PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for California
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1995.
This report begins with a review of the economy and the municipal market.
Following the review, you'll find the Fund's Financial Statements which include
the Portfolio of Investments.
As always, the Fund seeks relief for you and other tax-sensitive California
residents, in the form of current income which is exempt from federal regular
income tax and California personal income tax.* The Fund pursues this income by
investing in a portfolio of investment-grade, long-term California municipal
securities.
The Fund's net assets as of this report are $14.4 million, and the Fund's net
asset value (share price) stands at $9.91, down slightly from our last report
due to further increases in interest rates by the Federal Reserve Board (the
"Fed"). Shareholders were paid dividends of $0.29 per share.
Although the increases in interest rates by the Fed made 1994 a difficult year
for municipal funds, we are happy to note that interest rates did decline in
January and February of 1995. In addition, many indicators point to a slow-down
in the economy, and the Fed met recently and decided against another rate hike.
I believe that these are all very good signs for municipal investors.
The Fund continues to provide an important opportunity for you 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.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
*INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
1
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The U.S. economy displayed considerable momentum over the six-month period ended
February 28, 1995. The Federal Reserve Board (the "Fed") continued to mount its
aggressive pre-emptive strike against inflation by raising the Federal Funds
rate to 6%, which is a considerable amount of tightening for the economy to
absorb. However, by the end of the six-month period from September 1994 to
February 1995, the U.S. economy was still showing significant signs of strength.
The nation's capacity utilization rose from 84.6% to 85.6% while unemployment
continued to move well into the full employment range, declining from 5.9% to
5.7%. Inflation stayed surprisingly benign during this period of continued
growth as the Producer Price Index* showed an increase of only 0.2% for the
entire month of February 1995. Also, the downturn in industrial commodity prices
should lead to a drop in prices at the crude materials stage of production.
Yield curves in both the municipal and Treasury bond markets continued to
flatten during the semi-annual period.
During the six-month period ended February 28, 1995, yields in the municipal
bond market, as measured by the Bond Buyer Revenue Index*, rose consistently to
a high of 7.37% on November 17, 1994. Municipal bond yields then began to
decline from their November high as a result of market supply and demand
technicals, the attractiveness of yields available in the market place, and the
continued hawkish stance of the Fed. The U.S. Treasury bond market also reached
its high for market yields in November. The long (30-year) Treasury bond reached
a high of 8.23% on November 7, 1994 and finished the six-month period at its low
of 7.5% on February 28, 1995.
From September 1, 1994 to February 28, 1995, net assets of the Fund fell from
$15.1 million to $14.4 million. Reflecting market activity, the net asset value
of the Fund declined from $10.01 on September 1, 1994 to $9.91 on February 28,
1995. On that date, the credit breakdown of the holdings of the Fund was: 13.7%
in "AAA" issues; 50.6% in "AA" issues; 24.3% in "A" issues; 10.4% in "BBB"
issues; and 1.0% 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 obligations 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 and sewer issues;
single-family mortgage revenue issues; and state and local general obligation
issues. The average purchase yield for new investments by the Fund was 6.83%.
For the six month period ended February 28, 1995, an investor in the Fund
experienced a total return of 2.11%, based on net asset value, and 0.09% based
on offering price.**
* THIS INDEX IS UNMANAGED.
** 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 THEN THEIR ORIGINAL COST.
2
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--97.1%
- --------------------------------------------------------------------
CALIFORNIA--97.1%
---------------------------------------------------------
$ 625,000 California Educational Facilities Authority, 6.60%
Revenue Bonds (Series 1994)/(Loyola Marymount
University), 10/1/2022 A1 $ 632,469
---------------------------------------------------------
700,000 California Educational Facilities Authority, 6.70%
Revenue Bonds (Series 1994)/(Southwestern
University)/(Original Issue Yield: 6.838%), 11/1/2024 A 709,527
---------------------------------------------------------
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 906,660
---------------------------------------------------------
250,000 California Health Facilities Finance Authority, 6.25%
Revenue Bonds (Kaiser Permanente), 3/1/2021 Aa2 247,147
---------------------------------------------------------
400,000 California Health Facilities Finance Authority, 6.50%
Revenue Bonds (Kaiser Permanente--Series A)/(Original
Issue Yield: 7.097%), 12/1/2020 AA 402,120
---------------------------------------------------------
400,000 California HFA Multi Family Housing, 5.50% Revenue Bonds
(Series A), 8/1/2015 A+ 354,688
---------------------------------------------------------
2,000,000 California HFA, 6.75% Revenue Bonds (Series 1994C)/
(Subject to AMT), 2/1/2025 Aa 2,046,220
---------------------------------------------------------
1,300,000 California HFA, 7.00% Home Mortgage Revenue Bonds (Series
1994F)/(Subject to AMT), 8/1/2026 Aa 1,341,288
---------------------------------------------------------
200,000 California Pollution Control Financing Authority, 5.85%
Refunding Revenue Bonds (Pacific Gas and Electric)/
(Series 1993B)/(Subject to AMT), 12/1/2023 A1 180,998
---------------------------------------------------------
500,000 California Pollution Control Financing Authority, 5.87%
Refunding Revenue Bonds (Pacific Gas and
Electric)/(Subject to AMT), 6/1/2023 A1 454,370
---------------------------------------------------------
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+ 490,165
---------------------------------------------------------
</TABLE>
3
<PAGE>
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
---------------------------------------------------------
$ 600,000 California Statewide Community Development Authority,
6.50% COPs (Good Samaritan Health System)/ (CapMac
Insured), 5/1/2024 AAA $ 617,946
---------------------------------------------------------
600,000 California Statewide Community Development Authority,
6.625% COPs (St. Joseph Health System)/(Original Issue
Yield: 6.74%), 7/1/2021 AA 609,732
---------------------------------------------------------
500,000 Chula Vista, CA, 6.40%, IDR Bonds (San Diego Gas &
Electric Co.)/(Series 1992A)/(Subject to AMT), 12/1/2027 Aa3 479,490
---------------------------------------------------------
1,500,000 Eden Township California Hospital District, 7.40%
Hospital Revenue Bonds (Original Issue Yield: 7.48%),
11/1/2019 BBB- 1,460,040
---------------------------------------------------------
200,000 Fresno, CA, Health Facilities, 5.625% Revenue Bonds
(Original Issue: 5.85%)/(Holy Cross Health System Corp),
12/1/2018 AA- 176,748
---------------------------------------------------------
700,000 Los Angeles, CA, Airports Improvement Corp., 6.50% Lease
Revenue Bonds (Los Angeles International
Airport)/(Original Issue Yield: 6.90%)/(FSA Insured),
1/1/2032 AAA 703,367
---------------------------------------------------------
600,000 Los Angeles, CA, Community Redevelopment Agency, 6.55%
Revenue Refunding Bonds (Series 1994A)/(AMBAC Insured),
1/1/2027 AAA 609,042
---------------------------------------------------------
200,000 Los Angeles, CA, Community Redevelopment Financing
Authority, 5.90% Qualified Redevelopment Bonds (Series
1993A)/(Grand Central Square)/(Original Issue Yield:
6.00%)/(Subject to AMT), 12/1/2026 A 184,436
---------------------------------------------------------
500,000 Los Angeles, CA, Department of Water & Power, 6.00%
(Electric Plant Revenue Bonds), 8/15/2032 Aa 482,675
---------------------------------------------------------
675,000 Santa Cruz, CA, Sewer Secondary Waste Water Treatment,
6.25% Refunding Bonds (Series C), 11/1/2023 A 659,104
---------------------------------------------------------
300,000 Sequoia, CA, Hospital District, 5.375% Refunding Bonds
(Original Issue Yield: 5.65%), 8/15/2023 A- 236,802
--------------------------------------------------------- -----------
</TABLE>
4
<PAGE>
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
---------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST, $14,130,641) $13,985,034
--------------------------------------------------------- -----------
SHORT-TERM MUNICIPAL SECURITIES--1.0%
- --------------------------------------------------------------------
PUERTO RICO--1.0%
---------------------------------------------------------
150,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) (AT AMORTIZED
COST) A-1 150,000
--------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST,
$14,280,641)(A) $14,135,034
--------------------------------------------------------- -----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $14,280,641.
The net unrealized depreciation on a federal tax cost basis amounts to
$145,607, which is comprised of $200,816 appreciation and $346,423
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($14,401,250) at February 28, 1995.
</TABLE>
5
<PAGE>
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
FSA --Financial Security Assurance
HFA --Housing Finance Authority/Agency
IDR --Industrial Development Revenue
LOCs --Letters of Credit
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
6
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $14,280,641) $14,135,034
- -------------------------------------------------------------------------------------------
Cash 43,820
- -------------------------------------------------------------------------------------------
Interest receivable 221,480
- -------------------------------------------------------------------------------------------
Receivable for Fund shares sold 43,827
- -------------------------------------------------------------------------------------------
Deferred expenses 41,387
- ------------------------------------------------------------------------------------------- -----------
Total assets 14,485,548
- -------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------
Income distributions payable $ 45,910
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed 38,388
- -------------------------------------------------------------------------------- --------
Total liabilities 84,298
- ------------------------------------------------------------------------------------------- -----------
NET ASSETS for 1,453,628 shares of beneficial interest outstanding $14,401,250
- ------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------
Paid-in-capital $15,436,723
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (145,607)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (889,866)
- ------------------------------------------------------------------------------------------- -----------
Total Net Assets $14,401,250
- ------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($14,401,250 DIVIDED BY 1,453,628 shares of beneficial interest
outstanding) $ 9.91
- ------------------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/99 of $9.91)* $ 10.01
- ------------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99/100 of $ 9.91)** $ 9.81
- ------------------------------------------------------------------------------------------- -----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Fortress Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
7
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest $ 475,139
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 28,009
- -------------------------------------------------------------------------
Administrative personnel and services fee 61,987
- -------------------------------------------------------------------------
Directors'/Trustees' fees 1,448
- -------------------------------------------------------------------------
Custodian and portfolio accounting fees 30,000
- -------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 8,000
- -------------------------------------------------------------------------
Fund share registration costs 10,679
- -------------------------------------------------------------------------
Shareholder services fee 16,104
- -------------------------------------------------------------------------
Distribution services fee 35,009
- -------------------------------------------------------------------------
Printing and postage 6,154
- -------------------------------------------------------------------------
Legal fees 2,534
- -------------------------------------------------------------------------
Auditing fees 8,145
- -------------------------------------------------------------------------
Insurance premiums 2,172
- -------------------------------------------------------------------------
Taxes 181
- -------------------------------------------------------------------------
Miscellaneous 5,792
- ------------------------------------------------------------------------- ---------
Total expenses 216,214
- -------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------
Waiver of investment advisory fee $ 28,009
- --------------------------------------------------------------
Waiver of distribution services fee 33,608
- --------------------------------------------------------------
Reimbursement of other operating expenses by Adviser 120,317 181,934
- -------------------------------------------------------------- --------- ---------
Net expenses 34,280
- ------------------------------------------------------------------------------------ ---------
Net investment income 440,859
- ------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost
basis) (344,023)
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation(depreciation) of
investments 145,009
- ------------------------------------------------------------------------------------ ---------
Net realized and unrealized gain (loss) on investments (199,014)
- ------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $ 241,845
- ------------------------------------------------------------------------------------ ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28,
1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 440,859 $ 848,723
- --------------------------------------------------------------
Net realized gain(loss) on investments ($344,023 net loss and
$0 net loss, respectively, as computed for federal income tax
purposes) (344,023) (545,843)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments 145,009 (926,760)
- -------------------------------------------------------------- ------------ ---------------
Change in net assets resulting from operations 241,845 (623,880)
- -------------------------------------------------------------- ------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Dividends to shareholders from net investment income (440,859) (848,723)
- -------------------------------------------------------------- ------------ ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 2,100,705 9,167,860
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 154,585 273,901
- --------------------------------------------------------------
Cost of shares redeemed (2,713,552) (4,424,058)
- -------------------------------------------------------------- ------------ ---------------
Change in net assets resulting from Fund share
transactions (458,262) 5,017,703
- -------------------------------------------------------------- ------------ ---------------
Change in net assets (657,276) 3,545,100
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 15,058,526 11,513,426
- -------------------------------------------------------------- ------------ ---------------
End of period $14,401,250 $15,058,526
- -------------------------------------------------------------- ------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST
FEBRUARY 28, 31,
1995 -----------------
(UNAUDITED) 1994 1993 (A)
------------ ------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.01 $10.92 $10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income 0.29 0.59 0.44
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.10) (0.91) 0.92
- ----------------------------------------------------------- -------- ----- ------
Total from investment operations 0.19 (0.32) 1.36
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29) (0.59) (0.44)
- ----------------------------------------------------------- -------- ----- ------
NET ASSET VALUE, END OF PERIOD $ 9.91 $10.01 $10.92
- ----------------------------------------------------------- -------- ----- ------
TOTAL RETURN (B) 2.11% (3.04%) 14.08%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 0.49%(c) 0.25% 0.25%(c)
- --------------------------------------------------------------------------------
Net investment income 6.30%(c) 5.61% 5.58%(c)
- --------------------------------------------------------------------------------
Expense waiver/ reimbursement (d) 2.60%(c) 2.86% 1.98%(c)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $14,401 $15,059 $11,513
- --------------------------------------------------------------------------------
Portfolio turnover rate 44% 63% 0%
- --------------------------------------------------------------------------------
<FN>
(a) Reflects operations for the period from December 2, 1992 (date of initial
public investment) to August 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. As of February 28, 1995, the Trust consisted of
ten, non-diversified portfolios. The financial statements included herein
present only those of California Municipal Income Fund (the "Fund"). The
financial statements of the other portfolios 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. These
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 the
pricing service 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. Short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. Additionally, net capital losses
of $545,843 attributable to security transactions incurred after October 31,
1993 are treated as arising on September 1, 1994, the first day 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. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
11
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
E. CONCENTRATION OF RISK--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to reduce the
credit risk associated with such factors, at February 28, 1995, 19.0% 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 value of investments insured by or supported
(backed) by a letter of credit for any one institution or agency does not
exceed 5.0% of total investments.
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 its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1995 1994
- ---------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Shares sold 220,287 848,498
- ----------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 16,273 26,342
- ----------------------------------------------------------------------
Shares redeemed (287,384) (424,266)
- ---------------------------------------------------------------------- ------------- -----------
Net change resulting from Fund share transactions (50,824) 450,574
- ---------------------------------------------------------------------- ------------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the "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 may voluntarily choose to
waive a portion of its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated
12
<PAGE>
CALIFORNIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Fortress Shares. The Plan provides that the
Fund may incur distribution expenses up to .50 of 1% of the average daily net
assets of the Fortress Shares, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of the Fund for the period. This fee is to obtain certain services for
shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company serves
as transfer agent and dividend disbursing agent for the Fund. The fee is based
on the size, type and number of accounts and transactions made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses of $26,245 and start-up
administrative services expenses of $54,398 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following November
24, 1992 (date the Fund first became effective). For the six months ended
February 28, 1995, the Fund paid $ 5,249 and $ 10,880, respectively, pursuant to
this agreement.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995 the Fund
engaged in purchase and sale transactions with funds at current market value
pursuant to Rule 17a-7 under the Act amounting to $1,200,000 and $1,350,000,
respectively.
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees
of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
PURCHASES $6,058,513
- ---------------------------------------------------------------------- ---------
SALES $6,588,825
- ---------------------------------------------------------------------- ---------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley 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
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts J. Crilley Kelly
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
14
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA
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MUNICIPAL
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INCOME
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FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
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FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
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[RECYCLED LOGO]
RECYCLED
PAPER
625922109
4031005 (4/95)
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Florida Municipal Income Fund
Portfolio of Investments
February 28, 1995 (unaudited)
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
Short-Term Municipal Securities - 97.8%
Puerto Rico - 97.8%
$700,000Government Development Bank of Puerto Rico
Weekly VRDNs (Credit Suisse and Sumitomo Bank
Ltd. LOCs) A-1 $700,000
Total Short-Term Municipal Securities
(at amortized cost)(a) $700,000
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings.
(a) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of
net assets ($715,842) at February 28, 1995.
The following abbreviations are used in this portfolio:
LOC(s) - Letters of Credit
VRDNs - Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Florida Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1995 (unaudited)
Assets:
Investments in securities, at amortized cost and value $ 700,000
Cash 1,029
Interest receivable 1,920
Deferred expenses 14,873
Total assets 717,822
Liabilities:
Income distribution payable $ 1,980
Total liabilities 1,980
Net Assets for 86,275 shares of beneficial interest
outstanding $ 715,842
Net Assets Consists of:
Paid in capital
$2,654,663
Accumulated net realized gain on investments (1,938,821)
Total Net Assets $ 715,842
Net Asset Value and offering price per Share ($715,842/
86,275 shares of beneficial interest outstanding) $ 8.30
Redemption Proceeds per Share (97/100 of 8.30)* $ 8.05
* See "Redeeming Shares" 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, 1995 (unaudited)
Investment Income:
Interest $ 166,542
Expenses:
Investment advisory fee $ 10,978
Administrative personnel and service fees 53,083
Directors'/Trustees' fees 568
Custodian and portfolio accounting fees 30,211
Transfer and dividend disbursing
agent fees and expenses 7,616
Fund share registration costs 7,226
Shareholder services fee 6,737
Distribution services fee 20,211
Printing and postage 7,686
Legal fees 1,775
Auditing fees 6,748
Taxes 18
Insurance premiums 2,004
Miscellaneous 2,449
Total expenses 157,310
Deduct-
Waiver of investment advisory
fee $ 10,978
Reimbursement of other operating
expenses
by Adviser
126,054 137,032
Net
expenses 20,278
Net
investment income 146,264
Realized and Unrealized Gain(Loss) on Investments:
Net realized gain (loss) on investment transactions (identified cost
basis)
(1,735,215)
Net change in unrealized appreciation (depreciation)
of investments 568,502
Net
realized and unrealized gain (loss) on investments (1,166,713)
Change
in net assets resulting from operations
$(1,020,449)
(See Notes which are an integral part of the Financial Statements)
Florida Municipal Income Fund
Statement of Changes in Net Assets
Six Months Ended Year Ended
February 28, 1995 August 31,
(unaudited) 1994
Increase (Decrease) in Net Assets:
Operations-
Net investment income $ 146,264 $ 405,212
Net realized gain (loss) on investment
transactions ($1,735,215, net loss, and
$0, respectively, as computed for federal
income tax purposes) (1,735,215) (206,460)
Net change in unrealized appreciation
(depreciation) of investments 568,502 (646,820)
Change in net assets resulting from
operations (1,020,449) (448,068)
Distributions to Shareholders-
Dividends to shareholders from net
investment income (166,330) (405,212)
Distributions in excess of net
investment income - (58,653)
Change in net assets resulting from
distribution to shareholders (166,330) (463,865)
Fund Share (Principal) Transactions-
Proceeds from sale of shares 635,219 10,844,288
Net asset value of shares issued to
shareholders in payment
of dividends declared 39,001 55,980
Cost of shares redeemed (10,406,251)
(1,371,975)
Change in net assets resulting from
Fund share transactions (9,732,031) 9,528,293
Change in net assets (10,918,810) 8,616,360
Net Assets:
Beginning of period 11,634,652 3,018,292
End of period $ 715,842 $ 11,634,652
(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>
Six Months Ended
February 28, 1995 Year Ended
August 31,
(unaudited) 1994
1993(a)
<S> <C> <C> <C>
Net asset value, beginning of period $9.36 $10.35 $10.00
Income from investment operations
Net investment income 0.21) 0.52 0.12
Net realized and unrealized gain
(loss) on investments (0.64) (0.94) 0.36
Total from investment operations (0.85) (0.42) 0.48
Less distributions
Dividends to shareholders from net
investment income (0.21) (0.52) (0.12)
Distributions in excess of net
investment income(b) - (0.05) (0.01)
Total Distributions (0.21) (0.57) (0.13)
Net asset value, end of period $8.30 $9.36 $10.35
Total Return (c) (9.16%) (2.31%) 13.38%
Ratios to average net assets
Expenses 0.74%(e) 0.75%
0.75%(e)
Net investment income 5.33%(e) 5.18%
5.00%(e)
Expense waiver/reimbursement (d) 4.99%(e) 3.37%
0.54%(e)
Supplemental Data
Net assets, end of period (000 omitted) $716 $11,635 $3,018
Portfolio turnover rate 15% 33% 0%
</TABLE>
(a) Reflect operations for the period from June 1, 1993 (date of initial
public investment) to August 31, 1993.
(b) Distribution are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital
for federal income purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(e) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Florida Municipal Income Fund
Notes to Financial Statements
February 28, 1995 (unaudited)
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. As of February 28,
1995, the Trust consisted of ten, non-diversified portfolios. The
financial statements included herein present only those of Florida
Municipal Income Fund (the "Fund"). The financial statements of
the other portfolios 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. These 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 the pricing
service 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. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market
value.
B. Investment Income, Expenses, and Distributions--Interest
income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend
date.
C. Federal Taxes--It is the Fund's policy to comply with the
provisions of the Code applicable to regulated investment
companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions
for federal tax are necessary. Additionally, net capital
losses of $203,605 attributable to security transactions,
incurred after October 31, 1993, are treated as arising on
September 1, 1994, the first day 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. The
Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid
assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning
interest on the settlement date.
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 its
shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years
from the Fund's commencement date.
F. Concentration of Credit Risk--Since the fund invests a
substantial portion of its assets in issuers located in one
state, it will be more susceptible to factors adversely
affecting issuers in state than would be a comparable tax-
exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at
February 28, 1995. 100% 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 value of investments
insured by or supported (backed) by a letter of credit for
any one institution or agency do not exceed 100% of total
investments.
G. Other--Investment transactions are accounted for on the trade
date.
(3) 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:
Six Months Year
Ended Ended
February 28, August 31,
1995 1994
Shares sold 69,310 1,080,585
Shares issued to shareholders in
payment of dividends
declared 4,459 5,821
Shares redeemed (1,230,095) (135,560)
Net change resulting from Fund
share transactions (1,156,326) 950,846
(4) Investment Advisory Fee and Other Transactions With Affiliates
Advisory Fee--Federated Advisers, the Fund's investment adviser
(the "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 may voluntarily choose to waive a portion of
its fee and reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
Administrative Fee--Federated Administrative Services ("FAS"),
under the Administrative Services Agreement, provides the Fund
administrative personnel and services. The FAS fee is based on
the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period.
The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
Distribution and Shareholder Services Fee--The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Act. Under the terms of the Plan, the Fund will compensate
Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to
result in the sale of the Fund shares. The Plan provides that the
Fund may incur distribution expenses up to .75 of 1% of the
average daily net assets of the Fund shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive a
portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion.
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This
fee is to obtain certain services for shareholders and to maintain
shareholder accounts.
Transfer and Dividend Disbursing Agent Fees--Federated Services
Company serves as transfer and dividend disbursing agent for the
Fund. The fee is based on the size, type, and number of accounts
and transactions made by shareholders.
Organizational Expenses--Organizational expenses of $29,500 and
start-up administrative services expenses of $82,009 were
initially borne by the Adviser. The Fund has agreed to reimburse
the Adviser for the organizational expenses and start-up
administrative expenses during the five year period following
November 24, 1992 (date the Fund first became effective). For the
six months ended February 28, 1995, the Fund paid $3,249 and
$7,285, respectively, pursuant to this agreement.
Interfund Transactions--During the six months ended February 28,
1995, the Fund engaged in purchase and sale transactions with
funds at current pursuant to Rule 17a-7 under the Act amounting to
$10,000,000 and $9,400,000 respectively.
Certain Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term
securities, for the six months ended February 28, 1995, were as
follows:
Purchases
$1,543,952
Sales
$11,668,945
Maryland Municipal Income Fund
Portfolio of Investments
February 28, 1995 (unaudited)
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
Short-Term Municipal Securities - 96.2%
Maryland - 87.5%
$500,000Montgomery County, MD, EDA Weekly VRDNs,
(U.S. Pharmacopeial Convention Facility)/
(Chemical Bank, LOC) NR $500,000
Puerto Rico - 8.7%
50,000 Government Development Bank of Puerto Rico,
Weekly VRDNs (Credit Suisse and Sumitomo Bank
Ltd. LOCs) VMIG1 50,000
Total Short-Term Municipal Securities
(at amortized cost)(a) $550,000
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings.
(a) Also represents cost for federal tax purposes.
Note: The investment category is shown as a percentage of net
assets ($571,618) at February 28, 1995
The following abbreviations are used in this portfolio:
EDA - Economic Development Authority
LOC - Letter of Credit
LOC(s) - Letters of Credit
VRDNs - Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Maryland Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1995 (unaudited)
Assets:
Investments in securities, at amortized cost and value $ 550,000
Cash 11,375
Deferred expenses 20,909
Interest receivable 1,719
Total assets 584,003
Liabilities:
Payable for Fund Shares redeemed $ 11,646
Income Distributions Payable 739
Total liabilities
12,385
Net Assets for 73,318 shares of beneficial interest
outstanding
$571,618
Net Assets Consistsof:
Paid in capital
$1,668,242
Accumulated net realized gain (loss) on investments
(1,096,624)
Total Net Assets $ 571,618
Net Asset Value and Offering Price per Share ($571,618/73,318
shares of beneficial interest outstanding) $ 7.80
Redemption Proceeds per Share (97/100 of 7.80)* $ 7.57
* 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, 1995 (unaudited)
Investment Income:
Interest $ 89,314
Expenses:
Investment advisory fee $ 5,857
Administrative personnel and service fees 53,083
Custodian fees 30,533
Transfer and dividend disbursing agent
fees and expenses 7,869
Shareholder services fee 2,558
Fund share registration costs 12,344
Printing and postage 1,225
Legal fees 1,542
Directors'/Trustees' fees 418
Auditing fees 5,332
Taxes 21
Insurance premiums 2,083
Distribution services fee 10,474
Miscellaneous 1,835
Total expenses 135,174
Deduct-
Waiver of investment advisory
fee $ 5,857
Reimbursement of other operating
expenses by Adviser 118,670 124,527
Net
expenses 10,647
Net
investment income 78,667
Realized and Unrealized Gain(Loss) on Investments:
Net realized gain (loss) on investment transactions
(identified cost basis) (884,128)
Net change in unrealized appreciation (depreciation)
of investments 271,913
Net
realized and unrealized gain/(loss) on investments (612,215)
Change
in net assets resulting from operations $ (533,548)
(See Notes which are an integral part of the Financial Statements)
Maryland Municipal Income Fund
Statement of Changes in Net Assets
Six Months Ended Year Ended
February 28, 1995 August 31,
(unaudited) 1994
Increase (Decrease) in Net Assets:
Operations-
Net investment income $ 78,667 $ 179,567
Net realized gain (loss) on investment
transactions ($884,128 net loss and $0,
respectively, as computed for federal
income tax purposes) (884,128) (212,496)
Net Change in unrealized appreciation
(depreciation) of investments 271,913 (271,913)
Change in net assets resulting
from operations (533,548) (304,842)
Distribution to Shareholders-
Dividends to shareholders from net
investment income (78,667) (179,567)
Distributions in excess of net
investment income (10,474) (25,161)
Change in net assets resulting from
distribution to shareholders (89,141) (204,728)
Fund Share (Principal) Transactions-
Proceeds from sale of shares 1,160,603 12,984,975
Net asset value of shares issued to
shareholders in payment
of dividends declared 49,966 119,762
Cost of shares redeemed (6,012,826) (6,598,603)
Change in net assets resulting from
Fund share transactions (4,802,257) 6,506,134
Change in net assets (5,424,946) 5,996,564
Net Assets:
Beginning of period 5,996,564 -
End of period $ 571,618 $ 5,996,564
(a) For the period from September 2, 1993 (date of initial public
investment) to August 31, 1994
(See Notes which are an integral part of the Financial Statements)
Maryland Municipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<caption
Six Months Ended
February 28, 1995 Year Ended
August 31,
(unaudited) 1994
(a)
<S> <C> <C>
Net asset value, beginning of period $8.81 $10.00
Income from investment operations
Net investment income 0.10 0.50)
Net realized and unrealized gain
(loss) on investments (0.90)
(1.16)
Total from investment operations (0.80)
(0.66)
Less distributions
Dividends to shareholders from
net investment income (0.10)
(0.50)
Distributions in excess of net
investment income(e) (0.11) (b)
(0.03) (b)
Total Distributions (0.21)
(0.53)
Net asset value, end of period $7.80 $8.81
Total Return (c) (9.19%)
(6.70%)
Ratios to average net assets
Expenses 0.73%(d) 0.75%
(d)
Net investment income 5.37%(d) 5.35%
(d)
Expense waiver/reimbursement (e) 8.50%(d) 4.64%
(d)
Supplemental Data
Net assets, end of period (000 omitted) $572 $5,997
Portfolio turnover rate 24% 56%
</TABLE>
(a) Reflect operations for the period from September 2, 1993 (date of
initial public investment) to August 31, 1994.
(b) Distribution are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital
for federal income purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Maryland Municipal Income Fund
Notes to Financial Statements
February 28, 1995 (unaudited)
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. As of February 28,
1995, the Trust consisted of ten, non-diversified portfolios. The
financial statements included herein present only those of
Maryland Municipal Income Fund (the "Fund"). The financial
statements of the other portfolios 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. These 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 the pricing
services 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. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market
value.
B. Investment Income, Expenses, and Distributions--Interest
income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend
date. Distributions are determined in accordance with income
tax regulations which may differ from generally accepted
accouting principles. These distributions do not represent a
return of capital for federal income tax purposes.
C. Federal Taxes--It is the Fund's policy to comply with the
provisions of the Code applicable to regulated investment
companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions
for federal tax are necessary. Additionally, net capital
losses of $212,496 attributable to security transactions,
incurred after October 31, 1993, are treated as arising on
September 1, 1994, the first day of the Fund's next taxable
year.
D. Equalization--The Fund follows the accounting practice known
as equalization in which a portion of the proceeds from sales
and costs of redemptions of capital stock equivalent, on a
per share basis, to the amount of undistributed net
investment income on the date of the transaction, is credit
or charged to undistributed net investment income. As a
result, undistributed net investment income per share is
unaffected by sales or redemption of Fund shares.
E. When-Issued and Delayed Delivery Transactions--The Fund may
engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid
assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning
interest on the settlement date.
F. Concentration of Credit Risk--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at
February 28, 1995. 100% 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 value of investments
insured by or supported (backed) by a letter of credit for
any one institution or agency does not exceed 90.9% of total
investments.
G. 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 its
shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years
from the Fund's commencement date.
H. Other--Investment transactions are accounted for on the trade
date.
(3) 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:
Six Months Year
Ended Ended
February 28, August 31,
1995 1994*
Shares sold 135,531 1,365,537
Shares issued to shareholders in
payment of dividends declared 6,035 13,295
Shares redeemed (748,888) (698,012)
Net change resulting from Fund
share transactions (607,502) 680,820
*For the period from September 2, 1993 (date of initial public
investment) to August 31, 1994.
(4) Investment Advisory Fee and Other Transactions With Affiliates
Advisory Fee--Federated Advisers, the Fund's investment adviser
(the "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 may voluntarily choose to waive a portion of
its fee and reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
Administrative Fee--Federated Administrative Services ("FAS"),
under the Administrative Services Agreement, provides the Fund
with administrative personnel and services. The FAS fee is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period.
The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
Distribution and Shareholder Services Fee--The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Act. Under the terms of the Plan, the Fund will compensate
Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that
the Fund may incur distribution expenses up to .75 of 1% of the
average daily net assets of the Fund annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is
to obtain certain services for shareholders and to maintain
shareholder accounts.
Transfer and Dividend Disbursing Agent Fees--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. The FServ fee is based on the size, type, and
number of accounts and transactions made by shareholders.
Organizational Expenses--Organizational expenses of $14,124 and
start-up administrative services expenses of $57,000 were borne
initially by the Adviser. The Fund has agreed to reimburse the
Adviser for the organizational expenses and start-up
administrative expenses during the five year period following
August 31, 1993 (date the Fund first became effective). For the
six months ended February 28, 1995, the Fund paid $2,825 and
$11,400, respectively, pursuant to this agreement.
Interfund Transactions--During the six months ended February 28,
1995, the Fund engaged in purchase and sale transactions with
other affiliated funds at current market value pursuant to Rule
17a-7 under the Act amounting to $4,100,000 and $3,550,000
respectively.
Certain Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term
securities, for the six months ended February 28, 1995, were as
follows:
Purchases
$866,884
Sales
$6,127,520
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Michigan
Intermediate Municipal Trust (the "Fund"), formerly Michigan Municipal Income
Fund, covering the six-month period ended February 28, 1995.
This report begins with a review of the economy and the municipal market.
Following the review, you'll find the Fund's Financial Statements which include
the Portfolio of Investments.
As always, the Fund seeks relief for you and other tax-sensitive Michigan
residents, in the form of current income which is exempt from federal regular
income tax and Michigan personal income tax*. The Fund pursues this income by
investing in a portfolio of investment-grade, intermediate-term Michigan
municipal securities. Shares of the Fund are also exempt from Michigan's
intangibles tax on personal property, further increasing your tax benefit.
The Fund's net assets as of this report are $59.4 million, and the Fund's net
asset value (share price) stands at $10.48, down slightly from our last report
due to further increases in interest rates by the Federal Reserve Board (the
"Fed"). Shareholders were paid dividends of $0.27 per share.
Although the increases in interest rates by the Fed made 1994 a difficult year
for municipal funds, we are happy to note that interest rates did decline in
January and February of 1995. In addition, many indicators point to a slow-down
in the economy, and the Fed met recently and decided against another rate hike.
I believe that these are all very good signs for municipal investors.
The Fund continues to provide an important opportunity for you 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.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
* INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
1
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The U.S. economy displayed considerable momentum over the six-month period ended
February 28, 1995. The Federal Reserve Board (the "Fed") continued to mount its
aggressive pre-emptive strike against inflation by raising the Federal Funds
rate to 6%, which is a considerable amount of tightening for the economy to
absorb. However, by the end of the six-month period from September 1994 to
February 1995, the U.S. economy was still showing significant signs of strength.
The nation's capacity utilization rose from 84.6% to 85.6% while unemployment
continued to move well into the full employment range, declining from 5.9% to
5.7%. Inflation stayed surprisingly benign during this period of continued
growth as the Producer Price Index* showed an increase of only 0.2% for the
entire month of February 1995. Also, the downturn in industrial commodity prices
should lead to a drop in prices at the crude materials stage of production.
Yield curves in both the municipal and Treasury bond markets continued to
flatten during the semi-annual period.
During the six-month period ended February 28, 1995, yields in the municipal
bond market, as measured by the Bond Buyer Revenue Index*, rose consistently to
a high of 7.37% on November 17, 1994. Municipal bond yields then began to
decline from their November high as a result of market supply and demand
technicals, the attractiveness of yields available in the market place, and the
continued hawkish stance of the Fed. The U.S. Treasury bond market also reached
its high for market yields in November. The long (30-year) Treasury bond reached
a high of 8.23% on November 7, 1994 and finished the six-month period at its low
of 7.5% on February 28, 1995.
From September 1, 1994 to February 28, 1995, net assets of the Fund grew from
$58.5 million to $59.4 million. Reflecting market activity, the net asset value
of the Fund declined from $10.59 on September 1, 1994 to $10.48 on February 28,
1995. On that date, the credit breakdown of the holdings of the Fund was: 44.0%
in "AAA" issues; 46.2% in "AA" issues; 8.8% in "A" issues; and 1.0% 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 obligations 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 and sewer issues;
single-family mortgage revenue issues; and state and local general obligation
issues. The average purchase yield for new investments by the Fund was 5.87%.
For the six-month period ended February 28, 1995, an investor in the Fund
experienced a total return of (1.46%), based on net asset value, and (1.61%)
based on offering price.**
* THIS INDEX IS UNMANAGED.
** 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 THEN THEIR ORIGINAL COST.
2
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--97.2%
- --------------------------------------------------------------------
MICHIGAN--97.2%
---------------------------------------------------------
$ 230,000 Ann Arbor (City-Washtenaw County), MI, 6.00% UT GO Bonds
(Environmental Protection Series 1992B), 9/1/2000 A1 $ 237,601
---------------------------------------------------------
215,000 Ann Arbor (City-Washtenaw County), MI, 6.00% UT GO Bonds
(Environmental Protection Series 1992B), 9/1/2001 A1 222,712
---------------------------------------------------------
500,000 Ann Arbor, MI, 5.20% UT GO Environmental Bonds (Series
C)/(Original Issue Yield: 5.25%), 9/1/2004 A1 490,090
---------------------------------------------------------
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 Aa 104,863
---------------------------------------------------------
100,000 Auburn Hills (City), MI, 6.50% LT GO Bonds (Series 1989)/
(Public Improvement Purpose), 5/1/97 A 103,442
---------------------------------------------------------
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 595,260
---------------------------------------------------------
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 523,055
---------------------------------------------------------
500,000 Battle Creek (Calhoun County), MI, Building Authority,
6.00% LT Bonds (Series 1992)/(Justice Centre), 4/1/2002 A 518,045
---------------------------------------------------------
500,000 Battle Creek (Calhoun County), MI, Building Authority,
6.10% LT Bonds (Series 1992)/(Justice Centre), 4/1/2003 A 521,670
---------------------------------------------------------
100,000 Battle Creek, MI, 6.90% Water Supply System Revenue Bonds
(Series 1990B), 9/1/2001 A 108,146
---------------------------------------------------------
335,000 Calhoun County, MI, 6.60% UT GO Bonds (Series 1990-II)/
(AMBAC Insured), 7/1/2002 Aaa 350,366
---------------------------------------------------------
3,000,000 Detroit, MI, 6.00% Water Supply System Refunding Revenue
Bonds (FGIC Insured)/(Original Issue Yield: 6.10%),
7/1/2002 AAA 3,105,810
---------------------------------------------------------
</TABLE>
3
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 100,000 Detroit, MI, City School District, 7.15% UT GO Refunding
Bonds (Series 1987A)/(BIG Insured), 5/1/98 Aaa $ 106,049
---------------------------------------------------------
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 1,048,260
---------------------------------------------------------
270,000 Economic Development Corporation of the City of Dearborn,
MI, 5.10% Refunding Revenue Bonds (Oakwood Obligated
Group)/(MBIA Insured)/(Original Issue Yield: 5.20%),
8/15/2006 AAA 260,010
---------------------------------------------------------
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 529,540
---------------------------------------------------------
200,000 Farmington Hills, MI, Hospital Finance Authority, 6.60%
Revenue Bonds (Series 1991A)/(Botsford General Hospital)/
(MBIA Insured), 2/15/2000 Aaa 211,926
---------------------------------------------------------
425,000 Forest Hills, MI, Public School District, 7.375% UT GO
Bonds (Series 1990), 5/1/2015 Aa 472,336
---------------------------------------------------------
285,000 Garden City School District, Wayne County, MI, 5.80% UT
GO Refunding Bonds (FSA Insured), 5/1/2004 AAA 293,345
---------------------------------------------------------
250,000 Garden City School District, Wayne County, MI, 5.90% UT
GO Refunding Bonds (FSA Insured), 5/1/2005 AAA 258,872
---------------------------------------------------------
565,000 Garden City School District, Wayne County, MI, 6.00% UT
GO Refunding Bonds (FSA Insured), 5/1/2006 AAA 585,843
---------------------------------------------------------
515,000 Garden City School District, Wayne County, MI, 6.10% UT
GO Refunding Bonds (FSA Insured), 5/1/2007 AAA 537,557
---------------------------------------------------------
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 1,187,100
---------------------------------------------------------
250,000 Grand Rapids, MI, Sanitary Sewer System, 5.40%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.45%), 1/1/2002 A1 250,332
---------------------------------------------------------
</TABLE>
4
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 300,000 Grand Rapids, MI, Sanitary Sewer System, 5.50%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.55%), 1/1/2003 A1 $ 301,491
---------------------------------------------------------
250,000 Grand Rapids, MI, Sanitary Sewer System, 5.60%
Improvement Revenue Bonds (Series 1992)/(Original Issue
Yield: 5.65%), 1/1/2004 A1 252,233
---------------------------------------------------------
130,000 Grand Valley, MI, 6.60% State College Housing Revenue
Bonds (Series 1986)/(ETM), 10/1/96 NR 133,476
---------------------------------------------------------
150,000 Huron Valley, MI, 6.50% School District UT GO Refunding
Bonds (Series 1991)/(Q-SBLF Program), 5/1/2002 A1 162,939
---------------------------------------------------------
270,000 Ingham County, MI, 5.70% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2003 A1 276,656
---------------------------------------------------------
360,000 Ingham County, MI, 5.80% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2004 A1 370,674
---------------------------------------------------------
465,000 Ingham County, MI, 5.90% LT GO Bonds (Charter Township of
Delhi)/(Sanitary Project #4), 11/1/2005 A1 480,047
---------------------------------------------------------
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 280,757
---------------------------------------------------------
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 438,497
---------------------------------------------------------
500,000 Lake Orion Community School District, County of Oakland,
MI, 5.90% Refunding UT GO Bonds (School Building and
Site)/(AMBAC Q-SBLF), 5/1/2001 AAA 516,905
---------------------------------------------------------
2,000,000 Lake Orion Community School District, County of Oakland,
MI, 6.05% Refunding UT GO Bonds (School Building and
Site)/(AMBAC Q-SBLF), 5/1/2002 AAA 2,088,380
---------------------------------------------------------
900,000 Lansing, MI, 5.30% Sewage Disposal System Refunding
Revenue Bonds (Series 1994)/(FGIC Insured)/(Original
Issue Yield: 5.35%), 5/1/2005 AAA 889,488
---------------------------------------------------------
</TABLE>
5
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 500,000 Lansing, MI, 5.50% Sewage Disposal System Refunding
Revenue Bonds (Series 1994)/(FGIC Insured)/(Original
Issue Yield: 5.60%), 5/1/2007 AAA $ 500,370
---------------------------------------------------------
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 104,915
---------------------------------------------------------
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 1,554,615
---------------------------------------------------------
3,000,000 Michigan Public Power Agency, 5.70% Revenue Refunding
Bonds (Series 1992)/(Belle River)/(Original Issue Yield:
5.80%), 1/1/2003 A1 3,060,510
---------------------------------------------------------
1,000,000 Michigan State Environmental Program, 5.75% GO Bonds
(Series 1992)/(Original Issue Yield: 5.80%), 11/1/2001 A1 1,028,330
---------------------------------------------------------
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 558,954
---------------------------------------------------------
400,000 Michigan State Hospital Finance Authority, 5.00% Revenue
Bonds (Crittenton Hospital)/(Original Issue Yield:
5.10%), 3/1/2003 NR 370,292
---------------------------------------------------------
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 503,390
---------------------------------------------------------
1,500,000 Michigan State Hospital Finance Authority, 5.50% Revenue
Refunding Bonds (St. John's Hospital), 5/15/2001 Aa 1,480,485
---------------------------------------------------------
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 821,504
---------------------------------------------------------
415,000 Michigan State Hospital Finance Authority, 6.15% Revenue
Bonds (Series 1992A)/(Crittenton Hospital), 3/1/2001 A 430,355
---------------------------------------------------------
</TABLE>
6
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 440,000 Michigan State Hospital Finance Authority, 6.25% Revenue
Bonds (Series 1992A)/(Crittenton Hospital), 3/1/2002 A $ 458,194
---------------------------------------------------------
575,000 Michigan State Hospital Finance Authority, 6.30% Revenue
Refunding Bonds (Sparrow Obligated Group)/(MBIA Insured),
11/15/2003 AAA 604,820
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 6.70% Revenue
Refunding Bonds (Series 1988A)/(Henry Ford Health
System), 5/1/96 Aa 101,953
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 6.90% Revenue
Refunding Bonds (Series 1988A)/(Henry Ford Health
System), 5/1/97 Aa 104,688
---------------------------------------------------------
375,000 Michigan State Hospital Finance Authority, 6.85% Revenue
Refunding Bonds (Series 1989)/(Oakland General Hospital)/
(AMBAC Insured), 7/1/2000 Aaa 399,904
---------------------------------------------------------
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 522,375
---------------------------------------------------------
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 105,520
---------------------------------------------------------
100,000 Michigan State Hospital Finance Authority, 7.20% Revenue
Refunding Bonds (Series 1988A)/(Mercy Memorial Hospital)/
(BIG Insured), 6/1/97 Aaa 105,221
---------------------------------------------------------
500,000 Michigan State Housing Development Authority, 5.90%
Single Family Housing Mortgage Revenue Bonds (Series
1994A), 12/1/2005 AA 505,900
---------------------------------------------------------
500,000 Michigan State Housing Development Authority, 5.90%
Single Family Housing Revenue Bonds (Series 1994A),
6/1/2005 AA 505,695
---------------------------------------------------------
</TABLE>
7
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 430,000 Michigan State Housing Development Authority, 6.25%
Single Family Housing Mortgage Revenue Bonds (Series
1992A)/ (Subject to AMT), 6/1/2002 AA- $ 439,748
---------------------------------------------------------
280,000 Michigan State Housing Development Authority, 6.30%
Single Family Housing Mortgage Revenue Bonds (Series A),
12/1/2003 AA- 286,773
---------------------------------------------------------
200,000 Michigan State Housing Development Authority, 6.95%
Single Family Housing Mortgage Revenue Bonds (Series B)/
(Subject to AMT), 12/1/2020 AA- 206,180
---------------------------------------------------------
100,000 Michigan State Housing Development Authority, 7.00%
Single Family Housing Mortgage Revenue Bonds (Series
1988B)/ (Subject to AMT), 6/1/96 AA- 101,181
---------------------------------------------------------
200,000 Michigan State Housing Development Authority, 7.00%
Single Family Housing Mortgage Revenue Bonds (Series
1991A)/ (Subject to AMT), 12/1/2005 AA- 211,788
---------------------------------------------------------
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 1,696,358
---------------------------------------------------------
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 269,708
---------------------------------------------------------
100,000 Michigan State, 5.50% Comprehensive Transportation
Revenue Refunding Bonds (Series 1988II), 11/1/97 A1 104,361
---------------------------------------------------------
1,000,000 Michigan State, 5.50% Comprehensive Transportation
Revenue Refunding Bonds (Series 1992B)/(Original Issue
Yield: 5.60%), 5/15/2002 A1 1,012,960
---------------------------------------------------------
1,000,000 Michigan State, 6.00% Comprehensive Transition Revenue
Bonds (Series B)/(Original Issue Yield: 6.05%), 5/15/2007 AA- 1,037,120
---------------------------------------------------------
100,000 Michigan State, 6.55% Comprehensive Transportation
Revenue Refunding Bonds (Series 1988I), 9/1/97 A1 104,112
---------------------------------------------------------
</TABLE>
8
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$4,250,000 Monroe County, MI, PCR, 6.35% Revenue Bonds (Series
1994A)/ (The Detroit Edison Company)/(AMBAC
Insured)/(Subject to AMT), 12/1/2004 AAA $ 4,431,475
---------------------------------------------------------
950,000 Novi, MI, 4.80% UT GO Bonds (Series 1993)/(Original Issue
Yield: 4.90%), 10/1/2005 A1 888,041
---------------------------------------------------------
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- 233,705
---------------------------------------------------------
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 1,748,705
---------------------------------------------------------
250,000 Oakland County, MI, 6.30% LT GO Bonds (Series 1991)/
(Evergreen Farmington Sewer Disposal System), 5/1/2005 A 260,955
---------------------------------------------------------
300,000 Oakland, MI, 6.65% LT GO Bonds (Series 1991)/(Community
College District)/(Original Issue Yield: 6.745%),
5/1/2011 A 316,167
---------------------------------------------------------
610,000 Okemos, MI, Public School District, 6.00% UT GO Bonds
(Q-SBLF Program), 5/1/2002 A1 634,046
---------------------------------------------------------
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 794,960
---------------------------------------------------------
220,000 Ottawa County, MI, 6.50% Water System Revenue Bonds
(Series 1990)/(Northwest Ottawa Water Supply), 10/1/2001 A1 231,794
---------------------------------------------------------
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 147,270
---------------------------------------------------------
100,000 Ottawa County, MI, 6.85% Water System Revenue Bonds
(Series 1990)/(Northwest Ottawa Water Supply), 5/1/2000 A1 104,898
---------------------------------------------------------
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 415,388
---------------------------------------------------------
</TABLE>
9
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 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 $ 546,770
---------------------------------------------------------
570,000 Riverview, MI, Community School District (Wayne County),
6.20% UT GO Bonds (School Building Series 1992)/(FGIC
Insured), 5/1/2003 Aaa 609,991
---------------------------------------------------------
615,000 Riverview, MI, Community School District (Wayne County),
6.20% UT GO Bonds (School Building Series 1992)/(FGIC
Insured), 5/1/2004 Aaa 658,148
---------------------------------------------------------
350,000 Rochester Community School District (Counties of Macomb
and Oakland), MI, 6.50% UT GO Bonds (Series 1991)/(Q-SBLF
Program)/ (Original Issue Yield: 6.60%), 5/1/2007 A1 377,143
---------------------------------------------------------
250,000 Rochester 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 269,388
---------------------------------------------------------
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 284,453
---------------------------------------------------------
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 241,652
---------------------------------------------------------
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 986,430
---------------------------------------------------------
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 277,555
---------------------------------------------------------
1,500,000 University of Michigan, 5.70% Revenue Bonds (Series
1990A), 12/1/2004 Aa 1,534,785
---------------------------------------------------------
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 943,060
---------------------------------------------------------
</TABLE>
10
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
MICHIGAN--CONTINUED
---------------------------------------------------------
$ 750,000 Wayne County, MI, Livonia Public School District, 6.00%
UT GO Bonds (School Building Series 1992), 5/1/2001 A1 $ 778,868
---------------------------------------------------------
1,000,000 Western Michigan University, 5.50% General Revenue Bonds
(Series 1992A)/(FGIC Insured)/(Original Issue Yield:
5.55%), 11/15/2002 Aaa 1,013,070
---------------------------------------------------------
885,000 Wyandotte (Wayne County), MI, Electric System, 6.10%
Revenue Refunding Bonds (Series 1992)/(MBIA Insured),
10/1/2002 Aaa 928,728
--------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST, $56,540,044) 57,769,497
--------------------------------------------------------- -----------
SHORT-TERM MUNCIPAL SECURITIES--1.2%
- --------------------------------------------------------------------
PUERTO RICO--1.2%
---------------------------------------------------------
700,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 700,000
--------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST,
$57,240,044) (A) $58,469,497
--------------------------------------------------------- -----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $57,240,044. The
net unrealized appreciation on a federal tax basis amounts to $1,229,453,
which is comprised of $1,562,412 appreciation and $332,959 depreciation at
February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($59,427,421) at February 28, 1995.
</TABLE>
11
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
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
HEFA --Health and Education Facilities Authority
LOCs --Letters of Credit
LT --Limited Tax
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
Q-SBLF --Qualified State Bond Loan Fund
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $57,240,044) $58,469,497
- --------------------------------------------------------------------------------------------
Cash 92,370
- --------------------------------------------------------------------------------------------
Interest receivable 981,326
- --------------------------------------------------------------------------------------------
Receivable for Fund shares sold 148,174
- --------------------------------------------------------------------------------------------
Deferred expenses 7,023
- -------------------------------------------------------------------------------------------- -----------
Total assets 59,698,390
- --------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------
Income distributions payable $ 234,634
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed 20,370
- --------------------------------------------------------------------------------
Accrued expenses 15,965
- -------------------------------------------------------------------------------- ---------
Total liabilities 270,969
- -------------------------------------------------------------------------------------------- -----------
NET ASSETS for 5,669,548 shares of beneficial interest outstanding $59,427,421
- -------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------
Paid-in-capital $59,436,455
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,229,453
- --------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,238,487)
- -------------------------------------------------------------------------------------------- -----------
Total Net Assets $59,427,421
- -------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($59,427,421 DIVIDED BY 5,669,548 shares of
beneficial interest outstanding) $ 10.48
- -------------------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/97 of $10.48)* $ 10.80
- -------------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99.5/100 of $ 10.48)** $ 10.43
- -------------------------------------------------------------------------------------------- -----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $1,652,690
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $113,040
- -----------------------------------------------------------------------
Administrative personnel and services fees 61,987
- -----------------------------------------------------------------------
Custodian fees 15,826
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,413
- -----------------------------------------------------------------------
Director's\Trustees' fees 1,267
- -----------------------------------------------------------------------
Auditing fees 8,145
- -----------------------------------------------------------------------
Fund share registration costs 12,308
- -----------------------------------------------------------------------
Portfolio accounting fees 16,391
- -----------------------------------------------------------------------
Legal fees 3,258
- -----------------------------------------------------------------------
Printing and postage 5,973
- -----------------------------------------------------------------------
Shareholder services fee 14,130
- -----------------------------------------------------------------------
Insurance premiums 2,534
- -----------------------------------------------------------------------
Miscellaneous 6,878
- ----------------------------------------------------------------------- --------
Total expenses 276,150
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $113,040
- ------------------------------------------------------------
Reimbursement of other operating expenses by Adviser 21,809 134,849
- ------------------------------------------------------------ -------- --------
Net expenses 141,301
- ---------------------------------------------------------------------------------- ----------
Net investment income 1,511,389
- ---------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain(loss) on investment transactions (identified cost basis) (972,698)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation(depreciation) of investments 506,646
- ---------------------------------------------------------------------------------- ----------
Net realized and unrealized gain/(loss) on investments (466,052)
- ---------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,045,337
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
14
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUAY 28, YEAR ENDED
1995 AUGUST 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------
Net investment income $ 1,511,389 $ 2,790,803
- -------------------------------------------------------
Net realized gain (loss) on investment ($972,698 and $
3,738 respectively, as computed for federal income tax
purposes) (972,698) (249,785)
- -------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 506,646 (2,310,979)
- ------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 1,045,337 230,039
- ------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------
Dividends to shareholders from net investment income (1,511,389) (2,790,803)
- ------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -------------------------------------------------------
Proceeds from sale of shares 10,223,092 26,346,131
- -------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 162,277 221,749
- -------------------------------------------------------
Cost of shares redeemed (8,972,116) (16,151,756)
- ------------------------------------------------------- ------------ ------------
Change in net assets resulting from fund share
transactions 1,413,253 10,416,124
- ------------------------------------------------------- ------------ ------------
Change in net assets 947,201 7,855,360
- -------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------
Beginning of period 58,480,220 50,624,860
- ------------------------------------------------------- ------------ ------------
End of period $59,427,421 $58,480,220
- ------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1995 ---------------------------------------------------------
(UNAUDITED) 1994 1993 1992(A)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.59 $11.02 $10.38 $10.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.27 0.53 0.55 0.56
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments (0.11) (0.43) 0.64 0.38
- ---------------------------------------- ----------- ----------- ----------- -----------
Total from investment operations 0.16 0.10 1.19 0.94
- ----------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------
Dividends to shareholders from net
investment income (0.27) (0.53) (0.55) (0.56)
- ---------------------------------------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $10.48 $10.59 $11.02 $10.38
- ---------------------------------------- ----------- ----------- ----------- -----------
TOTAL RETURN (B) (1.46%) 0.88% 11.73% 9.60%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.50%(c) 0.50% 0.37% 0.07%(c)
- ----------------------------------------
Net investment income 5.35%(c) 4.87% 5.11% 5.66%(c)
- ----------------------------------------
Expense waiver/reimbursement (d) 0.48%(c) 0.57% 1.06% 1.26%(c)
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $59,427 $58,480 $50,625 $26,998
- ----------------------------------------
Portfolio turnover rate 19% 13% 3% 26%
- ----------------------------------------
<FN>
(a) Reflects operations for the period from September 18, 1991 (date of initial
public investment) to August 31, 1992.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
16
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN MUNICIPAL INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28,1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. As of February 28, 1995, the Trust consisted of
ten, non-diversified portfolios. The financial statements included herein
present only those of Michigan Intermediate Municipal Trust (the "Fund"). The
financial statements of the other portfolios 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. These
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. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1994, the Fund, for
federal tax purposes, had a capital loss carryforward of $16,005, which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Fund of any liability for federal tax. Pursuant
to the Code, such capital loss carryforward will expire in 2001 ($12,267)
and 2002 ($3,738). Additionally, net capital losses of $249,785 attributable
to security transactions incurred after October 31, 1993 are treated as
arising on September 1, 1994, the first day of the Fund's next taxable year.
17
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. CONCENTRATION OF RISK--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to reduce the
credit risk associated with such factors, at February 28, 1995, 48% 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 value of investments insured by or supported
(backed) by a letter of credit for any one institution or agency does not
exceed 19% of total investments.
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 its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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>
SIX MONTHS
ENDED
FEBRUARY YEAR ENDED
28, AUGUST 31,
1995 1994
- ---------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Shares sold 1,006,821 2,416,275
- ----------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 15,884 20,450
- ----------------------------------------------------------------------
Shares redeemed (875,683) (1,508,248)
- ---------------------------------------------------------------------- ---------- -----------
Net change resulting from Fund share transactions 147,022 928,477
- ---------------------------------------------------------------------- ---------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the "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 may voluntarily choose to
waive a portion of its fee and reimburse certain operating
18
MICHIGAN INTERMEDIATE MUNICIPAL TRUST
- ---------------------------------------------------------
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company serves as transfer agent and dividend disbursing agent for the
Fund. The fee is based on the size, type and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses of $29,500 and start-up
administrative services expenses of $82,009 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following September
9, 1991 (date the Fund first became effective). For the six months ended
February 28, 1995, the Fund paid $1,417 and $2,835, respectively, pursuant to
this agreement.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995 the Fund
engaged in purchase and sale transactions with funds at current market value
pursuant to Rule 17a-7 under the Act amounting to $9,950,000 and $9,250,000
respectively.
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees
of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1995, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C>
PURCHASES $11,973,064
- ---------------------------------------------------------------------- ----------
SALES $11,023,485
- ---------------------------------------------------------------------- ----------
</TABLE>
19
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley 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
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts J. Crilley Kelly
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
20
- --------------------------------------------------------------------------------
MICHIGAN
- --------------------------------------------------------------------------------
INTERMEDIATE
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
TRUST
- --------------------------------------------------------------------------------
(formerly, Michigan Municipal
- --------------------------------------------------------------------------------
Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
--------------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-------------------------------------------------------------------------
[RECYCLED LOGO]
RECYCLED
PAPER
625922703
3032602 (4/95)
---------------------------------------------------
New Jersey Municipal Income Fund
Portfolio of Investments
February 28, 1995 (unaudited)
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
Short-Term Municipal Securities - 107.4%
$600,000Government Development Bank of Puerto Rico
Weekly VRDNs (Credit Suisse and Sumitomo
Bank Ltd. LOCs) A-1 $600,000
Total Investments, at amortized cost $600,000 +
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings.
+ Also represents cost for federal tax purposes.
Note: The investment category is shown as a percentage of net
assets ($558,690) at February 28, 1995
The following abbreviations are used in this portfolio:
LOC(s) - Letters of Credit
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, 1995 (unaudited)
Assets:
Investments in securities, at amortized cost and value $ 600,000
Cash 30,574
Interest receivable 1,645
Deferred expenses 19,586
Total assets 651,805
Liabilities:
Income distribution payable $ 92,476
Payable for Fund shares redeemed 639
Total liabilities 93,115
Net Assets for 69,137 shares of beneficial
interest outstanding $ 558,690
Net Assets Consists of:
Paid in capital
$2,344,029
Accumulated net realized (loss) on investments (1,785,339)
Total Net Assets $ 558,690
Net Asset Value per Share ($558,690/69,137 shares of
beneficial interest outstanding) $ 8.08
Redemption Proceeds per Share (97/100 of 8.08)* $ 7.84
* 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, 1995 (unaudited)
Investment Income:
Interest $ 143,304
Expenses:
Investment advisory fee $ 9,404
Administrative personnel and service fees 53,083
Custodian and portfolio accounting fees 30,124
Transfer and dividend disbursing agent
fees and expenses 8,551
Directors'/Trustees' fees 580
Auditing fees 6,765
Fund share registration costs 6,165
Legal fees 1,725
Printing and postage 1,785
Shareholder services fee 5,762
Insurance premiums 2,040
Distribution services fee 17,128
Taxes 18
Miscellaneous 2,310
Total expenses 145,440
Deduct-
Waiver of investment advisory
fee $ 9,404
Reimbursement of other operating
expenses by Adviser 118,908 128,312
Net
expenses 17,128
Net
investment income 126,176
Realized and Unrealized Gain(Loss) on Investments:
Net realized gain (loss) on investment
transactions (identified cost basis)
(1,556,980)
Net change in unrealized appreciation (depreciation)
of investments 463,424
Net
realized and unrealized gain (loss) on investments
(1,093,556)
Change
in net assets resulting from operations $
(967,380)
(See Notes which are an integral part of the Financial Statements)
New Jersey Municipal Income Fund
Statement of Changes in Net Assets
Six Months Ended Year Ended
February 28, 1995 August 31,
(unaudited) 1994
Increase (Decrease) in Net Assets:
Operations-
Net investment income $ 126,176 $ 423,161
Net realized gain (loss) on investment
transactions ($1,556,980 and $0,
respectively, as computed for federal
income tax purposes) (1,556,980) (228,359)
Change in unrealized appreciation
(depreciation) of investments 463,424 (537,756)
Change in net assets resulting
from operations (967,380) (342,954)
Distributions to Shareholders-
Dividends to shareholders from net
investment income (126,176) (423,161)
Distributions in excess of net
investment income (17,127) (62,268)
Change in net assets resulting from
distribution to shareholders (143,303) (485,429)
Fund Share (Principal) Transactions-
Proceeds from sale of shares 204,304 9,997,039
Net asset value of shares issued to
shareholders in payment
of dividends declared 45,370 135,785
Cost of shares redeemed (9,746,480) (1,488,758)
Change in net assets resulting from
Fund share transactions (9,496,806) 8,644,066
Change in net assets (10,607,489) 7,815,683
Net Assets:
Beginning of period 11,166,179
3,350,496
End of period $ 558,690 $ 11,166,179
(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>
Six Months Ended
February 28, 1995 Year Ended
August 31,
(unaudited) 1994
1993(a)
<S> <C> <C> <C>
Net asset value, beginning of period $9.47 $10.30 $10.00
Income from investment operations
Net investment income 0.02 0.51 0.12
Net realized and unrealized gain
(loss) on investments (1.21) (0.78) 0.31
Total from investment operations (1.19) (0.27) 0.43
Less distributions
Dividends to shareholders from
net investment income (0.02) (0.51) (0.12)
Distributions in excess of net
investment income(e) (0.18) (0.05) (0.01)
Total Distributions (0.20) (0.56) (0.13)
Net asset value, end of period $8.08 $9.47 $10.30
Total Return (b) (12.63%) (2.62%) 4.28%
Ratios to average net assets
Expenses 0.73%(c) 0.75%
0.75%(c)
Net investment income 5.37%(c) 5.10%
4.86%(c)
Expense waiver/reimbursement (d) 5.46%(c) 3.22%
4.00%(c)
Supplemental Data
Net assets, end of period (000 omitted) $559 $11,166 $3,350
Portfolio turnover rate 16% 47%
0%
</TABLE>
(a) Reflects operations for the period from June 1, 1993 (date of
initial public investment) to August 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(e) Distribution are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital
for federal income purposes.
(See Notes which are an integral part of the Financial Statements
New Jersey Municipal Income Fund
Notes to Financial Statements
February 28, 1995 (unaudited)
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. As of February 28,
1995, the Trust consisted of ten, non-diversified portfolios. The
financial statements included herein present only those of New
Jersey Municipal Income Fund (the "Fund"). The financial
statements of the other portfolios 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. These 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. Short-
term securities with remaining maturities of sixty days or
less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
B. Investment Income, Expenses, and Distributions--Interest
income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend
date.
C. Federal Taxes--It is the Fund's policy to comply with the
provisions of the Code applicable to regulated investment
companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions
for federal tax are necessary. Additionally, net capital
losses of $228,539 attributable to security transactions,
incurred after October 31, 1993, are treated as arising on
September 1, 1994, the first day 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. The
Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid
assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. Concentration of Credit Risk--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at
February 28, 1995. 100% 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 value of investments
insured by or supported (backed) by a letter of credit for
any one institution or agency do not exceed 100% of total
investments.
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 its
shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years
from the Fund's commencement date.
G. Other--Investment transactions are accounted for on the trade
date.
(3) 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:
Six Months Year
Ended Ended
February 28, August 31,
1995 1994
Shares sold 21,979 986,212
Shares issued to shareholders in
payment of dividends
declared 5,139 14,045
Shares redeemed (1,137,451) (145,961)
Net change resulting from Fund
share transactions (1,110,333) 854,296
(4) Investment Advisory Fee and Other Transactions With Affiliates
Advisory Fee--Federated Advisers, the Fund's investment adviser
(the "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 may voluntarily choose to waive a portion of
its fee and reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
Administrative Fee--Federated Administrative Services ("FAS"),
under the Administrative Services Agreement, provides the Fund
with administrative personnel and services. The FAS fee is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period.
The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
Distribution and Shareholder Services Fee--The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Act. Under the terms of the Plan, the Fund will compensate
Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that
the Fund may incur distribution expenses up to .75 of 1% of the
average daily net assets of the Fund annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This
fee is to obtain certain services for shareholders and to maintain
shareholder accounts.
Transfer and Dividend Disbursing Agent Fees--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. The FServ fee is based on the size, type, and
number of accounts and transactions made by shareholders.
Organizational Expenses--Organizational expenses of $22,177 and
start-up administrative services expenses of $57,211 were borne
initially by the Adviser. The Fund has agreed to reimburse the
Adviser for the organizational expenses and start-up
administrative expenses during the five year period following
September 9, 1991 (date the Fund first became effective). For the
six months ended February 28, 1995, the Fund paid $1,478 and
$3,814, respectively, pursuant to this agreement.
Interfund Transactions--During the six months ended February 28,
1995, the Fund engaged in purchase and sale transactions with
other affiliated funds pursuant to Rule 17a-7 under the Act
amounting to $5,350,000 and $4,850,000 respectively.
Certain Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term
securities, for the six months ended February 28, 1995, were as
follows:
Purchases
$1,564,448
Sales
$11,393,441
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for New York
Municipal Income Fund (the "Fund"), covering the six-month period ended February
28, 1995.
This report begins with a review of the economy and the municipal market.
Following the review, you'll find the Fund's Financial Statements which include
the Portfolio of Investments.
As always, the Fund seeks relief for you and other tax-sensitive New York
residents, in the form of current income which is exempt from federal regular
income tax and New York personal income tax.* The Fund pursues this income by
investing in a portfolio of investment-grade, long-term New York municipal
securities.
The Fund's net assets as of this report are $22.5 million, and the Fund's net
asset value (share price) stands at $9.89, down slightly from our last report
due to further increases in interest rates by the Federal Reserve Board (the
"Fed"). Shareholders were paid dividends of $0.29 per share.
Although the increases in interest rates by the Fed made 1994 a difficult year
for municipal funds, we are happy to note that interest rates did decline in
January and February of 1995. In addition, many indicators point to a slow-down
in the economy, and the Fed met recently and decided against another rate hike.
I believe that these are all very good signs for municipal investors.
The Fund continues to provide an important opportunity for you 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.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
* INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
1
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The U.S. economy displayed considerable momentum over the six-month period ended
February 28, 1995. The Federal Reserve Board (the "Fed") continued to mount its
aggressive pre-emptive strike against inflation by raising the Federal Funds
rate to 6%, which is a considerable amount of tightening for the economy to
absorb. However, by the end of the six-month period from September 1994 to
February 1995, the U.S. economy was still showing significant signs of strength.
The nation's capacity utilization rose from 84.6% to 85.6% while unemployment
continued to move well into the full employment range, declining from 5.9% to
5.7%. Inflation stayed surprisingly benign during this period of continued
growth as the Producer Price Index* showed an increase of only 0.2% for the
entire month of February 1995. Also, the downturn in industrial commodity prices
should lead to a drop in prices at the crude materials stage of production.
Yield curves in both the municipal and Treasury bond markets continued to
flatten during the semi-annual period.
During the six-month period ended February 28, 1995, yields in the municipal
bond market, as measured by the Bond Buyer Revenue Index*, rose consistently to
a high of 7.37% on November 17, 1994. Municipal bond yields then began to
decline from their November high as a result of market supply and demand
technicals, the attractiveness of yields available in the market place, and the
continued hawkish stance of the Fed. The U.S. Treasury bond market also reached
its high for market yields in November. The long (30-year) Treasury bond reached
a high of 8.23% on November 7, 1994 and finished the six-month period at its low
of 7.5% on February 28, 1995.
From September 1, 1994 to February 28, 1995, net assets of the Fund declined
from $23.2 million to $22.5 million. Reflecting market activity, the net asset
value of the Fund declined from $10.10 on September 1, 1994 to $9.89 on February
28, 1995. On that date, the credit breakdown of the holdings of the Fund was:
10.3% in "AAA" issues; 38.6% in "AA" issues; 39.0% in "A" issues; 7.2% in "BBB"
issues; 2.4% in non-rated issues; and 2.4% 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 obligations 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 and sewer issues;
single-family mortgage revenue issues; and state and local general obligation
issues. The average purchase yield for new investments by the Fund was 6.96%.
For the six-month period ended February 28, 1995, an investor in the Fund
experienced a total return of 0.94% based on net asset value, and (1.05%) based
on offering price.**
* THIS INDEX IS UNMANAGED.
** 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 THEN THEIR ORIGINAL COST.
2
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--98.1%
- ---------------------------------------------------------------------
NEW YORK--91.0%
----------------------------------------------------------
$ 305,000 Nassau County, NY, 6.85% Industrial Development Civic
Revenue Bonds (Series 1995)/(Hofstra University), 1/1/2012 A $ 314,702
----------------------------------------------------------
330,000 Nassau County, NY, 6.85% Industrial Development Civic
Revenue Bonds (Series 1995)/(Hofstra University), 1/1/2013 A 339,946
----------------------------------------------------------
500,000 New York City, NY, 6.75% UT GO Bonds (Series 1993 B)/
(Original Issue Yield: 7.15%), 10/1/2015 A- 501,005
----------------------------------------------------------
1,500,000 New York City, NY, 7.25% UT GO Bonds (Series 1995C)/
(Original Issue Yield: 7.375%), 8/15/2024 A- 1,533,195
----------------------------------------------------------
2,000,000 New York City, NY, 7.25% UT GO Bonds (Original Issue
Yield: 7.55%), 8/15/2019 A- 2,082,080
----------------------------------------------------------
750,000 New York City, NY, IDA, 6.90% Special Facility Revenue
Bonds (Series 1994)/(American Airlines, Inc.)/(Subject to
AMT), 8/1/2024 Baa2 749,002
----------------------------------------------------------
500,000 New York City, NY, IDA, 7.00% Civil Facility Revenue Bonds
(College of Mt. Saint Vincent)/(Series 1993), 5/1/2008 NR 520,385
----------------------------------------------------------
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 491,165
----------------------------------------------------------
350,000 New York City, NY, Municipal Water Finance Authority,
6.375% Revenue Bonds (Series B), 6/15/2022 A- 353,990
----------------------------------------------------------
1,000,000 New York State, 5.50% Mortgage Agency Revenue Bonds
(Series 32A)/(Subject to AMT), 10/1/2025 Aa 859,610
----------------------------------------------------------
3,975,000 New York State, 6.70% Mortgage Agency Revenue Bonds
(Series 40A)/(Subject to AMT), 4/1/2025 Aa 4,011,968
----------------------------------------------------------
1,000,000 New York State, Dormitory Authority, 6.50% Revenue Bonds
(Series 1994A)/(University of Rochester)/(Original Issue
Yield: 6.582%), 7/1/2019 A1 1,016,730
----------------------------------------------------------
</TABLE>
3
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NEW YORK--CONTINUED
----------------------------------------------------------
$ 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 AA- $ 295,495
----------------------------------------------------------
500,000 New York State, Energy Research and Development Authority,
6.375% Facilities Revenue Refunding Bonds (Series 1992B)/
(Consolidated Edison Company of New York)/(Original Issue
Yield: 6.521%)/(Subject to AMT), 12/1/2027 Aa2 484,270
----------------------------------------------------------
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 865,950
----------------------------------------------------------
1,000,000 New York State, Environmental Facilities Corp., 6.30%
Water Facilities Refunding Revenue Bonds (Series
1994A)/(Spring Valley Water Company)/(AMBAC
Insured)/(Subject to AMT), 8/1/2024 AAA 1,008,030
----------------------------------------------------------
1,000,000 New York State, Medical Care Facilities Finance Agency,
6.60% Mortgage Project Revenue Bonds (Series B)/(Original
Issue yield: 6.625%)/(FHA Insured), 8/15/2034 Aa 1,021,740
----------------------------------------------------------
500,000 New York State, Mortgage Agency, 5.375% Revenue Bonds
(Series 30A)/(Subject to AMT), 10/1/2024 Aa 421,880
----------------------------------------------------------
1,000,000 New York, NY, 6.125% Revenue Bonds (Terminal One Group
Association)/(Original Issue Yield: 6.50%)/(Subject to
AMT), 1/1/2024 A 945,120
----------------------------------------------------------
750,000 Niagara County, NY, Frontier Transporation Authority,
6.25% Revenue Bonds (Greater Buffalo International
Airport)/ (AMBAC Insured)/(Original Issue Yield:
6.536%)/(Subject to AMT), 4/1/2024 AAA 754,110
----------------------------------------------------------
500,000 Port Authority of New York and New Jersey, 6.60% Refunding
Revenue Bonds (Series 96)/(Original Issue Yield:
6.65%)/(FGIC Insured), 10/1/2023 AAA 519,465
----------------------------------------------------------
</TABLE>
4
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- ---------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NEW YORK--CONTINUED
----------------------------------------------------------
$ 500,000 Port Authority of New York and New Jersey, 6.50%Refunding
Revenue Bonds (Series 76)/(Original Issue Yield: 6.782%)/
(Subject to AMT), 11/1/2026 A1 $ 509,220
----------------------------------------------------------
1,000,000 UFA Development Corp., NY, 5.95% FHA Insured Mortgage
Revenue Bonds (Series 1993)/(Loretto-Utica Project),
7/1/2035 Aa 894,530
---------------------------------------------------------- -----------
Total 20,493,588
---------------------------------------------------------- -----------
PUERTO RICO--4.7%
----------------------------------------------------------
500,000 Puerto Rico Electric Power Authority, 6.25% Refunding
Revenue Bonds (Series R), 7/1/2017 A- 503,815
----------------------------------------------------------
550,000 Puerto Rico Electric Power Authority, 6.375% Revenue Bonds
(Series T)/(Original Issue Yield: 6.58%), 7/1/2024 A- 558,591
---------------------------------------------------------- -----------
Total 1,062,406
---------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED COST
$21,635,649) 21,555,994
---------------------------------------------------------- -----------
SHORT-TERM MUNICIPAL SECURITIES--2.4%
- ---------------------------------------------------------------------
PUERTO RICO--2.4%
----------------------------------------------------------
550,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 550,000
---------------------------------------------------------- -----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED
COST) 550,000
---------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST
$22,185,649) (A) $22,105,994
---------------------------------------------------------- -----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $22,185,649.
The net unrealized depreciation on a federal tax basis amounts to $79,655,
which is comprised of $447,408 appreciation and $527,063 depreciation at
February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($22,509,229) at February 28, 1995.
</TABLE>
5
<PAGE>
NEW YORK 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
FHA --Federal Housing Administration
GO --General Obligations
IDA --Industrial Development Authority
LOCs --Letters of Credit
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
6
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost
$22,185,649) $22,105,994
- ----------------------------------------------------------------------------------
Cash 60,098
- ----------------------------------------------------------------------------------
Interest receivable 394,795
- ----------------------------------------------------------------------------------
Receivable for Fund shares sold 27,039
- ----------------------------------------------------------------------------------
Deferred expenses 13,851
- ---------------------------------------------------------------------------------- -----------
Total assets 22,601,777
- ----------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Income distribution payable $ 82,203
- -----------------------------------------------------------------------
Payable for Fund shares redeemed 10,345
- ----------------------------------------------------------------------- ---------
Total liabilities 92,548
- ---------------------------------------------------------------------------------- -----------
NET ASSETS for 2,275,170 shares of beneficial interest outstanding $22,509,229
- ---------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------
Paid-in capital $24,098,710
- ----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (79,655)
- ----------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,509,826)
- ---------------------------------------------------------------------------------- -----------
Total Net Assets $22,509,229
- ---------------------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($22,509,229/2,275,170 shares of beneficial
interest outstanding) $ 9.89
- ---------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/99 of 9.89)* $ 9.99
- ---------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99/100 of 9.89)** $ 9.79
- ---------------------------------------------------------------------------------- -----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Fortress Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
7
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $ 722,050
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 42,903
- -----------------------------------------------------------------------
Administrative personnel and services fees 61,987
- -----------------------------------------------------------------------
Directors'/Trustees' fees 1,252
- -----------------------------------------------------------------------
Custodian fees 11,211
- -----------------------------------------------------------------------
Portfolio accounting fees 16,094
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 9,599
- -----------------------------------------------------------------------
Fund share registration costs 9,324
- -----------------------------------------------------------------------
Shareholder services fee 26,814
- -----------------------------------------------------------------------
Distribution services fee 53,629
- -----------------------------------------------------------------------
Printing and postage 7,225
- -----------------------------------------------------------------------
Legal fees 2,422
- -----------------------------------------------------------------------
Auditing fees 7,809
- -----------------------------------------------------------------------
Taxes 181
- -----------------------------------------------------------------------
Insurance premiums 2,172
- -----------------------------------------------------------------------
Miscellaneous 3,383
- ----------------------------------------------------------------------- --------
Total expenses 256,005
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $ 42,903
- ------------------------------------------------------------
Waiver of distribution services fee 51,484
- ------------------------------------------------------------
Waiver of shareholder services fee 2,145
- ------------------------------------------------------------
Reimbursement of other operating expenses by Adviser 97,439 193,971
- ------------------------------------------------------------ -------- --------
Net expenses 62,034
- ---------------------------------------------------------------------------------- ------------
Net investment income 660,016
- ---------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost
basis) (1,027,780)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 559,097
- ---------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments (468,683)
- ---------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 191,333
- ---------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED
1995 AUGUST 31,
(UNAUDITED) 1994
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 660,016 $ 1,157,074
- --------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($1,027,780, net
loss, and $0, respectively, as computed for federal income tax
purposes) (1,027,780) (482,045)
- --------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 559,097 (1,327,995)
- -------------------------------------------------------------------- ---------------- -------------
Change in net assets resulting from operations 191,333 (652,966)
- -------------------------------------------------------------------- ---------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Dividends to shareholders from net investment income (660,016) (1,157,074)
- -------------------------------------------------------------------- ---------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 2,821,477 12,080,816
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 162,656 266,053
- --------------------------------------------------------------------
Cost of shares redeemed (3,158,439) (1,879,694)
- -------------------------------------------------------------------- ---------------- -------------
Change in net assets resulting from Fund share transactions (174,306) 10,467,175
- -------------------------------------------------------------------- ---------------- -------------
Change in net assets (642,989) 8,657,135
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 23,152,218 14,495,083
- -------------------------------------------------------------------- ---------------- -------------
End of period $22,509,229 $ 23,152,218
- -------------------------------------------------------------------- ---------------- -------------
<FN>
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
FEBRUARY 28, August 31,
1995 -------------------
(UNAUDITED) 1994 1993(a)
---------------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $10.92 $10.04
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income 0.29 0.57 0.44
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.21) (0.82) 0.88
- -------------------------------------------------- ---------- ------ ------
Total from investment operations 0.08 (0.25) 1.32
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29) (0.57) (0.44)
- -------------------------------------------------- ---------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.89 $10.10 $10.92
- -------------------------------------------------- ---------- ------ ------
TOTAL RETURN (b) 0.94% (2.31%) 13.38%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 0.58%(d) 0.39% 0.25%(d)
- --------------------------------------------------------------------------------
Net investment income 6.15%(d) 5.49% 5.53%(d)
- --------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.81%(d) 2.07% 1.91%(d)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $22,509 $23,152 $14,495
- --------------------------------------------------------------------------------
Portfolio turnover rate 22% 37% 0%
- --------------------------------------------------------------------------------
<FN>
(a) Reflects operations for the period from December 2, 1992 (date of initial
public investment) to August 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Computed on an annualized basis.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28,1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. As of February 28, 1995, the Trust consisted of
ten, non-diversified portfolios. The financial statements included herein
present only those of New York Municipal Income Fund (the "Fund"). The financial
statements of the other portfolios 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. These
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 the
pricing service 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. Short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
B. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. Additionally, net capital losses
of $482,045 attributable to security transactions incurred after October 31,
1993, are treated as arising on September 1, 1994, the first day 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. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
11
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
- ---------------------------------------------------------
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 its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
F. CONCENTRATION OF RISK--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to reduce the
credit risk associated with such factors, at February 28, 1995, 14.0% 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 value of investments insured by or supported
(backed) by a letter of credit for any one institution or agency does not
exceed 4.6% of total investments.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1995 1994
- ------------------------------------------------------------------ ------------- -----------
<S> <C> <C>
Shares sold 295,025 1,122,810
- ------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 17,113 25,601
- ------------------------------------------------------------------
Shares redeemed (329,490) (183,192)
- ------------------------------------------------------------------ ------------- -----------
Net change resulting from Fund share transactions (17,352) 965,219
- ------------------------------------------------------------------ ------------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the "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 may voluntarily choose to
waive its fee and reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund administrative personnel
and services. The FAS fee is based on the level of average aggregate daily net
assets of all funds advised by subsidiaries of Federated Investors
12
<PAGE>
NEW YORK MUNICIPAL INCOME FUND
- ---------------------------------------------------------
for the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund shares. The Plan provides that the Fund may incur
distribution expenses up to .50 of 1% of the average daily net assets of the
Fund shares, annually, to compensate FSC. The distributor may voluntarily choose
to waive a portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of the Fund for the period. This fee is to obtain certain services for
shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company serves
as transfer agent and dividend disbursing agent for the Fund. The fee is based
on the size, type, and number of accounts and transactions made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses of $29,500 and start-up
administrative services expenses of $82,009 were initially borne by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following November
24, 1992 (date the Fund first became effective). For the six months ended
February 28, 1995, the Fund paid $3,249 and $7,285, respectively, pursuant to
this agreement.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995 the Fund
engaged in purchase and sale transactions with funds at current market value
pursuant to Rule 17a-7 under the Act amounting to $4,550,000 and $4,000,000,
respectively.
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees
of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1995, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
PURCHASES $ 6,527,290
- ----------------------------------------------------------------------------------------------------- ------------
SALES $ 7,062,214
- ----------------------------------------------------------------------------------------------------- ------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley 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
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts J. Crilley Kelly
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
14
<PAGE>
- --------------------------------------------------------------------------------
NEW YORK
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
--------------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-------------------------------------------------------------------------
[RECYCLED LOGO]
RECYCLED
PAPER
625922208
4031009 (4/95)
---------------------------------------------------
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, 1995.
This report begins with a review of the economy and the municipal market.
Following the review, you'll find the Fund's Financial Statements which include
the Portfolio of Investments.
As always, the Fund seeks relief for you and other tax-sensitive Ohio residents,
in the form of current income which is exempt from federal regular income tax
and Ohio personal income tax.* The Fund pursues this income by investing in a
portfolio of investment-grade, long-term Ohio municipal securities.
The Fund's net assets as of this report are $72.7 million, and the Fund's net
asset value (share price) stands at $10.96, down slightly from our last report
due to further increases in interest rates by the Federal Reserve Board (the
"Fed"). Distributions paid to shareholders totaled $0.29 per share.
Although the increases in interest rates by the Fed made 1994 a difficult year
for municipal funds, we are happy to note that interest rates did decline in
January and February of 1995. In addition, many indicators point to a slow-down
in the economy, and the Fed met recently and decided against another rate hike.
I believe that these are all very good signs for municipal investors.
The Fund continues to provide an important opportunity for you 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.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
* INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
1
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The U.S. economy displayed considerable momentum over the six-month period ended
February 28, 1995. The Federal Reserve Board (the "Fed") continued to mount its
aggressive pre-emptive strike against inflation by raising the Federal Funds
rate to 6%, which is a considerable amount of tightening for the economy to
absorb. However, by the end of the six-month period from September 1994 to
February 1995, the U.S. economy was still showing significant signs of strength.
The nation's capacity utilization rose from 84.6% to 85.6% while unemployment
continued to move well into the full employment range, declining from 5.9% to
5.7%. Inflation stayed surprisingly benign during this period of continued
growth as the Producer Price Index* showed an increase of only 0.2% for the
entire month of February 1995. Also, the downturn in industrial commodity prices
should lead to a drop in prices at the crude materials stage of production.
Yield curves in both the municipal and Treasury bond markets continued to
flatten during the semi-annual period.
During the six-month period ended February 28, 1995, yields in the municipal
bond market, as measured by the Bond Buyer Revenue Index*, rose consistently to
a high of 7.37% on November 17, 1994. Municipal bond yields then began to
decline from their November high as a result of market supply and demand
technicals, the attractiveness of yields available in the market place, and the
continued hawkish stance of the Fed. The U.S. Treasury bond market also reached
its high for market yields in November. The long (30-year) Treasury bond reached
a high of 8.23% on November 7, 1994 and finished the six-month period at its low
of 7.5% on February 28, 1995.
From September 1, 1994 to February 28, 1995, net assets of the Fund declined
from $81.6 million to $72.7 million. Reflecting market activity, the net asset
value of the Fund declined from $11.01 on September 1, 1994 to $10.96 on
February 28, 1995. On that date, the credit breakdown of the holdings of the
Fund was: 41.0% in "AAA" issues; 19.0% in "AA" issues; 27.5% in "A" issues;
11.2% in "BBB" issues; and 1.4% 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 obligations 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 and sewer issues;
single-family mortgage revenue issues; and state and local general obligation
issues. The average purchase yield for new investments by the Fund was 6.78%.
For the six-month period ended February 28, 1995, an investor in the Fund
experienced a total return of 2.36% based on the net asset value, and .33% based
on offering price.**
* THIS INDEX IS UNMANAGED.
** 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 THEN THEIR ORIGINAL COST.
2
<PAGE>
OHIO MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------------ ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--96.7%
- -------------------------------------------------------------------------
OHIO--93.3%
------------------------------------------------------------
$ 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+ $ 452,680
------------------------------------------------------------
1,750,000 Akron, OH, 6.30% LT Various Purpose GO Bonds 12/1/2013 A 1,790,740
------------------------------------------------------------
200,000 Akron, OH, Bath & Copley Joint Townships, 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 226,340
------------------------------------------------------------
750,000 Ashland County, OH, 7.00% LT GO Bonds (Series 1991),
12/1/2011 A 795,697
------------------------------------------------------------
300,000 Bellefontaine, OH, 7.05% LT GO Bonds (Storm Water Utility)/
(Series 1991), 6/1/2011 A 316,833
------------------------------------------------------------
1,750,000 Bowling Green State University, OH, 6.35% General Receipts
Bonds (Series 1992), 6/1/2008 A 1,782,777
------------------------------------------------------------
900,000 Brunswick, OH, 7.35% UT GO Municipal Recreation and
Community Center Bonds 12/1/2010 A 975,690
------------------------------------------------------------
2,500,000 Cleveland, OH, Airport System, 6.00% Improvement Revenue
Bonds (Series 1994A)/(Original Issue Yield: 6.378%)/(FGIC
Insured)/(Subject to AMT), 1/1/2024 AAA 2,482,800
------------------------------------------------------------
2,000,000 Cleveland, OH, Public Power System, 7.00% First Mortgage
Revenue Bonds (Series 1994)/(Original Issue Yield: 7.15%)/
(MBIA Insured), 11/15/2024 AAA 2,195,900
------------------------------------------------------------
1,600,000 Columbus, OH, Municipal Airport Authority, 6.25% Revenue
Bonds (MBIA Insured), 1/1/2024 AAA 1,617,392
------------------------------------------------------------
800,000 Cuyahoga County, OH, 7.00% UT GO Bonds (Jail Facilities)/
(Series 1991)/(Original Issue Yield: 7.065%), 10/1/2013 Aa 893,704
------------------------------------------------------------
</TABLE>
3
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------------ ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
OHIO--CONTINUED
------------------------------------------------------------
$ 1,500,000 Cuyahoga County, OH, 6.25% Hospital Revenue Bonds (Meridia
Health System)/(Original Issue Yield: 6.80%), 8/15/2024 A $ 1,464,465
------------------------------------------------------------
500,000 Cuyahoga County, OH, 8.00% Revenue Bonds (Cleveland Clinic
Foundation)/(Original Issue Yield: 8.045%), 12/1/2015 Aa 538,775
------------------------------------------------------------
800,000 Cuyahoga County, OH, Health System, 6.50% Hospital Revenue
Bonds (Series 1992)/(University Hospital of Cleveland),
1/15/2019 Aa 806,624
------------------------------------------------------------
780,000 Cuyahoga County, OH, Health System, 6.875% Revenue Bonds
(Series 1989A)/(University Hospital of Cleveland)/ (BIGI
Insured), 1/15/2019 Aaa 818,243
------------------------------------------------------------
1,000,000 Cuyahoga County, OH, Hospital Facilities Authority, 6.25%
Revenue Bonds (Series 1993)/(Health Cleveland, Inc.),
8/15/2010 A 998,000
------------------------------------------------------------
1,000,000 Eaton, OH, IDA, 6.50% Refunding Revenue Bonds (Baxter
International, Inc.)/(Series 1992), 12/1/2012 A3 992,590
------------------------------------------------------------
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 540,285
------------------------------------------------------------
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 291,905
------------------------------------------------------------
2,500,000 Franklin, OH, 5.75% Hospital Facility Refunding Revenue
Bonds (Series 1993A)/(Riverside United Methodist Hospital)/
(Original Issue Yield: 6.10%), 5/15/2020 Aa 2,297,675
------------------------------------------------------------
2,500,000 Hamilton County, OH, 6.25% Hospital Facility Revenue
Refunding Bonds (Series 1992A)/(Bethesda Hospital), 1/1/2012 A 2,479,200
------------------------------------------------------------
1,300,000 Hamilton County, OH, 6.875% Health System Revenue Bonds
(Providence Hospital-Franciscan Sisters)/(Original Issue
Yield: 7.05%), 7/1/2015 BBB - 1,251,042
------------------------------------------------------------
</TABLE>
4
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------------ ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
OHIO--CONTINUED
------------------------------------------------------------
$ 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 $ 735,553
------------------------------------------------------------
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 506,985
------------------------------------------------------------
440,000 Lakewood, OH, 6.00% Hospital Improvement Revenue Bonds
(Lakewood Hospital)/(BIGI Insured)/(Original Issue Yield:
6.90%), 2/15/2010 Aaa 444,611
------------------------------------------------------------
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 1,001,230
------------------------------------------------------------
500,000 Lebanon, OH, Waterworks System, 7.10% Mortgage Improvement
and Refunding Revenue Bonds (Series 1991), 3/1/2008 A 534,550
------------------------------------------------------------
1,760,000 Loveland, OH, City School District, 6.65% UT GO School
Improvement Bonds (Original Issue Yield: 6.70%), 12/1/2015 A 1,834,114
------------------------------------------------------------
420,000 Marysville, OH, Sewer System, 7.15% Improvement Revenue
Bonds (Series 1991), 12/1/2011 A 448,069
------------------------------------------------------------
1,000,000 Middleburg Heights, OH, 7.20% LT GO Bonds 12/1/2011 Aa 1,100,500
------------------------------------------------------------
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 1,042,580
------------------------------------------------------------
3,000,000 Moraine, OH, Solid Waste Disposal, 6.75% Revenue Bonds
(Series 1994)/(General Motors Corp.)/(Original Issue
Yield: 6.80%), 7/1/2014 BBB+ 3,051,690
------------------------------------------------------------
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 1,820,140
------------------------------------------------------------
</TABLE>
5
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------------ ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
OHIO--CONTINUED
------------------------------------------------------------
$10,550,000 Ohio HFA, 6.70% Residential Mortgage Revenue Bonds (Series
1994B-2)/(GNMA Collateralized)/(Subject to AMT), 3/1/2025 AAA $10,736,102
------------------------------------------------------------
2,545,000 Ohio HFA, 7.65% SFM Revenue Bonds (Series 1989A)/ (GNMA
Collateralized)/(Subject to AMT), 3/1/2029 AAA 2,697,954
------------------------------------------------------------
335,000 Ohio HFA, 7.80% SFM Revenue Bonds (GNMA
Collateralized)/(Subject to AMT), 3/1/2030 AAA 355,418
------------------------------------------------------------
2,500,000 Ohio State Air Quality Development Authority, 5.95% PCR
Bonds (Ohio Edison Company), 5/15/2029 BBB - 2,148,875
------------------------------------------------------------
3,000,000 Ohio State Air Quality Development Authority, 6.375% Revenue
Bonds/(JMG Funding)/(AMBAC Insured) (Original Issue Yield:
6.493%)/(Subject to AMT), 1/1/2029 AAA 3,057,630
------------------------------------------------------------
1,250,000 Ohio State Air Quality Development Authority, 7.45% PCR
Bonds (Ohio Edison Company)/(FGIC Insured), 3/1/2016 Aaa 1,359,013
------------------------------------------------------------
1,000,000 Ohio State Higher Education Facilities Authority, 6.00%
Revenue Bonds (Case Western Reserve University)/(Original
Issue Yield: 6.222%), 10/1/2022 Aa 1,002,100
------------------------------------------------------------
1,700,000 Ohio State Water Development Authority, 5.95% PCR Bonds
(Ohio Edison Company), 5/15/2029 BBB - 1,455,472
------------------------------------------------------------
650,000 Ohio State Water Development Authority, 7.00% (Pure Water
Program) Revenue Bonds (Original Issue Yield: 7.650%),
12/1/2014 A 690,983
------------------------------------------------------------
350,000 Rocky River, OH, City School District, 6.90% Special Tax GO
Bonds (Original Issue Yield: 6.970%), 12/1/2011 Aa 371,270
------------------------------------------------------------
500,000 South Euclid, OH, 7.00% UT GO Bonds (Recreational Facilities
Improvement Series), 12/1/2011 A1 534,665
------------------------------------------------------------
500,000 Tiffin, OH, 7.10% LT GO Bonds (Sanitary Sewer System
Improvement Series), 12/1/2011 A 531,740
------------------------------------------------------------
</TABLE>
6
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------------ ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
OHIO--CONTINUED
------------------------------------------------------------
$ 3,500,000 Toledo-Lucas County, OH, 5.90% Port Authority Revenue
Refunding Bonds (Cargill Inc.)/(Original Issue Yield:
5.981%), 12/1/2015 Aa3 $ 3,281,040
------------------------------------------------------------
500,000 University of Cincinnati, OH, 6.50% General Receipts Bonds
(Series I2)/(Original Issue Yield: 6.613%), 6/1/2011 A1 519,660
------------------------------------------------------------
500,000 University of Cincinnati, OH, 7.00% General Receipts Bonds
(Original Issue Yield: 7.05%), 6/1/2011 A1 535,590
------------------------------------------------------------ -----------
Total 67,806,891
PUERTO RICO--3.4%
------------------------------------------------------------
2,400,000 Puerto Rico Electric Power Authority, 6.375% Revenue Bonds
(Series T)/(Original Issue Yield: 6.58%), 7/1/2024 A - 2,437,488
------------------------------------------------------------ -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED COST,
$68,565,696) 70,244,379
------------------------------------------------------------ -----------
SHORT-TERM MUNICIPAL SECURITIES--1.5%
- -------------------------------------------------------------------------
PUERTO RICO--1.5%
------------------------------------------------------------
1,100,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 1,100,000
------------------------------------------------------------ -----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED
COST, $1,100,000) 1,100,000
------------------------------------------------------------ -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST,
$69,665,696) (A) $71,344,379
------------------------------------------------------------ -----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $69,665,696. The
net unrealized depreciation on a federal tax basis amounts to $1,678,682,
which is comprised of $2,367,157 appreciation and $666,475 depreciation at
February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($72,709,556) at February 28, 1995.
</TABLE>
7
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
BIGI --Bond Investors Guaranty Inc.
FGIC --Financial Guaranty Insurance Co.
GNMA --Government National Mortgage Association
GO --General Obligation
HFA --Housing Finance Authoririty
IDA --Industrial Development Authority
LOCs --Letters of Credit
LT --Limited Tax
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
SFM --Single Family Mortgage
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
OHIO MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------
Investments in securities, at value (identified and tax
cost $69,665,696) $71,344,379
- -------------------------------------------------------------------
Cash 96,195
- -------------------------------------------------------------------
Interest receivable 1,337,343
- -------------------------------------------------------------------
Receivable for Fund Shares sold 189,734
- -------------------------------------------------------------------
Deferred expenses 3,040
- ------------------------------------------------------------------- -----------
Total assets 72,970,691
- -------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------
Income Distributions payable $206,648
- ---------------------------------------------------------
Payable for Fund Shares redeemed 40,931
- ---------------------------------------------------------
Accrued expenses 13,556
- --------------------------------------------------------- --------
Total liabilities 261,135
- ------------------------------------------------------------------- -----------
NET ASSETS for 6,632,666 shares of beneficial interest
outstanding $72,709,556
- ------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------
Paid-in-capital $72,184,328
- -------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,678,682
- -------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,222,206)
- -------------------------------------------------------------------
Undistributed net investment income 68,752
- ------------------------------------------------------------------- -----------
Total Net Assets $72,709,556
- ------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($72,709,556 DIVIDED BY 6,632,666 shares
of beneficial interest outstanding) $ 10.96
- ------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/99 of $10.96)* $ 11.07
- ------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99/100 of $ 10.96)** $ 10.85
- ------------------------------------------------------------------- -----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
<PAGE>
OHIO MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $ 2,420,627
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $146,236
- -----------------------------------------------------------------------
Administrative personnel and services fees 61,987
- -----------------------------------------------------------------------
Director's/Trustees' Fees 1,601
- -----------------------------------------------------------------------
Custodian fees 11,649
- -----------------------------------------------------------------------
Portfolio accounting fees 17,415
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 20,168
- -----------------------------------------------------------------------
Fund share registration costs 10,338
- -----------------------------------------------------------------------
Shareholder services fee 91,394
- -----------------------------------------------------------------------
Distribution services fee 146,231
- -----------------------------------------------------------------------
Printing and postage 13,853
- -----------------------------------------------------------------------
Legal fees 3,439
- -----------------------------------------------------------------------
Auditing fees 7,934
- -----------------------------------------------------------------------
Insurance premiums 3,049
- -----------------------------------------------------------------------
Miscellaneous 6,966
- ----------------------------------------------------------------------- --------
Total expenses 542,260
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $121,846
- ------------------------------------------------------------
Waiver of distribution services fee 91,394 213,240
- ------------------------------------------------------------ -------- --------
Net expenses 329,020
- ---------------------------------------------------------------------------------- -----------
Net investment income 2,091,607
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost
basis) (957,095)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 116,000
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain/(loss) on investments (841,095)
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 1,250,512
- ---------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
<PAGE>
OHIO MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 2,091,607 $ 4,196,252
- ---------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($957,095 net loss and
$595 net loss respectively, as computed for federal income tax purposes) (957,095) (255,186)
- ---------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 116,000 (4,648,123)
- --------------------------------------------------------------------------- ----------------- ----------------
Change in net assets resulting from operations 1,250,512 (707,057)
- --------------------------------------------------------------------------- ----------------- ----------------
Net equalization credits (debits) (24,255) (11,943)
- --------------------------------------------------------------------------- ----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------
Fortress Shares (2,029,585) (3,779,954)
- ---------------------------------------------------------------------------
Trust Shares -- (330,980)
- --------------------------------------------------------------------------- ----------------- ----------------
Change in net assets from distributions to shareholders (2,029,585) (4,110,934)
- --------------------------------------------------------------------------- ----------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 3,640,084 28,336,326
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 747,505 1,388,664
- ---------------------------------------------------------------------------
Cost of shares redeemed (12,440,664) (23,607,643)
- --------------------------------------------------------------------------- ----------------- ----------------
Change in net assets resulting from fund share transactions (8,053,075) 6,117,347
- --------------------------------------------------------------------------- ----------------- ----------------
Change in net assets (8,856,403) 1,287,413
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 81,565,959 80,278,546
- --------------------------------------------------------------------------- ----------------- ----------------
End of period $ 72,709,556 $ 81,565,959
- --------------------------------------------------------------------------- ----------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
11
<PAGE>
OHIO MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 -----------------------------------------
(UNAUDITED) 1994 1993 1992 1991(A)
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.01 $11.65 $10.89 $10.40 $10.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.30 0.56 0.57 0.61 0.57
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.06) (0.64) 0.77 0.49 0.41
- ------------------------------------------ -------- ------ ------ ------ ------
Total from investment operations 0.24 (0.08) 1.34 1.10 0.98
- ------------------------------------------ -------- ------ ------ ------ ------
LESS DISTRIBUTIONS
- --------------------------------------------------
Dividends to shareholders from net investment
income (0.29) (0.56) (0.57) (0.61) (0.57)
- --------------------------------------------------
Distributions in excess of net investment income (0.01)(b) (0.01)(b)
- ------------------------------------------ -------- ------ ------ ------ ------
Total distributions (0.29) (0.56) (0.58) (0.61) (0.58)
- ------------------------------------------ -------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.96 $11.01 $11.65 $10.89 $10.40
- ------------------------------------------ -------- ------ ------ ------ ------
TOTAL RETURN (C) 2.36% -0.72% 12.69% 10.91% 10.01%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.90%(d) 0.90% 0.87% 0.73% 0.28%(d)
- --------------------------------------------------
Net investment income 5.72%(d) 5.02% 5.13% 5.79% 6.35%(d)
- --------------------------------------------------
Expense waiver/reimbursement (e) 0.58%(d) 0.55% 0.83% 1.35% 1.65%(d)
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $72,710 $81,566 $73,973 $28,924 $19,840
- --------------------------------------------------
Portfolio turnover rate 26% 20% 0% 0% 11%
- --------------------------------------------------
<FN>
(a) Reflects operations for the period from October 12, 1990 (date of initial
public investment) to August 31, 1991.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
<PAGE>
OHIO MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. As of February 28, 1995, the Trust consisted of
ten, non-diversified portfolios. The financial statements included herein
present only those of Ohio Municipal Income Fund (the "Fund"). The financial
statements of the other portfolios 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. These
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 the
pricing service 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. Short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1994, the Fund, for
federal tax purposes, had a capital loss carryforward of $10,260, which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Fund of any liability for federal tax. Pursuant
to the Code, such capital loss carryforward will expire in 2000 ($9,665) and
2002 ($595). Additionally, net capital losses of $254,851 attributable to
security transactions incurred after October 31, 1993 are treated as arising
on September 1, 1994, the first day of the Fund's next taxable year.
13
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
D. EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from the sales and costs
of redemptions of capital stock 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. The Fund records
when-issued securities on the trade date and maintains security positions
such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
F. CONCENTRATION OF RISK--Since the Fund invests 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 tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at February 28,
1995, 41.2% 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 value of investments
insured by or supported (backed) by a letter of credit for any one
institution or agency does not exceed 19.2% of total investments.
G. 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 its shares, have been deferred and are
being amortized using the straight-line method not to exceed a period of
five years from the Fund's commencement date.
14
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
H. OTHER--Investment transactions are accounted for on the trade date.
(3) 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>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 1994
- ---------------------------------------- ------------------------ ------------------------
TRUST SHARES SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold -- -- 429,857 $ 4,955,407
- ----------------------------------------
Shares issued to shareholders in payment
of dividends declared -- -- 4,891 55,546
- ----------------------------------------
Shares redeemed -- -- (975,921) (10,906,082)
- ---------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Trust Share
transactions -- -- (541,173) $ (5,895,129)
- ---------------------------------------- ---------- ------------ ---------- ------------
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 1994
- ---------------------------------------- ------------------------ ------------------------
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 346,265 $ 3,640,084 2,071,672 $ 23,380,919
- ----------------------------------------
Shares issued to shareholders in payment
of dividends declared 71,079 747,505 117,979 1,333,119
- ----------------------------------------
Shares redeemed (1,194,961) (12,440,664) (1,127,610) (12,701,562)
- ---------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Fortress
Share transactions (777,617) $ (8,053,075) 1,062,041 $ 12,012,476
- ---------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Fund Share
transactions (777,617) $ (8,053,075) 520,868 $ 6,117,347
- ---------------------------------------- ---------- ------------ ---------- ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"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 may
voluntarily choose to waive a portion of its fee and reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee
15
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
is based on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under
the terms of the Plan, the Fund will compensate Federated Securities Corp.
("FSC"), the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Fortress
Shares. The Plan provides that the Fund may incur distribution expenses up
to .40 of 1% of the average daily net assets of the Fortress Shares,
annually, to compensate FSC. The distributor may voluntarily choose to waive
a portion of its fee. The distributor can modify or terminate this voluntary
waiver at any time at its sole discretion.
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of
average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
serves as transfer and dividend disbursing agent for the Fund. The fee is
based on the size, type and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($29,070) and start-up
administrative service expenses ($97,677) were initially borne by the
Adviser. The Fund has agreed to reimburse the Adviser at an annual rate of
.005 of 1% of average daily net assets and .01 of 1% of average daily net
assets for organizational and start-up administrative expenses,
respectively, until expenses initially borne by the Adviser are fully
reimbursed or the expiration of five years after October 10, 1990 (date the
Fund first became effective) whichever occurs earlier. For the six months
ended February 28, 1995, the Fund paid $1,882 and $3,765 respectively,
pursuant to this agreement.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995, the
Fund engaged in purchase and sale transactions with funds at current market
value pursuant to Rule 17a-7 under the Act amounting to $8,350,000 and
$7,250,000 respectively.
16
<PAGE>
OHIO MUNICIPAL INCOME FUND
- ---------------------------------------------------------
Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
six month period ended February 28, 1995, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C>
PURCHASES $19,015,858
- ---------------------------------------------------------------------- ----------
SALES $27,579,088
- ---------------------------------------------------------------------- ----------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley 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
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts J. Crilley Kelly
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
18
<PAGE>
- --------------------------------------------------------------------------------
OHIO
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
--------------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-------------------------------------------------------------------------
[RECYCLED LOGO]
RECYCLED
PAPER
625922307
2032305 (4/95)
---------------------------------------------------
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, 1995.
This report begins with a review of the economy and the municipal market.
Following the review, you'll find the Fund's Financial Statements which include
the Portfolio of Investments.
As always, the Fund seeks relief for you and other tax-sensitive Pennsylvania
residents, in the form of current income which is exempt from federal regular
income tax and Pennsylvania personal income tax.* The Fund pursues this income
by investing in a portfolio of investment-grade, long-term Pennsylvania
municipal securities. Shares of the Fund are also exempt from Pennsylvania
personal property tax, further increasing your tax benefit.
The Fund's net assets as of this report are $85.7 million, and the Fund's net
asset value (share price) stands at $10.95, up slightly from our last report.
Distributions paid to shareholders totaled $0.30 per share.
Although the increases in interest rates by the Federal Reserve Board (the
"Fed") made 1994 a difficult year for municipal funds, we are happy to note that
interest rates did decline in January and February of 1995. In addition, many
indicators point to a slow-down in the economy, and the Fed met recently and
decided against another rate hike. I believe that these are all very good signs
for municipal investors.
The Fund continues to provide an important opportunity for you 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.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1995
* INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
1
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The U.S. economy displayed considerable momentum over the six-month period ended
February 28, 1995. The Federal Reserve Board (the "Fed") continued to mount its
aggressive pre-emptive strike against inflation by raising the Federal Funds
rate to 6%, which is a considerable amount of tightening for the economy to
absorb. However, by the end of the six-month period from September 1994 to
February 1995, the U.S. economy was still showing significant signs of strength.
The nation's capacity utilization rose from 84.6% to 85.6% while unemployment
continued to move well into the full employment range, declining from 5.9% to
5.7%. Inflation stayed surprisingly benign during this period of continued
growth as the Producer Price Index* showed an increase of only 0.2% for the
entire month of February 1995. Also, the downturn in industrial commodity prices
should lead to a drop in prices at the crude materials stage of production.
Yield curves in both the municipal and Treasury bond markets continued to
flatten during the semi-annual period.
During the six-month period ending February 28, 1995, yields in the municipal
bond market, as measured by the Bond Buyer Revenue Index*, rose consistently to
a high of 7.37% on November 17, 1994. Municipal bond yields then began to
decline from their November high as a result of market supply and demand
technicals, the attractiveness of yields available in the market place, and the
continued hawkish stance of the Fed. The U.S. Treasury bond market also reached
its high for market yields in November. The long (30-year) Treasury bond reached
a high of 8.23% on November 7, 1994 and finished the six-month period at its low
of 7.5% on February 28, 1995.
From September 1, 1994 to February 28, 1995, net assets of the Fund declined
from $94.8 million to $85.7 million. The net asset value of the Fund was $10.94
on September 1, 1994 and ended the six-month period at $10.95 on February 28,
1995. On that date, the credit breakdown of the holdings of the Fund was: 24.5%
in "AAA" issues; 23.4% in "AA" issues; 21.0% in "A" issues; 26.6% in "BBB"
issues; 2.9% non-rated; 1.6% 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 obligations 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 and sewer issues;
single-family mortgage revenue issues; and state and local general obligation
issues. The average purchase yield for new investments by the Fund was 7.19%.
For the six-month period ended February 28, 1995, an investor in the Fund
experienced a total return of 3.01% based on net asset value, and (0.09%) based
on offering price.**
* THIS INDEX IS UNMANAGED.
** 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 THEN THEIR ORIGINAL COST.
2
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--98.3%
- --------------------------------------------------------------------
PENNSYLVANIA--94.7%
---------------------------------------------------------
$4,700,000 Allegheny County, PA, HDA, 6.00% Revenue Bonds (Series
1992)/(South Hills Health System)/(Original Issue Yield:
6.40%), 5/1/2020 A $ 4,360,942
---------------------------------------------------------
2,000,000 Allegheny County, PA, HDA, 7.00% Revenue Bonds (Series
1992)/(The Rehabilitation Institute of Pittsburgh),
6/1/2022 BBB 1,956,880
---------------------------------------------------------
1,600,000 Allegheny County, PA, HDA, 6.00% Refunding Revenue Bonds
(Series 1992)/(Presbyterian University Health Centre)/
(MBIA Insured)/(Original Issue Yield: 6.40%), 11/1/2023 Aaa 1,584,704
---------------------------------------------------------
2,300,000 Allegheny County, PA, HDA, 6.25% Refunding Revenue Bonds
(Series 1992)/(Presbyterian University Health Centre)/
(MBIA Insured)/(Original Issue Yield: 6.60%), 11/1/2023 Aaa 2,322,034
---------------------------------------------------------
2,525,000 Allegheny County, PA, HDA, 6.875% Revenue Bonds
(Children's Hospital of Pittsburgh)/(MBIA Insured)/
(Original Issue Yield: 7.06%), 7/1/2014 Aaa 2,632,615
---------------------------------------------------------
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 816,393
---------------------------------------------------------
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 529,695
---------------------------------------------------------
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 317,298
---------------------------------------------------------
750,000 Butler County, PA, Hospital Authority, 7.00% Revenue
Bonds (Series 1991A)/(North Hills Passavant
Hospital)/(CGIC Insured), 6/1/2022 AAA 794,677
---------------------------------------------------------
</TABLE>
3
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
---------------------------------------------------------
$1,000,000 Central Bucks School District, PA, 6.90% GO Bonds (Series
1991), 2/1/2008 A1 $ 1,055,970
---------------------------------------------------------
750,000 Derry Township School District, PA, 7.00% GO Bonds
(Series 1991), 9/15/2009 A1 764,213
---------------------------------------------------------
1,600,000 Dormont Borough, Allegheny County, PA, 7.00% GO Bonds
(Series 1995)/(Original Issue Yield: 7.125%), 3/1/2010 BBB 1,612,704
---------------------------------------------------------
1,000,000 Geisinger, PA, Health System, 7.625% Revenue Bonds
(Original Issue Yield: 7.695%), 7/1/2009 AA 1,119,850
---------------------------------------------------------
455,000 Hanover Area School District (Luzerne County), PA, 7.00%
GO Bonds (Series 1991)/(FGIC Insured), 6/1/2008 Aaa 482,841
---------------------------------------------------------
1,000,000 Lackawanna Trail School District (Wyoming and Lackawanna
Counties), PA, 6.90% GO Bonds (Series 1991)/(AMBAC
Insured), 3/15/2010 Aaa 1,060,290
---------------------------------------------------------
1,875,000 Lebanon County, PA, 6.00% Hospital Authority Revenue
Bonds (Good Samaritan Hospital)/(Original Issue Yield:
6.10%), 11/15/2018 BBB+ 1,651,463
---------------------------------------------------------
1,000,000 Lehigh County, PA, IDA, PCR, 6.40% Revenue Bonds
(Pennsylvania Power & Light Co.)/(MBIA Insured)/(Original
Issue Yield: 6.70%), 9/1/2029 AAA 1,015,450
---------------------------------------------------------
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 919,570
---------------------------------------------------------
2,500,000 Luzerne County, PA, IDA Exempt Facilities, 7.00%
Refunding Revenue Bonds (Series 1994)/(Pennsylvania Gas &
Water Co.)/ (AMBAC Insured)/(Subject to AMT), 12/1/2017 AAA 2,677,850
---------------------------------------------------------
4,000,000 Lycoming County, PA, 6.50% Lease Revenue Bonds (Series
B)/(Divine Providence Hospital)/
(Original Issue Yield: 6.70%), 7/1/2022 A- 3,837,040
---------------------------------------------------------
</TABLE>
4
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
---------------------------------------------------------
$4,000,000 Pennsylvania EDA, 7.60% Exempt Facilities Revenue Bonds
(Series 1995)/(MacMillan Bloedel Clarion L.P.)/(Original
Issue Yield: 7.65%)/(Subject to AMT), 12/1/2020 BBB- $ 4,192,760
---------------------------------------------------------
8,000,000 Pennsylvania EDA, 7.60% Wastewater Treatment Revenue
Bonds (Series 1994A)/(Sun Company)/(Original Issue Yield:
7.653%)/(Subject to AMT), 12/1/2024 BBB- 8,439,040
---------------------------------------------------------
4,000,000 Pennsylvania HEFA, 7.375% OID Revenue Bonds (Medical
College of Pennsylvania)/(Original Issue Yield: 7.45%),
3/1/2021 Baa1 4,013,080
---------------------------------------------------------
4,000,000 Pennsylvania HFA, 5.60% SFM Revenue Bonds (Series
1993-37B)/(Subject to AMT), 10/1/2025 AA 3,490,880
---------------------------------------------------------
500,000 Pennsylvania HFA, 6.15% SFM Revenue Bonds (Series 38),
10/1/2024 AA 479,890
---------------------------------------------------------
2,290,000 Pennsylvania HFA, 6.875% SFM Revenue Bonds (Series
1994-39B)/(Subject to AMT), 10/1/2024 AA 2,351,464
---------------------------------------------------------
750,000 Pennsylvania HFA, 6.90% SFM Revenue Bonds (Series 1991)/
(Subject to AMT), 4/1/2017 Aa 780,195
---------------------------------------------------------
1,000,000 Pennsylvania HFA, 7.00% SFM Revenue Bonds (Series
1992-B34)/(Subject to AMT), 4/1/2024 Aa 1,031,760
---------------------------------------------------------
4,540,000 Pennsylvania HFA, 7.65% SFM Revenue Bonds (Series 28)/
(Subject to AMT), 10/1/2023 Aa 4,835,781
---------------------------------------------------------
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 1,612,304
---------------------------------------------------------
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 1,055,090
---------------------------------------------------------
</TABLE>
5
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
---------------------------------------------------------
$2,500,000 Pennsylvania Intergovernmental Cooperation Authority,
6.75% Special Tax Revenue Bonds (City of Philadelphia
Funding Program)/(FGIC Insured)/(Original Issue Yield:
7.13%), 6/15/2021 AAA $ 2,644,150
---------------------------------------------------------
2,400,000 Philadelphia, PA, Hospital and Higher Education Facility
Authority, 5.50% Hospital Revenue Bonds (Children's
Hospital of Philadelphia)/(Original Issue Yield: 6.75%),
2/15/2022 AA 2,082,864
---------------------------------------------------------
600,000 Pittsburgh, PA, Water and Sewer Authority, 7.25%
Refunding Bonds (FGIC Insured)/(Original Issue Yield:
7.766%), 9/1/2014 Aaa 695,040
---------------------------------------------------------
220,000 Sayre, PA, Health Care Facilities Authority, 7.10%
Revenue Bonds (Guthrie Healthcare System)/(AMBAC
Insured), 3/1/2017 Aaa 235,255
---------------------------------------------------------
2,500,000 Scranton Lackawanna, PA, Health & Welfare Authority,
7.60% Revenue Bonds (Allied Services Rehab Hospital),
7/15/2020 NR 2,514,775
---------------------------------------------------------
5,500,000 Sewickley Valley, PA, Hospital Authority, 5.75% Hospital
Revenue Refunding Bonds (Series 1993A)/(Sewickley Valley
Hospital)/(Original Issue Yield: 5.875%), 10/15/2016 A 4,889,885
---------------------------------------------------------
1,000,000 Swarthmore Borough Authority, PA, 7.375% Revenue Bonds
(Swarthmore College), 9/15/2020 AA 1,117,780
---------------------------------------------------------
1,000,000 Warren County Hospital Authority, 7.00% Hospital Revenue
Bonds (Series 1994)/(Warren General Hospital)/(Original
Issue Yield: 7.10%), 4/1/2019 BBB+ 982,790
---------------------------------------------------------
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 1,240,475
---------------------------------------------------------
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 986,670
--------------------------------------------------------- -----------
Total 81,184,407
--------------------------------------------------------- -----------
</TABLE>
6
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- --------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------
PUERTO RICO--3.6%
---------------------------------------------------------
$3,000,000 Puerto Rico Electric Power Authority, 6.375% Revenue
Bonds (Series T)/(Original Issue Yield: 6.58%), 7/1/2024 A- $ 3,046,860
--------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST, $82,775,916) 84,231,267
--------------------------------------------------------- -----------
SHORT-TERM MUNICIPAL SECURITIES--1.9%
- --------------------------------------------------------------------
PUERTO RICO--1.9%
---------------------------------------------------------
1,600,000 Government Development Bank of Puerto Rico Weekly VRDNs
(Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 1,600,000
--------------------------------------------------------- -----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED
COST) 1,600,000
--------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST,
$84,375,916) (A) $85,831,267
--------------------------------------------------------- -----------
<FN>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $84,375,916.
The net unrealized appreciation on a federal tax basis amounts to
$1,455,351, which is comprised of $3,172,924 appreciation and $1,717,573
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($85,673,531) at February 28, 1995.
</TABLE>
7
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
CGIC --Capital Guaranty Insurance Corporation
EDA --Economic Development Authority
FGIC --Financial Guaranty Insurance Company
GNMA --Government National Mortgage Association
GO --General Obligation
HDA --Hospital Development Authority
HEFA --Health and Education Facilities Authority
HFA --Housing Finance Authority/Agency
IDA --Industrial Development Authority
LOCs --Letters of Credit
MBIA --Municipal Bond Investors Assurance
OID --Original Issue Discount
PCR --Pollution Control Revenue
SFH --Single Family Housing
SFM --Single Family Mortgage
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $84,375,916) $85,831,267
- ---------------------------------------------------------------------------------------------
Cash 11,248
- ---------------------------------------------------------------------------------------------
Interest receivable 1,659,166
- ---------------------------------------------------------------------------------------------
Receivable for Fund shares sold 106,567
- ---------------------------------------------------------------------------------------------
Deferred expenses 3,252
- --------------------------------------------------------------------------------------------- -----------
Total assets 87,611,500
- ---------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------
Payable for investments purchased $1,588,573
- --------------------------------------------------------------------------------
Income distribution payable 193,250
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed 98,445
- --------------------------------------------------------------------------------
Accrued expenses 57,701
- -------------------------------------------------------------------------------- ----------
Total liabilities 1,937,969
- --------------------------------------------------------------------------------------------- -----------
NET ASSETS for 7,822,369 shares of beneficial interest outstanding $85,673,531
- --------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------
Paid-in-capital $85,817,447
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,455,351
- ---------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,738,157)
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 138,890
- --------------------------------------------------------------------------------------------- -----------
Total Net Assets $85,673,531
- --------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE per Share ($85,673,531 DIVIDED BY 7,822,369 shares of
beneficial interest outstanding) $ 10.95
- --------------------------------------------------------------------------------------------- -----------
OFFERING PRICE per Share (100/97 of $10.95)* $ 11.29
- --------------------------------------------------------------------------------------------- -----------
REDEMPTION PROCEEDS per Share (99.5/100 of $ 10.95)** $ 10.90
- --------------------------------------------------------------------------------------------- -----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Class A Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $ 2,883,704
- ----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------
Investment advisory fee $170,069
- -----------------------------------------------------------------------
Administrative personnel and services fees 71,028
- -----------------------------------------------------------------------
Custodian fees 28,584
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 27,120
- -----------------------------------------------------------------------
Directors'/Trustees' fees 1,323
- -----------------------------------------------------------------------
Auditing fees 8,059
- -----------------------------------------------------------------------
Fund share registration costs 13,868
- -----------------------------------------------------------------------
Portfolio accounting fees 21,096
- -----------------------------------------------------------------------
Legal fees 6,813
- -----------------------------------------------------------------------
Printing and postage 19,900
- -----------------------------------------------------------------------
Shareholder services fee-Class A Shares 98,659
- -----------------------------------------------------------------------
Shareholder services fee-Income Shares 4,910
- -----------------------------------------------------------------------
Distribution services fee-Income Shares 8,482
- -----------------------------------------------------------------------
Insurance premiums 3,564
- -----------------------------------------------------------------------
Miscellaneous 4,742
- ----------------------------------------------------------------------- --------
Total expenses 488,217
- -----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 160,739
- ----------------------------------------------------------------------- --------
Net expenses 327,478
- ---------------------------------------------------------------------------------- -----------
Net investment income 2,556,226
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost
basis) (1,208,780)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 677,569
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (531,211)
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 2,025,015
- ---------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 2,556,226 $ 5,202,577
- ----------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($1,208,780 net
loss and $4,200 net gain, respectively, as computed for federal income
tax purposes) (1,208,780) (512,278)
- ----------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments 677,569 (6,424,038)
- ---------------------------------------------------------------------- ---------------- ---------------
Change in net assets resulting from operations 2,025,015 (1,733,739)
- ---------------------------------------------------------------------- ---------------- ---------------
NET EQUALIZATION CREDITS (DEBITS)-- 11,149 (3,542)
- ---------------------------------------------------------------------- ---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------
Class A Shares (2,358,843) (3,799,070)
- ----------------------------------------------------------------------
Trust Shares -- (1,017,184)
- ----------------------------------------------------------------------
Income Shares (83,724) (322,340)
- ----------------------------------------------------------------------
Distributions in excess of net investment income:
- ----------------------------------------------------------------------
Class A Shares -- --
- ----------------------------------------------------------------------
Trust Shares -- --
- ----------------------------------------------------------------------
Income Shares -- (33,585)
- ---------------------------------------------------------------------- ---------------- ---------------
Change in net assets resulting from distributions to shareholders (2,442,567) (5,172,179)
- ---------------------------------------------------------------------- ---------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS
(EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME)--
- ----------------------------------------------------------------------
Proceeds from sale of shares 15,904,368 45,919,717
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 1,301,686 2,723,609
- ----------------------------------------------------------------------
Cost of shares redeemed (25,967,670) (34,783,265)
- ---------------------------------------------------------------------- ---------------- ---------------
Change in net assets resulting from Fund share transactions (8,761,616) 13,860,061
- ---------------------------------------------------------------------- ---------------- ---------------
Change in net assets (9,168,019) 6,950,601
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 94,841,550 87,890,949
- ---------------------------------------------------------------------- ---------------- ---------------
End of period (including undistributed net investment income of
$138,890 and $14,084, respectively) $ 85,673,531 $ 94,841,550
- ---------------------------------------------------------------------- ---------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
11
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 -----------------------------------------
(UNAUDITED) 1994 1993 1992 1991(A)
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.94 $11.68 $10.93 $10.44 $10.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.32 0.60 0.60 0.627 0.588
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.01) (0.75) 0.75 0.493 0.456
- ------------------------------ ---------- ------ ------ ------ ------
Total from investment operations 0.31 (0.15) 1.35 1.120 1.044
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.30) (0.59) (0.60) (0.627) (0.588)
- ------------------------------------------------------------
Distributions in excess of net investment income -- -- -- (0.003)(c) (0.016)(c)
- ------------------------------ ---------- ------ ------ ------ ------
Total distributions (0.30) (0.59) (0.60) (0.630) (0.604)
- ------------------------------ ---------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.95 $10.94 $11.68 $10.93 $10.44
- ------------------------------ ---------- ------ ------ ------ ------
TOTAL RETURN (B) 3.01% (1.34%) 12.71% 11.06% 10.60%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.75%(e) 0.75% 0.83% 0.73% 0.26%(e)
- ------------------------------------------------------------
Net investment income 6.04%(e) 5.27% 5.33% 5.88% 6.45%(e)
- ------------------------------------------------------------
Expense waiver/ reimbursement (d) 0.38%(e) 0.45% 0.70% 0.97% 1.24%(e)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $85,674 $85,860 $69,947 $48,261 $31,067
- ------------------------------------------------------------
Portfolio turnover rate 40% 17% 0% 0% 10%
- ------------------------------------------------------------
<FN>
(a) Reflects operations for the period from October 11, 1990 (date of initial
public investment) to August 31, 1991.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above
(e) Computed on an annualized basis.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. As of February 28, 1995, the Trust consisted of
ten, non-diversified portfolios. The financial statements included herein
present only those of Pennsylvania Municipal Income Fund (the "Fund"). The
financial statements of the other portfolios 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 October 17, 1994, the Fund provides one class of shares "Class A
Shares." During the fiscal year ended August 31, 1994, the Fund provided three
classes of shares ("Investment Shares", "Income Shares", and "Trust Shares").
Effective May 31, 1994, the "Investment Shares" class of shares changed its name
to "Class A Shares". As of August 26, 1994, the "Trust Shares" class of shares
were no longer offered. As of October 17, 1994, the "Income Shares" class of
shares were no longer offered.
(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. These
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 the
pricing service 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. Short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1994, the Fund, for
federal tax purposes, had a capital loss carryforward of $12,900, which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders
13
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire in 2000 ($12,837) and 2001 ($63). Additionally, net capital losses of
$516,479 attributable to security transactions incurred after October 31,
1993 are treated as arising on September 1, 1994, the first day of the
Fund's next taxable year.
D. EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from the 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. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. CONCENTRATION OF RISK--Since the Fund invests 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
tax-exempt mutual fund that invests nationally. In order to reduce the
credit risk associated with such factors, at February 28, 1995, 26.3% 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 value of investments insured by or supported
(backed) by a letter of credit for any one institution or agency does not
exceed 9.9% of total investments.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
14
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
(3) 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>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 1994
--------------------- ----------------------
TRUST SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 967,106 $11,190,303
- ---------------------------------------------
Shares issued to shareholders in payment of
dividends declared -- -- 18,160 205,161
- ---------------------------------------------
Shares redeemed -- -- (2,314,190) (25,466,927)
- --------------------------------------------- --------- ---------- --------- -----------
Net change resulting from Trust Shares
transactions -- $ -- (1,328,924) $(14,071,463)
- --------------------------------------------- --------- ---------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 1994
--------------------- ---------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Shares sold 1,520,122 $15,485,609 2,480,778 $27,675,360
- ----------------------------------------------
Shares issued to shareholders in payment of
dividends declared 118,126 1,235,832 211,676 2,388,967
- ----------------------------------------------
Shares redeemed (1,665,849) (17,340,713) (829,711) (9,244,692)
- ---------------------------------------------- --------- ---------- --------- ----------
Net change resulting from Class A Shares
transactions (27,601) $ (619,272) 1,862,743 $20,819,635
- ---------------------------------------------- --------- ---------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 1994
--------------------- ---------------------
INCOME SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Shares sold 39,353 $ 418,759 615,174 $7,054,054
- ------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 6,434 65,854 11,755 129,481
- ------------------------------------------------
Shares redeemed (873,482) (8,626,957) (6,383) (71,646)
- ------------------------------------------------ --------- ---------- --------- ----------
Net change resulting from Income Shares
transactions (827,695) $(8,142,344) 620,546 $7,111,889
- ------------------------------------------------ --------- ---------- --------- ----------
Net change resulting from Fund Share
transactions (855,296) $(8,761,616) 1,154,365 $13,860,061
- ------------------------------------------------ --------- ---------- --------- ----------
</TABLE>
15
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the "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 may voluntarily choose to
waive a portion of its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. The Fund compensated
Federated Securities Corp. ("FSC"), the principal distributor, up to .75 of 1%
of the average daily net assets of the Income Shares for the period ended
October 17, 1994.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of the Class A Shares of the Fund for the period. The Fund also paid FSS
up to .25 of 1% of average daily net assets of the Income Shares of the Fund for
the period ended October 17, 1994. These fees are to obtain certain services for
shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company serves as transfer and dividend disbursing agent for the Fund. The fee
is based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($28,449) and start-up
administrative services expenses ($100,330) were initially borne by the Adviser.
The Fund has agreed to reimburse the Adviser at an annual rate of .005 of 1% of
average daily net assets and .01 of 1% of average daily net assets for the
organizational and start-up administrative expenses, respectively, until
expenses initially borne by Adviser are fully reimbursed or the expiration of
five years after October 1, 1990 (date the Fund first became effective),
whichever occurs earlier. For the six months ended February 28, 1995, the Fund
paid $2,188 and $4,373, respectively, pursuant to this agreement.
INTERFUND TRANSACTIONS--During the six months ended February 28, 1995, the Fund
engaged in purchase and sale transactions with funds at current market value
pursuant to Rule 17a-7 under the Act amounting to $8,900,000 and $7,300,000,
respectively.
16
<PAGE>
PENNSYLVANIA MUNICIPAL INCOME FUND
- ---------------------------------------------------------
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees
of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $33,744,238
- ---------------------------------------------------------------------- ----------
SALES $44,195,704
- ---------------------------------------------------------------------- ----------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley 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
Edward L. Flaherty, Jr. VICE PRESIDENT AND TREASURER
Peter E. Madden John W. McGonigle
Gregor F. Meyer VICE PRESIDENT AND SECRETARY
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar ASSISTANT TREASURER
Marjorie P. Smuts J. Crilley Kelly
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including 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.
18
<PAGE>
- --------------------------------------------------------------------------------
PENNSYLVANIA
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
--------------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-------------------------------------------------------------------------
[RECYCLED LOGO]
RECYCLED
PAPER
625922505
2032304 (4/95)
---------------------------------------------------
Texas Municipal Income Fund
Portfolio of Investments
February 28, 1995 (unaudited)
Credit
Rating:
Principal Moody's,
Amount or S&P* Value
Short-Term Municipal Securities - 95.0%
Alabama - 7.3%
$700,000Birmingham, AL, Medical Clinic Board, Daily VRDNs
(University of Alabama Health System)(Morgan
Guaranty Trust Co., LOC) AAA $100,000
Texas - 65.8%
600,000 Harris County, TX HFDC Daily VRDNs (Series 1994)/
(Methodist Hospital) A-1+ 600,000
300,000 Lubbock, TX IDC Daily VRDNs (MCLane Co., Inc.)/
(Nationsbank of North Carolina, LOC) NR
300,000
Total 900,000
Puerto Rico - 21.9%
300,000 Government Development Bank of Puerto Rico
Weekly VRDNs (Credit Suisse and Sumitomo Bank
Ltd. LOCs A-1 300,000
Total Short-Term Municipal Securities
(at amortized cost)(a)
$1,300,000
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings.
(a) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($1,368,051) at February 28, 1995.
The following abbreviations are used in this portfolio:
HFDC - Health Facility Development Corporation
IDC - Industrial Development Corporation
LOC - Letter of Credit
LOC(s) - Letters of Credit
VRDNs - Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Statement of Assets and Liabilities
February 28, 1995 (unaudited)
Assets:
Investments in securities, at amortized cost and value
$1,300,000
Cash 52,133
Interest receivable 3,800
Deferred expenses 21,429
Total assets
1,377,362
Liabilities:
Dividends payable $ 2,430
Accrued expenses 6,881
Total liabilities 9,311
Net Assets for 163,898 shares of beneficial interest
outstanding
$1,368,051
Net Assets Consists of:
Paid in capital
$3,411,832
Accumulated net realized gain (loss) on investments
(2,043,781)
Total Net Assets
$1,368,051
Net Asset Value per Share ($1,368,051/163,898 shares of
beneficial interest outstanding) $ 8.35
Redemption Proceeds per Share (97/100 of 8.35)* $ 8.10
* 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, 1995 (unaudited)
Investment Income:
Interest $ 166,525
Expenses:
Investment advisory fee $ 11,021
Administrative personnel and services fees 53,083
Custodian and portfolio accounting fees 29,772
Transfer and dividend disbursing agent fees
and expenses 7,927
Directors'/Trustees' fees 568
Auditing fees 6,890
Fund share registration costs 10,491
Legal fees 1,636
Printing and postage 2,386
Shareholder services fee 6,645
Distribution services fee 19,611
Insurance premiums 2,004
Taxes 17
Miscellaneous 2,407
Total expenses 154,458
Deduct-
Waiver of investment advisory
fee $ 11,021
Reimbursement of other operating
expenses by Adviser 123,508 134,529
Net
expenses 19,929
Net
investment income 146,596
Realized and Unrealized Gain(Loss) on Investments:
Net realized gain (loss) on investment transactions
(identified cost basis)
(1,586,805)
Net change in unrealized appreciation (depreciation) of
investments 448,077
Net
realized and unrealized gain (loss) on investments
(1,138,728)
Change
in net assets resulting from operations $
(992,132)
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Statement of Changes in Net Assets
Six Months Ended Year Ended
February 28, 1995 August 31,
(unaudited) 1994
Increase (Decrease) in Net Assets:
Operations-
Net investment income $ 146,596 $ 478,392
Net realized gain (loss) on investment
transactions ($1,586,805, net loss, and
$0, respectively, as computed for federal
income tax purposes) (1,586,805) (456,976)
Change in unrealized appreciation
(depreciation) of investments 448,077 (538,720)
Change in net assets resulting from
operations (992,132) (517,304)
Distributions to Shareholders-
Dividends to shareholders from net
investment income (146,596) (478,392)
Distributions in excess of net
investment income (19,611) (69,852)
Change in net assets resulting
from distribution
to shareholders (166,207) (548,244)
Fund Share (Principal) Transactions-
Proceeds from sale of shares 286,169 8,012,133
Net asset value of shares issued to
shareholders in payment
of dividends declared 65,079 134,498
Cost of shares redeemed (8,955,329) (973,492)
Change in net assets resulting from
Fund share transactions (8,604,081) 7,173,139
Change in net assets (9,762,420) 6,107,591
Net Assets:
Beginning of period 11,130,471 5,022,880
End of period $ 1,368,051 $ 11,130,471
(See Notes which are an integral part of the Financial Statements)
Texas Municipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
Six Months Ended
February 28, 1995 Year Ended
August 31,
(unaudited) 1994
1993(a)
Net asset value, beginning of period $9.45 $10.43 $10.00
Income from investment operations
Net investment income 0.15 0.52
0.12
Net realized and unrealized gain
(loss) on investments (1.04) (0.92)
0.44
Total from investment operations (0.89) (0.40)
0.56
Less distributions
Dividends to shareholders from
net investment income (0.15) (0.52)
(0.12)
Distributions in excess of net
investment income(b) (0.06) (0.06)
(0.01)
Total Distributions (0.21) (0.58)
(0.13)
Net asset value, end of period $8.35 $9.45
$10.43
Total Return (c) (9.48%) (3.97%)
5.67%
Ratios to average net assets
Expenses 0.73%(e) 0.75%
0.75%(e)
Net investment income 5.34%(e) 5.14%
5.10%(e)
Expense waiver/reimbursement (d) 4.89%(e) 2.98%
3.70%(e)
Supplemental Data
Net assets, end of period (000 omitted) $1,368 $11,130 $5,023
Portfolio turnover rate 19% 60%
0%
(a) Reflects operations for the period from June 1, 1993 (date of
initial public investment) to August 31, 1993.
(b) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital
for federal income purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(e) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements
Texas Municipal Income Fund
Notes to Financial Statements
February 28, 1995 (unaudited)
(1) Organization
Municipal Securities Income Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. As of February 28,
1995, the Trust consisted of ten, non-diversified portfolios. The
financial statements included herein present only those of Texas
Municipal Income Fund (the "Fund"). The financial statements of
the other portfolios 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. These 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. Short-
term securities with remaining maturities of sixty days or
less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
B. Investment Income, Expenses, and Distributions--Interest
income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend
date. Distributions are determined in accordance with income
tax regulations which may differ from generally accepted
accouting principles. These distributions do not represent a
return of capital for federal income tax purposes.
C. Federal Taxes--It is the Fund's policy to comply with the
provisions of the Code applicable to regulated investment
companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions
for federal tax are necessary. Additionally, net capital
losses of $456,976 attributable to security transactions,
incurred after October 31, 1993, are treated as arising on
September 1, 1994, the first day 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. The
Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid
assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning
interest on the settlement date.
E. Concentration of Credit Risk--Since the Fund invests 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 that invests nationally. In
order to reduce the credit risk associated with such factors,
at February 28, 1995. 53.8% 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 value of
investments insured by or supported (backed) by a letter of
credit for any one institution or agency do not exceed 23.1%
of total investments.
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 its
shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years
from the Fund's commencement date.
G. Other--Investment transactions are accounted for on the trade
date.
(3) 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:
Six Months Year
Ended Ended
February 28, August 31,
1995 1994
Shares sold 31,705 779,446
Shares issued to shareholders in
payment of dividends
declared 7,433 13,834
Shares redeemed (1,053,220) (97,053)
Net change resulting from Fund
share transactions (1,014,082) 696,227
(4) Investment Advisory Fee and Other Transactions With Affiliates
Advisory Fee--Federated Advisers, the Fund's investment adviser
(the "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 may voluntarily choose to waive a portion of
its fee and reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
Administrative Fee--Federated Administrative Services ("FAS"),
under the Administrative Services Agreement, provides the Fund
administrative personnel and services. The FAS fee is based on
the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period.
The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
Distribution and Shareholder Services Fee--The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Act. Under the terms of the Plan, the Fund will compensate
Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that
the Fund may incur distribution expenses up to .75 of 1% of the
average daily net assets of the Fund annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This
fee is to obtain certain services for shareholders and to maintain
shareholder accounts.
Transfer and Dividend Disbursing Agent Fees--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. The FServ fee is based on the size, type, and
number of accounts and transactions made by shareholders.
Organizational Expenses--Organizational expenses of $16,702 and
start-up administrative services expenses of $57,355 were borne
initially by the Adviser. The Fund has agreed to reimburse the
Adviser for the organizational expenses and start-up
administrative expenses during the five year period following May
23, 1993 (date the Fund first became effective). For the six
months ended February 28, 1995, the Fund paid $1,113 and $3,824,
respectively, pursuant to this agreement.
Interfund Transactions--During the six months ended February 28,
1995, the Fund engaged in purchase and sale transactions with
other affiliated funds pursuant to Rule 17a-7 under the Act
amounting to $10,750,000 and $9,550,000 respectively.
Certain Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term
securities, for the six months ended February 28, 1995, were as
follows:
Purchases $1,981,395
Sales $11,685,108
