiers with 1
indicating the higher end of the rating category, 2 indicating the mid-range and
3 indicating the lower end of the rating category.
Moody's highest rating for state and municipal short-term securities is
MIG1/VMIG1. Short-term municipal securities rated MIG1/VMIG1 are the best
quality. They have strong protection from established cash flows of funds for
their servicing or have established a broad-based access to the market for
refinancing or both. The VMIG1 rating denotes that the security has a variable
rate and is payable on demand. Moody's rating of MIG2/VMIG2 denotes high quality
margins of protection which are ample although not so large as in the preceding
group.
Standard & Poor's Corporation's ("Standard & Poor's") highest rating for
municipal commercial paper is A-1. Short-term municipal commercial paper rated
A-1 is of the best quality. The capacity for timely payment on issues with an
A-2 designation is strong. The rating Prime-1 (P-1) is the highest municipal
commercial paper rating assigned by Moody's. Issues rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations.
The municipal bonds rated by Standard & Poor's in which the Fund may invest are
AAA, AA, A and BBB. Municipal bonds rated AAA are "obligations of the highest
quality." The rating AA is accorded issues with investment characteristics "only
slightly less marked than those of the prime quality issues." The category of A
describes "the third strongest capacity for payment of debt service." Principal
and interest payments on bonds in this category are regarded as safe. It differs
from the two higher ratings because with respect to general obligation bonds
there is some weakness, either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in quality of management.
Under certain adverse circumstances, any one such weakness might impair the
ability of
VIRGINIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
the issuer to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good, but not exceptional. Stability of the
pledge revenues could show some variations because of increased competition or
economic influences on revenues. Basic security provisions, while satisfactory,
are less stringent. Municipal bonds which are rated BBB by Standard & Poor's are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection on parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. These ratings may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Standard & Poor's rating SP-1 is assigned to short-term municipal obligations
with a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation. The SP-2 rating denotes a satisfactory capacity to pay
principal and interest.
The municipal bonds rated by Fitch Investors Service, Inc. ("Fitch") in which
the Fund may invest are AAA, AA, A and BBB. Municipal bonds rated AAA are judged
to be of the "highest credit quality." The rating of AA is considered to be of
investment grade and of very high quality. The category of A describes "the
third strongest investment grade and high credit quality." Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
These ratings may be modified by the addition of a plus or a minus sign (with
the exception of AAA), to show relative standing within the major rating
categories.
Fitch's highest rating for short-term municipal obligations is F-1. Notes rated
F-1 have a strong degree of assurance of timely payment. Those notes rated F-2
reflect a degree of assurance for timely payment only slightly less in degree
than the highest category. A plus (+) designation may be used to indicate
relative standing within a rating class.
NR indicates the bonds are not currently rated by Moody's, Fitch or Standard &
Poor's. However, management considers them to be of equivalent quality to the
rated securities it purchases.
Bonds for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
VIRGINIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $2,266,264) $2,261,308
- ---------------------------------------------------------------------------------
Receivable for Fund shares sold 293,661
- ---------------------------------------------------------------------------------
Interest receivable 33,106
- ---------------------------------------------------------------------------------
Receivable from adviser 17,000
- --------------------------------------------------------------------------------- ----------
Total assets 2,605,075
- ---------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------
Payable for investments purchased $254,020
- ----------------------------------------------------------------------
Payable for Fund shares redeemed 103,000
- ----------------------------------------------------------------------
Dividends payable 6,420
- ----------------------------------------------------------------------
Payable to bank 5,093
- ----------------------------------------------------------------------
Payable to distributor 2,024
- ----------------------------------------------------------------------
Accrued expenses 41,896
- ---------------------------------------------------------------------- --------
Total liabilities 412,453
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 218,063 shares of beneficial interest outstanding $2,192,662
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $2,197,578
- ---------------------------------------------------------------------------------
Net unrealized depreciation on investments (4,956)
- --------------------------------------------------------------------------------- ----------
Total $2,192,622
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE and Offering Price Per Share
(net assets of $2,192,622 / 218,063 shares of beneficial interest outstanding) $10.05
- --------------------------------------------------------------------------------- ----------
REDEMPTION PROCEEDS Per Share: (97/100 of $10.05)* $9.75
- --------------------------------------------------------------------------------- ----------
</TABLE>
* See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1993*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------
Interest income (Note 2B) $23,254
- --------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,742
- --------------------------------------------------------------------------
Distribution services fees (Note 5) 3,266
- --------------------------------------------------------------------------
Custodian, transfer agent and dividend disbursing agent fees 21,852
- --------------------------------------------------------------------------
Legal fees 2,500
- --------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 19,536
- --------------------------------------------------------------------------
Printing and postage 1,666
- --------------------------------------------------------------------------
Fund Share registration costs 900
- --------------------------------------------------------------------------
Shareholder services fees (Note 5) 3,829
- --------------------------------------------------------------------------
Taxes 167
- --------------------------------------------------------------------------
Miscellaneous 550
- -------------------------------------------------------------------------- --------
Total expenses 56,008
- --------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 1,742
- ----------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 51,000 52,742
- ---------------------------------------------------------------- ------- --------
Net expenses 3,266
- -------------------------------------------------------------------------------------- -------
Net investment income 19,988
- -------------------------------------------------------------------------------------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (4,956)
- -------------------------------------------------------------------------------------- -------
Net unrealized loss on investments (4,956)
- -------------------------------------------------------------------------------------- -------
Change in net assets resulting from operations $15,032
- -------------------------------------------------------------------------------------- -------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1993*
(UNAUDITED)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 19,988
- ----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (4,956)
- ---------------------------------------------------------------------- ----------------
Change in net assets resulting from operations 15,032
- ---------------------------------------------------------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (19,988)
- ----------------------------------------------------------------------
Distributions in excess of net investment income (Note 3) (3,266)
- ---------------------------------------------------------------------- ----------------
Change in net assets resulting from distributions to shareholders (23,254)
- ---------------------------------------------------------------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------
Net proceeds from sale of shares 3,425,391
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 5,663
- ----------------------------------------------------------------------
Cost of shares redeemed (1,230,210)
- ---------------------------------------------------------------------- ----------------
Change in net assets resulting from Fund share transactions 2,200,844
- ---------------------------------------------------------------------- ----------------
Change in net assets 2,192,622
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------
End of period $ 2,192,622
- ---------------------------------------------------------------------- ----------------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1993
(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.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued at fair value. An independent pricing
service values the Fund's municipal bonds taking into consideration yield, stability,
risk, quality, coupon, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market data it
deems relevant in determining valuations for normal institutional size trading units of
debt securities and does not rely exclusively on quoted prices.
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 December 31, 1993, 31.5% 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 4.4% to 13.3% 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. 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>
VIRGINIA 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.
Dividends to shareholders are recorded on the ex-dividend date.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record with respect to shares for which payment in federal
funds has been received. Payment of dividends is made monthly in cash, or in
additional shares at the net asset value on the payable date. Capital gains
realized by the Fund are distributed at least once every twelve months and 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. These distributions did not represent a
return of capital for federal income tax purposes for the period ended December
31, 1993.
VIRGINIA 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>
PERIOD
ENDED
12/31/93*
- --------------------------------------------------------------------------------- ---------
<S> <C>
Shares outstanding, beginning of period --
- ---------------------------------------------------------------------------------
Shares sold 339,438
- ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 567
- ---------------------------------------------------------------------------------
Shares redeemed (121,942)
- --------------------------------------------------------------------------------- ---------
Shares outstanding, end of period 218,063
- --------------------------------------------------------------------------------- ---------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 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. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion. For the period from September 1, 1993 (date of
initial public investment) to December 31, 1993 the investment advisory fee
amounted to $1,742 all of which was voluntarily waived. In addition, the Adviser
voluntarily reimbursed $51,000 of the Fund's other operating expenses.
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 expenses initially borne by
the Adviser during the five year period following August 30, 1993 (date the
Fund's 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 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 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.
Administrative personnel and services are provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above Corporations.
VIRGINIA MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
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 the Fund 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.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1993 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Purchases $2,166,167
- -------------------------------------------------------------------------------- ----------
Sales and Maturities $ --
- -------------------------------------------------------------------------------- ----------
</TABLE>
F. Please replace the inside back cover of the prospectus with the following:
ADDRESSES
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
Virginia Municipal Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ----------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D. C. 20037
- ----------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ----------------------------------------------------------------------------------------------
</TABLE>
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
4010714A (2/94)
VIRGINIA MUNICIPAL INCOME FUND
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
- --------------------------------------------------------------------------------
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 31, 1993
(REVISED FEBRUARY 28, 1994)
A. Please insert the following information as a second paragraph under the
section entitled "Fund Ownership" on page 9:
"Merrill Lynch as record owner holding Fund shares for its clients owned
12,021 shares (5%) of the fund as of February 7, 1994.
As of February 7, 1994, the following shareholders of record also owned
5% or more of the outstanding shares of the Fund: Federated Disbursing
Corp., Pittsburgh, Pennsylvania, owned approximately 66,855 shares
(28.2%); and Ingeborg Hewette and Sonja Hewette and Michael J. Hewette,
Springfield, Virginia, owned approximately 14,705 shares (6.2%)."
B. Please insert the following as a second paragraph of the sub-section
entitled "Adviser to the Fund" under the main section entitled
"Investment Advisory Services" on page 9:
"From the Fund's effective date, August 30, 1993 to December 31, 1993,
the Fund's adviser earned $1,742, all of which was voluntarily waived."
C. Please insert the following information as the second sentence under the
section entitled "Administrative Services" on page 10:
"From the Fund's effective date, August 30, 1993, to December 31, 1993,
the Fund incurred costs for administrative services of $19,536."
D. Please insert the following information as a final paragraph under the
sub-section entitled "Distribution Plan" on page 11:
"From the Fund's effective date, August 30, 1993, to December 31, 1993,
brokers and administrators (financial institutions) received fees in the
amount of $3,266, pursuant to the distribution plan."
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
4020203 (2/94)
- --------------------------------------------------------------------------------
MARYLAND
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
(A Portfolio of Municipal Securities Income Trust)
SUPPLEMENT TO PROSPECTUS
DATED AUGUST 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
Distributor
4010713A (2/94)
February 28, 1994
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
A. Please revise the last sentence of the fourth paragraph on the cover page of
the prospectus to read as follows:
"You may request a copy of the Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or make
inquiries about the Fund, contact the Fund at the address listed in the back
of this prospectus."
B. Please insert the following "Financial Highlights" table as page 2 following
the "Summary of Fund Expenses" and before the section entitled "General
Information." In addition, please add the heading "Financial Highlights" to
the Table of Contents on page I following the heading "Summary of Fund
Expenses."
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 0.15
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.01)
- ------------------------------------------------------------------------ -------------------
Total from investment operations 0.14
- ------------------------------------------------------------------------ -------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.15)
- ------------------------------------------------------------------------
Distributions in excess of net investment income (Note 3) (0.02)
- ------------------------------------------------------------------------ -------------------
TOTAL DISTRIBUTIONS (0.17)
- ------------------------------------------------------------------------ -------------------
NET ASSET VALUE, END OF PERIOD $ 9.97
- ------------------------------------------------------------------------ -------------------
TOTAL RETURN** 1.38
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.75%(a)
- ------------------------------------------------------------------------
Net investment income 5.00%(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement(b) 12.46%(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 2,512
- ------------------------------------------------------------------------
Portfolio turnover rate 22%
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from September 1, 1993 (date of initial
public investment) to December 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)
C. Please revise the section of the prospectus entitled "Legal Counsel" on page
16, to read as follows:
"Legal counsel is provided by Houston, Houston & Donnelly, 2510 Centre City
Tower, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, 2101 L
Street, N.W., Washington, D.C."
D. Please revise the section of the prospectus entitled "Maryland State and
Municipal Taxation" on page 19, to read in its entirety as follows:
"MARYLAND STATE AND MUNICIPAL TAXATION
Under existing Maryland law, shareholders of the Fund who are individuals,
corporations, estates or trusts will not be subject to Maryland taxes on Fund
dividends to the extent that such dividends qualify as exempt-interest dividends
for federal income tax purposes which are attributable to (i) interest on
tax-exempt obligations of the State of Maryland or its political subdivisions or
authorities, (ii) interest on obligations of the United States or an authority,
commission, instrumentality, possession or territory of the United States, or
(iii) gain realized by the Fund from the sale or exchange of bonds issued by
Maryland, a political subdivision of Maryland, or the United States Government
(excluding obligations issued by the District of Columbia, a territory or
possession of the United States, or a department, agency, instrumentality, or
political subdivision of the District, territory or possession).
Distributions, if any, derived from capital gains or other sources generally
will be taxable for Maryland income tax purposes to shareholders of the Fund who
are subject to Maryland income tax."
E. Please insert the following financial statements at the end of the prospectus
beginning on page 21. In addition, please add the heading "Financial
Statements" to the Table of Contents on page I, immediately before
"Addresses."
MARYLAND MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ----------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--97.2%
- ------------------------------------------------------------------------
MARYLAND--100%
-----------------------------------------------------------
$100,000 Baltimore City, MD, 5.35% PCR (General Motors Corp.),
4/1/2008 BBB+ $ 101,335
-----------------------------------------------------------
100,000 Calvert County, MD, 5.55% PCR, Refunding Bonds (Baltimore
Gas & Electric Co.)/(Original Issue Yield: 5.60%),
7/15/2014 A 100,626
-----------------------------------------------------------
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 475,910
-----------------------------------------------------------
100,000 Maryland State Community Development Administration Multi-
Family Housing, 5.60% Revenue Bonds, 5/15/2026 Aa 100,326
-----------------------------------------------------------
100,000 Maryland State 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 95,343
-----------------------------------------------------------
100,000 Maryland State 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 98,479
-----------------------------------------------------------
100,000 Maryland State Health and Higher Education Facilities
Authority, 5.50% Revenue Bonds (Doctors Community
Hospital)/(Original Issue Yield: 6.17%), 7/1/2024 BBB-- 95,296
-----------------------------------------------------------
</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 State 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 $ 93,960
-----------------------------------------------------------
100,000 Maryland State Health and Higher Education Facilities
Authority, 5.125% Refunding Revenue Bonds (Suburban
Hospital)/(Original Issue Yield: 5.50%), 7/1/2021 A 95,121
-----------------------------------------------------------
250,000 Maryland State 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 233,357
-----------------------------------------------------------
100,000 Maryland State 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 94,977
-----------------------------------------------------------
100,000 Maryland State Health and Higher Education Facilities
Authority, 5.00% Revenue Bonds (Frederick Memorial
Hospital)/ (FGIC Insured)/(Original Issue Yield: 5.56%),
7/1/2023 AAA 95,119
-----------------------------------------------------------
100,000 Maryland State Industrial Development Financing, 5.50% EDA
Revenue Bonds (Holy Cross Health System)/(Original Issue
Yield: 5.80%), 12/1/2015 AA-- 98,430
-----------------------------------------------------------
250,000 Maryland State Industrial Development Financing Authority,
6.25% Revenue Bonds (Series 1992)/(American Center for
Physics Headquarters Facility)/(Original Issue Yield:
6.80%), 1/1/2017 BBB 266,763
-----------------------------------------------------------
</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
-----------------------------------------------------------
$300,000 Montgomery County, MD Housing Opportunities Commission
Multi-Family Housing Revenue Bonds, 5.75%, 7/1/2034 A $ 300,246
-----------------------------------------------------------
100,000 University of Maryland System Auxiliary Facility and
Tuition, 5.10% Revenue Bonds (1993 Refunding Series C),
10/1/2014 AA+ 97,615
----------------------------------------------------------- ----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $2,430,662) $2,442,903+
----------------------------------------------------------- ----------
</TABLE>
* See Notes to Portfolio of Investments on pages 6 and 7.
+ The cost of investments for federal tax purposes amounts to $2,430,662. The
net unrealized appreciation on a federal tax basis amounts to $12,241, which
is comprised of $23,723 appreciation and $11,482 depreciation at December 31,
1993.
Note: The categories of investments are shown as a percentage of net assets
($2,512,438) at December 31, 1993.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
Connie Lee --College Construction Loan Insurance Association
EDA --Economic Development Authority
FGIC --Financial Guaranty Insurance Co.
NR --Not Rated
PCR --Pollution Control Revenue
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
The municipal bonds rated by Moody's Investors Services, Inc. ("Moody's") in
which the Fund may invest are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to municipal
bonds which are of "high quality by all standards," but as to which margins of
protection or other elements make long-term risks appear somewhat larger than
Aaa-rated municipal bonds. The Aaa and Aa-rated municipal bonds comprise what
are generally known as "high-grade bonds." Municipal bonds which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A-rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class. Municipal bonds which are rated
Baa by Moody's are considered medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. The letter ratings carry numerical modifiers with 1
indicating the higher end of the rating category, 2 indicating the mid-range and
3 indicating the lower end of the rating category.
Moody's highest rating for state and municipal short-term securities is
MIG1/VMIG1. Short-term municipal securities rated MIG1/VMIG1 are the best
quality. They have strong protection from established cash flows of funds for
their servicing or have established a broad-based access to the market for
refinancing or both. The VMIG1 rating denotes that the security has a variable
rate and is payable on demand. Moody's rating of MIG2/VMIG2 denotes high quality
margins of protection which are ample although not so large as in the preceding
group.
Standard & Poor's Corporation's ("Standard & Poor's") highest rating for
municipal commercial paper is A-1. Short-term municipal commercial paper rated
A-1 is of the best quality. The capacity for timely payment on issues with an
A-2 designation is strong. The rating Prime-1 (P-1) is the highest municipal
commercial paper rating assigned by Moody's. Issues rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations.
The municipal bonds rated by Standard & Poor's in which the Fund may invest are
AAA, AA, A and BBB. Municipal bonds rated AAA are "obligations of the highest
quality." The rating AA is accorded issues with investment characteristics "only
slightly less marked than those of the prime quality issues." The category of A
describes "the third strongest capacity for payment of debt service." Principal
and interest payments on bonds in this category are regarded as safe. It differs
from the two higher ratings because with respect to general obligation bonds
there is some weakness, either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in quality of management.
Under certain adverse circumstances, any one such weakness might impair the
ability of
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
the issuer to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good, but not exceptional. Stability of the
pledge revenues could show some variations because of increased competition or
economic influences on revenues. Basic security provisions, while satisfactory,
are less stringent. Municipal bonds which are rated BBB by Standard & Poor's are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection on parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. These ratings may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Standard & Poor's rating SP-1 is assigned to short-term municipal obligations
with a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation. The SP-2 rating denotes a satisfactory capacity to pay
principal and interest.
The municipal bonds rated by Fitch Investors Service, Inc. ("Fitch") in which
the Fund may invest are AAA, AA, A and BBB. Municipal bonds rated AAA are judged
to be of the "highest credit quality." The rating of AA is considered to be of
investment grade and of very high quality. The category of A describes "the
third strongest investment grade and high credit quality." Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
These ratings may be modified by the addition of a plus or a minus sign (with
the exception of AAA), to show relative standing within the major rating
categories.
Fitch's highest rating for short-term municipal obligations is F-1. Notes rated
F-1 have a strong degree of assurance of timely payment. Those notes rated F-2
reflect a degree of assurance for timely payment only slightly less in degree
than the highest category. A plus (+) designation may be used to indicate
relative standing within a rating class.
NR indicates the bonds are not currently rated by Moody's, Fitch or Standard &
Poor's. However, management considers them to be of equivalent quality to the
rated securities it purchases.
Bonds for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally.
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $2,430,662) $2,442,903
- ---------------------------------------------------------------------------------
Receivable for Fund shares sold 801,543
- ---------------------------------------------------------------------------------
Interest receivable 38,527
- ---------------------------------------------------------------------------------
Receivable from adviser 17,000
- --------------------------------------------------------------------------------- ----------
Total assets 3,299,973
- ---------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------
Payable for investments purchased $403,590
- ----------------------------------------------------------------------
Payable for Fund shares redeemed 337,000
- ----------------------------------------------------------------------
Dividends payable 5,111
- ----------------------------------------------------------------------
Payable to distributor 123
- ----------------------------------------------------------------------
Accrued expenses 41,711
- ---------------------------------------------------------------------- --------
Total liabilities 787,535
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 252,014 shares of beneficial interest outstanding $2,512,438
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $2,507,203
- ---------------------------------------------------------------------------------
Net unrealized appreciation on investments 12,241
- ---------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (7,006)
- --------------------------------------------------------------------------------- ----------
Total $2,512,438
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE and Offering Price Per Share
(net assets of $2,512,438 / 252,014 shares of beneficial interest outstanding) $9.97
- --------------------------------------------------------------------------------- -----
REDEMPTION PROCEEDS per share (97/100 of $9.97)* $9.67
- --------------------------------------------------------------------------------- -----
</TABLE>
* See "Contingent Deferred Sales Charge" on page 11 of this prospectus.
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1993*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------
Interest income (Note 2B) $24,318
- --------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,691
- ---------------------------------------------------------------------------
Distribution services fees (Note 5) 3,170
- ---------------------------------------------------------------------------
Custodian, transfer agent and dividend disbursing agent fees 22,380
- ---------------------------------------------------------------------------
Legal fees 2,500
- ---------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 19,023
- ---------------------------------------------------------------------------
Printing and postage 1,666
- ---------------------------------------------------------------------------
Fund share registration costs 900
- ---------------------------------------------------------------------------
Shareholder services fees (Note 5) 3,814
- ---------------------------------------------------------------------------
Miscellaneous 550
- ---------------------------------------------------------------------------
Taxes 167
- --------------------------------------------------------------------------- -------
Total expenses 55,861
- ---------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 1,691
- -----------------------------------------------------------------
Reimbursement of other operating expenses (Note 5) 51,000 52,691
- ----------------------------------------------------------------- ------- -------
Net expenses 3,170
- -------------------------------------------------------------------------------------- -------
Net investment income 21,148
- -------------------------------------------------------------------------------------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) (7,006)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 12,241
- -------------------------------------------------------------------------------------- -------
Net realized and unrealized gain on investments 5,235
- -------------------------------------------------------------------------------------- -------
Change in net assets resulting from operations $26,383
- -------------------------------------------------------------------------------------- -------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1993*
(UNAUDITED)
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 21,148
- ----------------------------------------------------------------------
Net realized loss on investment transactions ($7,006 net loss, as
computed for federal tax purposes) (7,006)
- ----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 12,241
- ---------------------------------------------------------------------- ----------------
Change in net assets resulting from operations 26,383
- ---------------------------------------------------------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (21,148)
- ----------------------------------------------------------------------
Distributions in excess of net investment income (Note 3) (3,170)
----------
- ----------------------------------------------------------------------
Change in net assets resulting from distributions to shareholders (24,318)
- ---------------------------------------------------------------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------
Net proceeds from sale of shares 4,344,390
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 8,773
- ----------------------------------------------------------------------
Cost of shares redeemed (1,842,790)
- ---------------------------------------------------------------------- ----------------
Change in net assets resulting from Fund share transactions 2,510,373
- ---------------------------------------------------------------------- ----------------
Change in net assets 2,512,438
- ---------------------------------------------------------------------- ----------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------
End of period $ 2,512,438
- ---------------------------------------------------------------------- ----------------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 31, 1993.
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL INCOME FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 1993
(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 at fair value. An independent pricing
service values the Fund's municipal bonds taking into consideration yield, stability,
risk, quality, coupon, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market data it
deems relevant in determining valuations for normal institutional size trading units of
debt securities and does not rely exclusively on quoted prices.
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 December 31, 1993, 20% 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 3.8% to 7.9% 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 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. 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>
MARYLAND 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--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.
Dividends to shareholders are recorded on the ex-dividend date.
</TABLE>
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record with respect to shares for which payment in federal
funds has been received. Payment of dividends is made monthly in cash, or in
additional shares at the net asset value on the payable date. Capital gains
realized by the Fund are distributed at least once every twelve months and 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. These distributions did not represent a
return of capital for federal income tax purposes for the period ended December
31, 1993.
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>
PERIOD ENDED
12/31/93*
- ----------------------------------------------------------------------------- ------------
<S> <C>
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------
Shares sold 436,639
- -----------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 886
- -----------------------------------------------------------------------------
Shares redeemed (185,511)
--------
- -----------------------------------------------------------------------------
Shares outstanding, end of period 252,014
--------
- -----------------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1993 (date of initial public investment) to
December 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. The Adviser has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion. For the period from September 1, 1993 (date of
initial public investment) to December 31, 1993, the investment advisory fee
amounted to $1,691 all of which was voluntarily waived. In addition, the Adviser
voluntarily reimbursed $51,000 of the Fund's other operating expenses.
Organizational expenses and start-up administrative service expenses incurred by
the Fund will be borne initially by the Adviser. The Fund has agreed to
reimburse the Adviser for the organizational expenses and start-up
administrative 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 period ended December 31, 1993, 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 $1,150,000 and $1,150,000,
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 administration
of the Fund's shares. The Plan provides that the Fund will incur distribution
expenses
MARYLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
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.
Administrative personnel and services are provided at approximate cost by
Federated Administrative Services, Inc. Certain Officers and Trustees of the
Trust are Officers and Directors of the above Corporations.
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 the Fund 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.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments excluding short-term securities, for the
period ended December 31, 1993, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES $2,833,947
- -------------------------------------------------------------------------------- ----------
SALES AND MATURITIES $ 396,360
- -------------------------------------------------------------------------------- ----------
</TABLE>
F. Please replace the inside back cover of the prospectus with the following:
ADDRESSES
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
Maryland Municipal Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ----------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D. C. 20037
- ----------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ----------------------------------------------------------------------------------------------
</TABLE>
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
4010713A (2/94)
MARYLAND MUNICIPAL INCOME FUND
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
- --------------------------------------------------------------------------------
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 31, 1993
A. Please insert the following information as a second paragraph under the
section entitled "Fund Ownership" on page 9:
"As of February 7, 1994, the following shareholders of record owned 5%
or more of the outstanding shares of the Fund: Federated Disbursing
Corp., Pittsburgh, Pennsylvania, owned approximately 33,779 shares
(11.9%); Joseph D. Mitchell and Linda C. Mitchell, Gaithersburg,
Maryland, owned approximately 30,870 shares (10.9%); and Alex Brown &
Sons, Inc., Baltimore, Maryland, owned approximately 14,867 shares
(5.2%)."
B. Please insert the following as a second paragraph to the sub-section
entitled "Adviser to the Fund" under the main section entitled
"Investment Advisory Services" on page 9:
"From the Fund's effective date, August 30, 1993 to December 31, 1993,
the Fund's adviser earned $1,691, all of which was voluntarily waived."
C. Please insert the following information as the second sentence under the
section entitled "Administrative Services" on page 10:
"From the Fund's effective date, August 30, 1993, to December 31, 1993,
the Fund incurred costs for administrative services of $19,023."
D. Please insert the following information as a final paragraph under the
sub-section entitled "Distribution Plan" on page 10:
"From the Fund's effective date, August 30, 1993, to December 31, 1993,
brokers and administrators (financial institutions) received fees in the
amount of $3,170, pursuant to the distribution plan."
February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
4020407 (2/94)
