PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated California
Municipal Income Fund covering the six-month period from September 1, 1995,
through February 29, 1996. The fund's name now begins with "Federated" to
make it easy for investors to locate all Federated funds in newspapers and
other publications. In addition, Fortress Shares of the fund are now known as
Class F Shares.
This report begins with a review of the economy and the municipal market.
Following the review are the fund's portfolio holdings and financial
statements.
Federated California Municipal Income Fund continues to deliver a high level
of tax relief in the form of monthly income that is exempt from federal
regular income tax and California personal income tax.*
During the six-month period, the fund's quality portfolio of investment-
grade, long-term California municipal securities achieved a total return of
5.68% based on net asset value.** This return was the result of dividends
totaling $0.29 per share and an increase in share price from $10.13 to
$10.41. On
February 29, 1996, the fund's total net assets stood at $15.5 million.
Your investment in this fund is a wise way to pursue tax-free earnings. We
encourage you to increase your holdings to take advantage of this
opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance. Investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total return
for the six-month period based on offering price was 3.64%.
INVESTMENT REVIEW
The domestic fixed income markets have experienced an interval of increased
uncertainty and volatility over the six-month period ended February 29, 1996.
The cyclical direction of the U.S. economy has been difficult to determine
while technical factors, such as treasury auctions and the Yen carry trade,
have had clear directional impacts on interest rates. During the late summer
and fall of 1995, several economic statistics began to indicate that the
economy was slowing to a greater extent than was acceptable. As a result, the
Federal Reserve Board (the "Fed") felt it was necessary to cut the Federal
Funds rate to provide the economy with enough stimulus to avoid slipping into
recession. The Fed cut the Federal Funds rate to 5.75% in July of 1995 and by
another 25 basis points in both December of 1995 and January of 1996 to its
current level of 5.25%. The market's perception of slower real growth,
constrained government spending and a benign inflationary environment
resulted in the treasury yield curve steepening as interest rates fell
through the middle of February 1996.
The condition of declining interest rates changed abruptly near the end of
February 1996 as certain key economic reports gave indications that the
economy was perhaps not as weak as anticipated and that the Fed would not
find it necessary to further reduce interest rates. Economic activity may
also have been briefly impacted by the severe winter weather, two federal
government shutdowns and a strike against Boeing Corporation. As a result,
interest rates rose significantly (44 basis points) in the second half of
February 1996. Inflation stayed reasonably benign during this period as the
core Producer Price Index showed an increase of only 0.4% for the entire
month of January 1996. There was considerable economic evidence to suggest
that inflation may have been near its cyclical trough. However, conflicting
economic signals continued as consumer confidence, with a reading of 87 in
January 1996, and jobless claims at 359,000 as of February 24, 1996, were
both stronger than consensus estimates. The Purchasing Manager's Index,* with
a reading of 50.9 for January 1996, was also better than market analysts had
expected.
The municipal yield curve flattened during the six-month period ended
February 29, 1996. The basis point spread between the two year and twenty-
five year maturities narrowed by 31 basis points. By way of contrast, the
treasury yield curve became steeper as the spread widened by 24 basis points
between the two year and twenty-five year maturities. The municipal yield
curve has remained steeper than the treasury yield curve due to the
segmentation of demand along the curve. The bulk of new municipal bond
issuance in the market is concentrated in the long end of the curve (20 years
and longer) while demand has been concentrated on the shorter end of the
municipal yield curve (ten years and under). The municipal markets technical
factors, the supply of and demand for municipal bonds, were mixed over the
six-month period ended February 29, 1996. The new supply of municipal debt
continued to be constrained which, combined with heavy redemptions, resulted
in a net overall decline in the amount of municipal debt outstanding. This
situation by itself would have been positive for municipal bond prices.
However, the demand for municipal debt was impacted by the generally low
level of interest rates and the threat of tax reform impact on interest
exemption for municipal bonds. The municipal bond market was able to
outperform the treasury bond market in the first two months of 1996 with the
assistance of higher yields available to investors and the loss of tax reform
momentum.
* The National Association of Purchasing Manager's Index is a
diffusion index that measures the economic activity of the largest
manufacturers in the United States.
During the six-month period ended February 29, 1996, yields in the municipal
bond market, as measured by the Bond Buyer Municipal Index,* fell
consistently to a low of 5.47 on February 13, 1996. The yield on the index
then rose abruptly through the end of February 1996 to finish the six-month
period at 5.71%. The U.S. Treasury bond market reached its low for market
yields on December 29, 1995, at a yield of 5.95%. The long (30 year) treasury
finished the twelve-month period at 6.47% on February 29, 1996.
The fund's management is maintaining a neutral average maturity target as a
result of our outlook on interest rates and the economy. We believe that the
best strategy at this point is to maintain a market neutral duration until
the economy provides a clear signal as to its direction. Economic indicators
have not yet allowed the market to determine, with any conviction, whether
the economy is moving in the direction of a hard landing (recession), re-
acceleration, and a continuation of the bear market or a growth slow down.
The portfolio's income objective involved booking attractive income streams
for distribution to shareholders. Management continues to focus on "essential
service" revenue bonds of stable established projects which can generate
strong cash flow. Examples of such projects would include electric power
authorities and water and sewer utilities. Management has avoided debt backed
by municipal leases such as certificates of participation. These debt
instruments are subject to annual appropriation and present risks which are
not present in bonds backed by a general obligation, full faith and credit
pledge. Insured municipal bonds have also been purchased in the fund.
However, the use of bond insurance is limited to monoline bond insurers who
indemnify municipal obligations only. Management continues to avoid market
discount securities, priced beyond the de minimus rule, so as to avoid
distributing ordinary income to shareholders.
Management continues to favor high-quality securities due to the narrow
credit spreads available in the market place. The basis point spread between
an "AAA" rated general obligation bond and a single "A" rated general
obligation bond is currently 29 basis points. Credit spreads in the municipal
market have not widened to the extent they historically have at this stage of
the business cycle. The narrow credit spreads are a result of the limited
amount of new municipal bond issuance relative to prior years, the low level
of absolute yields available which encourages investors to reach for yield
and the penetration of municipal bond insurers (approximately 40% of the new
issue market). Sectors of the municipal market which management anticipates
will outperform the general market over the next twelve months include water
and sewer utilities, single family housing programs, and transportation and
infrastructure projects. Sectors which are expected to underperform the
market include multifamily housing, resource recovery, and state and local
general obligations. The healthcare and electric revenue sectors are facing
considerable regulatory and legislative changes which may present significant
opportunities to investors who are able to find individual credits that will
perform well in a more competitive operating environment.
Management is not currently allowing the tax reform debate to effect
investment decisions. We believe that it is much too early in the
presidential cycle and political process to consider the talk of major tax
reform as anything more than speculation. Any chance of significant tax
reform occurring before the presidential election is small and would most
likely not occur until after 1997. Municipal bond investors
* The Bond Buyer's Index is a standard against which municipal bonds
are measured.
should keep themselves focused on relevant investment considerations such as
the business cycle, inflation, and municipal market technicals (supply and
demand). Any overreaction by the market at this point should be considered a
buying opportunity since the probabilities that can be associated with major
tax reform (flat tax or consumption tax) are quite low.
The proposals currently on the table are differing forms of a consumption
tax. These taxing schemes would essentially tax the difference between income
and savings, which of course is consumption. Instead of changing the tax
status of municipal bonds it would alter the taxability of alternative
investment vehicles, which to date, are not federally exempt. This change in
the tax status of traditionally taxable investments would eliminate the
special status of municipal bonds and force them to compete with alternative
investments. Grandfathering would then of course not be an issue for
municipal bonds. We believe that this would be the most significant change in
the tax code possible and has the least chance of eventually becoming the law
of the land. Some form of rate reduction has the most likely chance of
occurring and is probably the most benign of any of the potential tax reform
outcomes. However, a reduction in unearned income tax rates would effect
municipal bonds by reducing the value of the tax exemption. Of course, tax
reform at the federal level would not effect state and local tax rates. Also,
several of the tax reform proposals would not effect the federal
deductibility of state and local taxes on a taxpayer's federal return. In
fact, we would even expect state and local income tax rates to increase to
compensate for the loss of federal dollars. Under these conditions, state and
local tax rates would drive the municipal market, and municipal bonds
originated in specialty states (high tax states) would still derive
considerable value from their tax-exempt status.
From September 1, 1995, to February 29, 1996, net assets of the fund
increased from $14.4 million to $15.5 million. Reflecting market activity,
the net asset value of the fund increased from $10.13 on September 1, 1995,
to $10.41 on February 29, 1996. On that date, the credit breakdown of the
holdings of the fund was: 18.1% in "AAA" issues; 36.3% in "AA" issues; 23.0%
in "A" issues; 19.4% in "BBB" issues; 0% in non-rated issues; and 3.2% in
municipal cash equivalents within the highest rating category.
Municipal securities subject to the federal Alternative Minimum Tax ("AMT")
have been included in the portfolio due to the favorable yield spreads
available from AMT issues. An additional 15 to 25 basis points can be gained
currently as a result of increased issuance of AMT securities in the
municipal market place. The latest Internal Revenue Service figures for 1993
report only 0.28% of the total returns filed being subject to the AMT.
The average purchase yield for new investments by the fund was 5.64%. For the
six-month period ended February 29, 1996, an investor in the fund experienced
a total return of 5.68% based on net asset value, and 3.64% based on offering
price.*
* Performance quoted represents past performance. Investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES
CALIFORNIA-95.2%
$ 700,000 ABAG Finance Authority for Non-Profit Corporations,
(Series 1995A1) Local Agency Revenue Bonds, 5.50%
(CGIC INS)/(Original Issue Yield: 6.10%), 9/3/2012 Aaa $ 700,588
625,000 California Educational Facilities Authority, Revenue
Bonds (Series B), 6.60% (Loyola Marymount University),
10/1/2022 A1 673,256
600,000 California Educational Facilities Authority, Revenue
Bonds, 6.70% (Southwestern University)/(Original
Issue Yield: 6.838%), 11/1/2024 A 638,772
2,000,000 California HFA, SFM Revenue Bonds (Series C), 6.75%,
2/1/2025 AA- 2,067,880
1,300,000 California HFA, SFM Revenue Bonds (Series F-l), 7.00%,
8/1/2026 AA- 1,369,940
400,000 California Health Facilities Financing Authority,
Revenue Bonds (Series A), 6.50% (Kaiser Permanente
Medical Care Program)/(Original Issue Yield: 7.097%),
12/1/2020 AA 429,728
750,000 California PCFA, PCR Revenue Bonds (Series B), 6.35%
(Pacific Gas & Electric Co.)/(Original Issue Yield:
6.449%), 6/1/2009 A 794,018
500,000 California PCFA, PCR Revenue Bonds (Series B), 6.40%
(Southern California Edison Co.)/(Original Issue Yield:
6.55%), 12/1/2024 Aa3 527,510
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
CALIFORNIA-CONTINUED
$ 600,000 California Statewide Communities Development
Authority, Revenue Certificates of Participation, 6.50%
(Good Samaritan Health System)/(CAPMAC INS)/
(Original Issue Yield: 6.53%), 5/1/2024 Aaa $ 690,936
600,000 California Statewide Communities Development
Authority, Revenue Certificates of Participation, 6.625%
(St. Joseph Health System Group, CA)/(Original Issue
Yield: 6.674%), 7/1/2021 AA 657,954
500,000 Chula Vista, CA IDA, Revenue Bonds (Series A), 6.40%
(San Diego Gas & Electric)/(Original Issue Yield:
6.473%), 12/1/2027 Aa3 519,790
1,500,000 Eden Township, CA Hospital District, Hospital Revenue
Bonds, 7.40% (Original Issue Yield: 7.483%), 11/1/2019 BBB- 1,520,850
1,400,000 Foothill/Eastern Transportation Corridor Agency, CA,
(Series 1995A) Senior Lien Toll Road Revenue Bonds,
6.50% (Original Issue Yield: 6.78%), 1/1/2032 BBB- 1,428,770
600,000 Los Angeles, CA Community Redevelopment Agency,
Housing Revenue Refunding Bonds (Series A), 6.55%
(AMBAC INS), 1/1/2027 Aaa 631,704
700,000 Los Angeles, CA Regional Airport Improvement Corp.,
LA International Airport Lease Revenue Bonds, 6.50%
(Laxfuel)/(FSA INS)/(Original Issue Yield: 6.90%),
1/1/2032 Aaa 737,520
675,000 Santa Cruz, CA Sewer System, Secondary Wastewater
Treatment Revenue Bonds (Series C), 6.25%, 11/1/2023 A 675,020
700,000 University of California, Research Facilities Revenue
Bonds (1995 Series B), 6.55%, 9/1/2024 A- 718,662
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST, $14,045,661) $14,782,898
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-3.2%
PUERTO RICO-3.2%
$ 500,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ $ 500,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST $500,000) 500,000
TOTAL INVESTMENTS (IDENTIFIED COST $14,545,661)(A) $15,282,898
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$14,545,661. The net unrealized appreciation of investments on a federal
tax basis amounts to $737,237 which is comprised of $737,237 appreciation
and $0 depreciation at February 29, 1996.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
ratings are unaudited.
Note: The categories of investments are shown as a percentage of net
assets ($15,530,900) at February 29, 1996.
The following acronym(s) are used throughout this portfolio:
<TABLE>
<S> <S>
AMBAC - American Municipal Bond Assurance Corporation
CAPMAC - Capital Municipal Assurance Corporation
CGIC - Capital Guaranty Insurance Corporation
FSA - Financial Security Assurance
HFA - Housing Finance Authority
IDA - Industrial Development Authority
INS - Insured
LOC - Letter of Credit
PCFA - Pollution Control Finance Authority
PCR - Pollution Control Revenue
SFM - Single Family Mortgage
VRDNs - Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $14,545,661) $ 15,282,898
Cash 13,047
Income receivable 240,329
Prepaid expenses 66,073
Deferred expenses 596
Total assets 15,602,943
LIABILITIES:
Income distribution payable $ 72,043
Total liabilities 72,043
NET ASSETS for 1,491,314 shares outstanding $ 15,530,900
NET ASSETS CONSIST OF:
Paid in capital $ 15,833,651
Net unrealized appreciation of investments 737,237
Accumulated net realized loss on investments (1,039,988)
Total Net Assets $ 15,530,900
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($15,530,900 / 1,491,314 shares outstanding) $10.41
Offering Price Per Share (100/99.00 of $10.41)* $10.52
Redemption Proceeds Per Share (99.00/100 of $10.41)** $10.31
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 473,856
EXPENSES:
Investment advisory fee $ 30,338
Administrative personnel and services fee 62,158
Custodian fees 9,943
Transfer and dividend disbursing agent fees and expenses 11,089
Directors'/Trustees' fees 546
Auditing fees 6,916
Legal fees 1,456
Portfolio accounting fees 26,213
Distribution services fee 37,923
Shareholder services fee 18,961
Share registration costs 7,462
Printing and postage 4,550
Insurance premiums 1,820
Miscellaneous 10,010
Total expenses 229,385
Waivers and reimbursements-
Waiver of investment advisory fee $ (30,338)
Waiver of distribution services fee (36,406)
Waiver of shareholder services fee (1,517)
Reimbursement of other operating expenses (115,268)
Total waivers and reimbursements (183,529)
Net expenses 45,856
Net investment income 428,000
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (43,183)
Net change in unrealized appreciation of investments 462,603
Net realized and unrealized gain on investments 419,420
Change in net assets resulting from operations $ 847,420
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income $ 428,000 $ 858,928
Net realized gain (loss) on investments ($43,183 and $778,475 net
losses, respectively, as computed for federal income tax purposes) (43,183) (450,962)
Net change in unrealized appreciation (depreciation) 462,603 565,250
Change in net assets resulting from operations 847,420 973,216
DISTRIBUTIONS TO SHAREHOLDERS -
Distributions from net investment income (428,000) (858,928)
SHARE TRANSACTIONS -
Proceeds from sale of shares 1,988,082 3,113,093
Net asset value of shares issued to shareholders in payment
of distributions declared 112,126 282,851
Cost of shares redeemed (1,388,817) (4,168,669)
Change in net assets resulting from share transactions 711,391 (772,725)
Change in net assets 1,130,811 (658,437)
NET ASSETS:
Beginning of period 14,400,089 15,058,526
End of period $ 15,530,900 $ 14,400,089
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS - CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.13 $10.01 $10.92 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.59 0.59 0.44
Net realized and unrealized gain (loss) on investments 0.28 0.12 (0.91) 0.92
Total from investment operations 0.57 0.71 (0.32) 1.36
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.59) (0.59) (0.44)
NET ASSET VALUE, END OF PERIOD $10.41 $10.13 $10.01 $10.92
TOTAL RETURN(B) 5.68% 7.48% (3.04)% 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%* 0.55% 0.25% 0.25%*
Net investment income 5.64%* 6.04% 5.61% 5.58%*
Expense waiver/reimbursement(c) 2.42%* 2.41% 2.86% 1.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $15,531 $14,400 $15,059 $11,513
Portfolio turnover 3% 63% 63% 0%
</TABLE>
* Computed on an annualized basis.
(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 charge 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (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. The Trust consists of five non-diversified
portfolios. The financial statements included herein are only those of
Federated California Municipal Income Fund (the "Fund"), a non-diversified
portfolio. 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 March 31, 1996, the Board of Trustees ("Trustees") changed the name
of the Fund from California Municipal Income Fund to Federated California
Municipal Income Fund and changed the name of Fortress Shares to Class F
Shares.
(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.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
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.
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
At August 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $778,475, 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 as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $778,475
</TABLE>
Additionally, net capital losses of $218,330 attributable to security
transactions incurred after October 31, 1994, are treated as arising
on the first day of the Fund's next taxable year.
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.
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 over a period of five
years from the Fund's commencement date.
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 29, 1996, 21.3% 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 from any one institution or agency did not exceed
4.8% of total investments.
OTHER-Investment transactions are accounted for on the trade date.
FEDERATED CALIFORNIA 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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 192,706 320,931
Shares issued to shareholders in payment of distributions
declared 10,828 29,021
Shares redeemed (133,650) (432,976)
Net change resulting from share transactions 69,884 (83,024)
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.40% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any 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 Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE-The 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
0.50% of the average daily net assets of the Fund, annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its
fee. FSC can modify or terminate this voluntary waiver at any time at
its sole discretion.
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of average daily net assets of the Fund for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ also maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES-Organizational expenses of $26,245 and start-
up administrative service expenses of $54,398 were borne initially by
the Adviser. The Fund has agreed to reimburse the Adviser for the
organizational and start-up administrative expenses during the five
year period following effective date. For the period ended February
29, 1996, the Fund paid $5,248.97 and $10,879.60, respectively,
pursuant to this agreement.
INTERFUND TRANSACTIONS-During the period ended February 29, 1996, the
Trust engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $2,250,000 and $1,900,000, respectively.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 786,788
SALES $ 432,385
</TABLE>
<TABLE>
<S> <S>
TRUSTEES OFFICERS
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 Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
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.
FEDERATED
CALIFORNIA
MUNICIPAL
INCOME
FUND
(formerly, California Muncipal Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
(LOGO)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 625922109
4031006 (4/96)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Michigan
Intermediate Municipal Trust covering the six-month period from September 1,
1995, through February 29, 1996. The fund's name now begins with "Federated"
to make it easy for investors to locate all Federated funds in newspapers and
other publications.
This report begins with a review of the economy and the municipal market.
Following the review are the fund's portfolio holdings and financial
statements.
Federated Michigan Intermediate Municipal Trust continues to deliver a high
level of tax relief in the form of monthly income that is exempt from federal
regular income tax and Michigan personal income tax.*
During the six-month period, the fund's quality portfolio of investment-grade
Michigan municipal securities achieved a total return of 4.01% based on net
asset value.** This return was the result of dividends totaling $0.27 per
share and an increase in share price from $10.80 to $10.96. On February 29,
1996, the fund's total net assets stood at $63.4 million.
Your investment in this fund is a wise way to pursue tax-free earnings. We
encourage you to increase your holdings to take advantage of this
opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total
return for the six-month period based on offering price was 0.93%.
INVESTMENT REVIEW
The domestic fixed income markets have experienced an interval of increased
uncertainty and volatility over the six-month period ended February 29, 1996.
The cyclical direction of the U.S. economy has been difficult to determine
while technical factors, such as treasury auctions and the Yen carry trade,
have had clear directional impacts on interest rates. During the late summer
and fall of 1995, several economic statistics began to indicate that the
economy was slowing to a greater extent than was acceptable. As a result, the
Federal Reserve Board (the "Fed") felt it was necessary to cut the Federal
Funds rate to provide the economy with enough stimulus to avoid slipping into
recession. The Fed cut the Federal Funds rate to 5.75% in July of 1995 and by
another 25 basis points in both December of 1995 and January of 1996 to its
current level of 5.25%. The market's perception of slower real growth,
constrained government spending and a benign inflationary environment
resulted in the treasury yield curve steepening as interest rates fell
through the middle of February 1996.
The condition of declining interest rates changed abruptly near the end of
February 1996 as certain key economic reports gave indications that perhaps
the economy was not as weak as anticipated and that the Fed would not find it
necessary to further reduce interest rates. Economic activity may also have
been briefly impacted by the severe winter weather, two federal government
shutdowns and a strike against Boeing Corporation. As a result, interest
rates rose significantly (44 basis points) in the second half of February
1996. Inflation stayed reasonably benign during this period as the core
Producer Price Index showed an increase of only 0.4% for the entire month of
January 1996. There was considerable economic evidence to suggest that
inflation may have been near its cyclical trough. However, conflicting
economic signals continued as consumer confidence, with a reading of 87 in
January 1996, and jobless claims at 359,000 as of February 24, 1996, were
both stronger than consensus estimates. The Purchasing Manager's Index,* with
a reading of 50.9 for January 1996, was also better than market analysts had
expected.
The municipal yield curve flattened during the six-month period ended
February 29, 1996. The basis point spread between the two year and twenty-
five year maturities narrowed by 31 basis points. By way of contrast, the
treasury yield curve became steeper as the spread widened by 24 basis points
between the two year and twenty-five year maturities. The municipal yield
curve has remained steeper than the treasury yield curve due to the
segmentation of demand along the curve. The bulk of new municipal bond
issuance in the market is concentrated in the long end of the curve (20 years
and longer) while demand has been concentrated on the shorter end of the
municipal yield curve (ten years and under). The municipal markets technical
factors, the supply of and demand for municipal bonds, were mixed over the
six-month period ended February 29, 1996. The new supply of municipal debt
continued to be constrained which, combined with heavy redemptions, resulted
in a net overall decline in the amount of municipal debt outstanding. This
situation by itself would have been positive for municipal bond prices.
However, the demand for municipal debt was impacted by the generally low
level of interest rates and the threat of tax reform impact on interest
exemption for municipal bonds. The municipal bond market was able to
outperform the treasury bond market in the first two months of 1996 with the
assistance of higher yields available to investors and the loss of tax reform
momentum.
* The National Association of Purchasing Manager's Index is a diffusion
index that measures the economic activity of the largest manufacturers in
the United States.
During the six-month period ended February 29, 1996, yields in the municipal
bond market, as measured by the Bond Buyer Municipal Index,* fell
consistently to a low of 5.47 on February 13, 1996. The yield on the index
then rose abruptly through the end of February 1996 to finish the six-month
period at 5.71%. The U.S. Treasury bond market reached its low for market
yields on December 29, 1995, at a yield of 5.95%. The long (30 year) treasury
finished the twelve-month period at 6.47% on February 29, 1996.
The fund's management is maintaining a neutral maturity target as a result of
our outlook on interest rates and the economy. We believe that the best
strategy at this point is to maintain a market neutral duration until the
economy provides a clear signal as to its direction. Economic indicators have
not yet allowed the market to determine, with any conviction, whether the
economy is moving in the direction of a hard landing (recession), re-
acceleration, and a continuation of the bear market or a growth slow down.
The portfolio's income objective involved booking attractive income streams
for distribution to shareholders. Management continues to focus on "essential
service" revenue bonds of stable established projects which can generate
strong cash flow. Examples of such projects would include electric power
authorities and water and sewer utilities. Management has avoided debt backed
by municipal leases such as certificates of participation. These debt
instruments are subject to annual appropriation and present risks which are
not present in bonds backed by a general obligation, full faith and credit
pledge. Insured municipal bonds have also been purchased in the fund.
However, the use of bond insurance is limited to monoline bond insurers who
indemnify municipal obligations only. Management continues to avoid market
discount securities, priced beyond the de minimus rule, so as to avoid
distributing ordinary income to shareholders.
Management continues to favor high-quality securities due to the narrow
credit spreads available in the market place. The basis point spread between
an "AAA" rated general obligation bond and a single "A" rated general
obligation bond is currently 29 basis points. Credit spreads in the municipal
market have not widened to the extent they historically have at this stage of
the business cycle. The narrow credit spreads are a result of the limited
amount of new municipal bond issuance relative to prior years, the low level
of absolute yields available which encourages investors to reach for yield
and the penetration of municipal bond insurers (approximately 40% of the new
issue market). Sectors of the municipal market which management anticipates
will outperform the general market over the next twelve months include water
and sewer utilities, single family housing programs, and transportation and
infrastructure projects. Sectors which are expected to underperform the
market include multifamily housing, resource recovery, and state and local
general obligations. The healthcare and electric revenue sectors are facing
considerable regulatory and legislative changes which may present significant
opportunities to investors who are able to find individual credits that will
perform well in a more competitive operating environment.
Management is not currently allowing the tax reform debate to effect
investment decisions. We believe that it is much too early in the
presidential cycle and political process to consider the talk of major tax
reform as anything more than speculation. Any chance of significant tax
reform occurring before the presidential election is small and would most
likely not occur until after 1997. Municipal bond investors should keep
themselves focused on relevant investment considerations such as the business
cycle, inflation, and municipal market technicals (supply and demand). Any
overreaction by the market at this point should be considered a buying
opportunity since the probabilities that can be associated with major tax
reform (flat tax or consumption tax) are quite low.
* The Bond Buyer's Index is a standard against which municipal bonds are
measured.
The proposals currently on the table are differing forms of a consumption
tax. These taxing schemes would essentially tax the difference between income
and savings, which of course is consumption. Instead of changing the tax
status of municipal bonds it would alter the taxability of alternative
investment vehicles, which to date, are not federally exempt. This change in
the tax status of traditionally taxable investments would eliminate the
special status of municipal bonds and force them to compete with alternative
investments. Grandfathering would then of course not be an issue for
municipal bonds. We believe that this would be the most significant change in
the tax code possible and has the least chance of eventually becoming the law
of the land. Some form of rate reduction has the most likely chance of
occurring and is probably the most benign of any of the potential tax reform
outcomes. However, a reduction in unearned income tax rates would effect
municipal bonds by reducing the value of the tax exemption. Of course, tax
reform at the federal level would not effect state and local tax rates. Also,
several of the tax reform proposals would not effect the federal
deductibility of state and local taxes on a taxpayer's federal return. In
fact, we would even expect state and local income tax rates to increase to
compensate for the loss of federal dollars. Under these conditions, state and
local tax rates would drive the municipal market, and municipal bonds
originated in specialty states (high tax states) would still derive
considerable value from their tax-exempt status.
From September 1, 1995, to February 29, 1996, net assets of the fund
increased from $60.6 million to $63.4 million. Reflecting market activity,
the net asset value of the fund increased from $10.80 on September 1, 1995,
to $10.96 on February 29, 1996. On that date, the credit breakdown of the
holdings of the fund was: 46.1% in "AAA" issues; 44.0% in "AA" issues; 8.6%
in "A" issues; 0% in "BBB" issues; 0% in non-rated issues; and 1.3% in
municipal cash equivalents within the highest rating category.
Municipal securities subject to the federal Alternative Minimum Tax ("AMT")
have been included in the portfolio due to the favorable yield spreads
available from AMT issues. An additional 15 to 25 basis points can be gained
currently as a result of increased issuance of AMT securities in the
municipal market place. The latest Internal Revenue Service figures for 1993
report only 0.28% of the total returns filed being subject to the AMT.
The average purchase yield for new investments by the fund was 5.13%. For the
six-month period ended February 29, 1996, an investor in the fund experienced
a total return of 4.01% based on net asset value and 0.93% based on offering
price.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-97.5%
MICHIGAN-97.5%
$ 100,000 Ann Arbor, MI Public School District, UT GO Bonds,
6.50% (Michigan State GTD)/(United States Treasury
PRF)/(Original Issue Yield: 6.70%), 5/1/1997 (@102) AA $ 105,489
500,000 Ann Arbor, MI, UT GO Bonds, 5.20% (Original Issue
Yield: 5.25%), 9/1/2004 AA 519,670
230,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2000 AA 246,590
215,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2001 AA 232,475
100,000 Auburn Hills, MI, LT GO Bonds, 6.50%, 5/1/1997 A+ 103,528
600,000 Avondale, MI School District, UT GO Refunding Bonds,
5.40% (Michigan State GTD)/(Original Issue Yield:
5.45%), 5/1/2003 AA- 628,626
500,000 Avondale, MI School District, UT GO Refunding Bonds,
6.75% (Michigan State GTD)/(Original Issue Yield:
6.95%), 5/1/2014 AA 532,575
500,000 Battle Creek, MI Building Authority, Revenue Bonds,
6.00%, 4/1/2002 A+ 537,305
500,000 Battle Creek, MI Building Authority, Revenue Bonds,
6.10%, 4/1/2003 A+ 537,205
100,000 Battle Creek, MI Water Supply System, Revenue Bonds
(Series B), 6.90% (United States Treasury PRF), 9/1/1998
(@102) A+ 109,062
335,000 Calhoun County, MI, UT GO (Series II), 6.60%
(AMBAC INS), 7/1/2002 Aaa 350,889
270,000 Dearborn, MI Economic Development Corp., Hospital
Revenue Refunding Bonds (Series A), 5.10% (Oakwood
Obligated Group)/(MBIA INS)/(Original Issue Yield:
5.20%), 8/15/2006 Aaa 276,931
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 100,000 Detroit, MI City School District, UT GO Refunding
Bonds (Series A), 7.15% (MBIA INS), 5/1/1998 Aaa $ 106,774
500,000 Detroit, MI Economic Development Corp., Resource
Recovery Revenue Bonds (Series A), 6.875% (FSA INS)/
(Original Issue Yield: 7.00%), 5/1/2009 Aaa 550,565
3,000,000 Detroit, MI Water Supply System, Revenue Refunding
Bonds, 6.00% (FGIC INS)/(Original Issue Yield: 6.10%),
7/1/2002 Aaa 3,250,740
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10%
(AMBAC INS)/(Original Issue Yield: 6.15%), 6/1/2004 Aaa 1,089,600
200,000 Farmington Hills, MI Hospital Finance Authority,
Hospital Revenue Refunding Bonds (Series A), 6.60%
(Botsford General Hospital)/(MBIA INS), 2/15/2000 Aaa 217,534
425,000 Forest Hills, MI Public School, UT GO Bonds, 7.375%
(United States Treasury PRF)/(Original Issue Yield:
7.397%), 5/1/2000 (@101) AA- 480,386
285,000 Garden City, MI School District, UT GO Refunding
Bonds, 5.80% (FSA INS), 5/1/2004 Aaa 308,966
250,000 Garden City, MI School District, UT GO Refunding
Bonds, 5.90% (FSA INS), 5/1/2005 Aaa 272,833
565,000 Garden City, MI School District, UT GO Refunding
Bonds, 6.00% (FSA INS), 5/1/2006 Aaa 615,980
515,000 Garden City, MI School District, UT GO Refunding
Bonds, 6.10% (FSA INS), 5/1/2007 Aaa 560,902
1,200,000 Grand Rapids, MI Public Schools, UT GO Bonds,
5.00% (Original Issue Yield: 5.40%), 5/1/2002 AA- 1,244,712
300,000 Grand Rapids, MI Sanitation Sewer System, Revenue
Bonds, 5.50% (Original Issue Yield: 5.55%), 1/1/2003 AA 316,839
250,000 Grand Rapids, MI Sanitation Sewer System, Revenue
Bonds, 5.60% (Original Issue Yield: 5.65%), 1/1/2004 AA 265,690
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 130,000 Grand Valley, MI State College, Housing Revenue
Bonds, 6.60% (United States Treasury COL), 10/1/1996 AAA $ 132,285
150,000 Huron Valley, MI School District, UT GO Bonds, 6.50%
(Michigan State GTD)/(United States Treasury PRF),
5/1/2001 (@102) AA 167,406
270,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.70%, 11/1/2003 AA- 288,490
360,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.80%, 11/1/2004 AA- 384,574
465,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.90%, 11/1/2005 AA- 496,639
265,000 Kent Hospital Finance Authority, MI, Hospital Revenue
Refunding Bonds, 6.30% (Pine Rest Christian Hospital,
MI)/(FGIC INS)/(Original Issue Yield: 6.40%),
11/1/2003 Aaa 293,095
415,000 Kent Hospital Finance Authority, MI, Hospital Revenue
Refunding Bonds, 6.30% (Pine Rest Christian Hospital,
MI)/(FGIC INS)/(Original Issue Yield: 6.45%),
11/1/2004 Aaa 456,799
500,000 Lake Orion, MI School District, UT GO Refunding
Bonds, 5.90% (Michigan State GTD)/(AMBAC INS),
5/1/2001 Aaa 537,310
2,000,000 Lake Orion, MI School District, UT GO Refunding
Bonds, 6.05% (AMBAC INS)/(Michigan State GTD),
5/1/2002 Aaa 2,179,360
900,000 Lansing, MI Sewer Disposal System, Revenue
Refunding Bonds, 5.30% (FGIC INS)/(Original Issue
Yield: 5.35%), 5/1/2005 Aaa 941,508
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 500,000 Lansing, MI Sewer Disposal System, Revenue
Refunding Bonds, 5.50% (FGIC INS)/(Original Issue
Yield: 5.60%), 5/1/2007 Aaa $ 523,975
750,000 Livonia, MI Public School District, UT GO Bonds
(Series I), 6.00%, 5/1/2001 AA 809,415
100,000 Michigan Higher Education Student Loan Authority,
Revenue Refunding Bonds (Series X1), 7.10%
(AMBAC INS), 10/1/1997 Aaa 104,832
1,500,000 Michigan Municipal Bond Authority, Revenue
Refunding Q-SBLF Bonds, 6.00% (Michigan State)/
(Michigan State GTD)/(Original Issue Yield: 6.10%),
5/1/2002 AA 1,625,430
3,000,000 Michigan Public Power Agency, Revenue Refunding
Bonds (Series A) Belle River Project, 5.70% (Original
Issue Yield: 5.80%), 1/1/2003 AA- 3,208,800
100,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series 1988-I), 6.55%
(Michigan State), 9/1/1997 AA- 104,383
1,000,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series B), 5.50% (Michigan
State)/(Original Issue Yield: 5.60%), 5/15/2002 AA- 1,062,210
1,000,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series B), 6.00% (Michigan
State)/(Original Issue Yield: 6.05%), 5/15/2007 AA- 1,053,850
100,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series B-II), 6.55% (Michigan
State), 11/1/1997 AA- 104,731
100,000 Michigan State Hospital Finance Authority, Hospital
Revenue Refunding Bonds (Series A), 6.70% (Henry
Ford Health System, MI), 5/1/1996 AA 100,508
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 100,000 Michigan State Hospital Finance Authority, Hospital
Revenue Refunding Bonds (Series A), 6.90%
(Henry Ford Health System, MI)/(United States
Treasury PRF), 5/1/1996 (@102) AA $ 102,601
415,000 Michigan State Hospital Finance Authority, Revenue
Bonds (Series A), 6.15% (Crittenton Hospital, MI),
3/1/2001 A 441,373
440,000 Michigan State Hospital Finance Authority, Revenue
Bonds (Series A), 6.25% (Crittenton Hospital, MI),
3/1/2002 A 472,710
1,000,000 Michigan State Hospital Finance Authority, Revenue
Bonds, 5.25% (St. John Hospital, MI)/(AMBAC INS)/
(Original Issue Yield: 5.65%), 5/15/2026 Aaa 945,720
500,000 Michigan State Hospital Finance Authority, Revenue
Bonds, Providence Hospital, 7.00% (Daughters of
Charity)/(Original Issue Yield: 7.04%), 11/1/2021 Aa 542,275
1,500,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series A), 5.50% (St. John Hospital,
MI)/(Original Issue Yield: 5.80%), 5/15/2001 A+ 1,554,075
100,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series A), 7.20% (Mercy Memorial
Hospital, MI)/(MBIA INS), 6/1/1997 Aaa 104,621
400,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series B), 5.00% (Crittenton Hospital,
MI)/(Original Issue Yield: 5.10%), 3/1/2003 A 402,112
100,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series I), 7.10% (Sisters of Mercy
Health System)/(MBIA INS)/(Original Issue Yield:
7.15%), 8/15/1997 Aaa 105,082
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 600,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series P), 4.90% (Sisters of Mercy
Health System)/(MBIA INS)/(Original Issue Yield:
5.10%), 8/15/2005 Aaa $ 605,874
500,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 5.50% (Henry Ford Health System,
MI)/(Original Issue Yield: 5.55%), 9/1/2001 AA 526,880
800,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 5.95% (Oakwood Obligated Group)/
(FGIC INS)/(Original Issue Yield: 6.05%), 5/1/2002 Aaa 863,192
575,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.30% (Sparrow Obligated Group,
MI)/(MBIA INS), 11/15/2003 Aaa 633,345
375,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.85% (Oakland General Hospital,
MI)/(AMBAC INS), 7/1/2000 Aaa 411,851
1,000,000 Michigan State Housing Development Authority,
(Series A) Rental Housing Revenue Bonds, 5.55%
(MBIA INS), 4/1/2004 Aaa 1,004,470
500,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 5.90%, 12/1/2005 AA+ 515,885
500,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 5.90%, 6/1/2005 AA+ 515,255
430,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 6.25%, 6/1/2002 AA+ 446,946
200,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 7.00%, 12/1/2005 AA+ 213,122
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 280,000 Michigan State Housing Development Authority,
Revenue Bonds (Series B), 6.30%, 12/1/2003 AA+ $ 292,163
200,000 Michigan State Housing Development Authority,
Revenue Bonds (Series B), 6.95%, 12/1/2020 AA+ 213,344
100,000 Michigan State Housing Development Authority,
Revenue Bonds (Series B), 7.00%, 6/1/1996 AA+ 100,542
1,850,000 Michigan State South Central Power Agency, Power
Supply System Revenue Refunding Bonds, 5.00%
(AMBAC INS)/(Original Issue Yield: 7.20%), 11/1/2009 Aaa 1,813,092
250,000 Michigan State Strategic Fund, Ltd. Obligation Revenue
Refunding Bonds (Series A), 7.10% (Ford Motor Co.)/
(Original Issue Yield: 7.127%), 2/1/2006 A 286,340
1,000,000 Michigan State, UT GO Recreation Program Bonds,
5.75% (Original Issue Yield: 5.80%), 11/1/2001 AA- 1,077,180
4,250,000 Monroe County, MI Pollution Control Authority, PCR
Revenue Bonds (Series A), 6.35% (Detroit Edison Co.)/
(AMBAC INS), 12/1/2004 Aaa 4,764,420
1,750,000 Novi, MI Community School District, UT GO Bonds,
Q-SBLF, 5.45% (Original Issue Yield: 5.50%), 5/1/2003 AA 1,843,152
950,000 Novi, MI, UT GO Bonds (Series A & B), 4.80% (Original
Issue Yield: 4.90%), 10/1/2005 A+ 959,053
300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds,
6.65% (Oakland Community College District, MI)/
(Original Issue Yield: 6.743%), 5/1/2011 AA- 332,520
250,000 Oakland County, MI, LT GO Bonds, Evergreen-
Farmington Sewer Disposal, 6.30%, 5/1/2005 AA- 269,438
610,000 Okemos, MI Public School District, UT GO Refunding
Bonds, Q-SBLF, 6.00% (Michigan State GTD), 5/1/2002 AA- 662,381
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 140,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa
Water Supply System, 6.50% (Original Issue Yield:
6.55%), 10/1/2002 AA- $ 149,491
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa
Water System, 6.85%, 5/1/2000 AA- 104,868
220,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa
Water Supply System, 6.50%, 10/1/2001 AA- 235,530
795,000 Ottawa County, MI, LT GO Refunding Bonds, Ottawa
County Water Supply System, 5.40% (Original Issue
Yield: 5.45%), 8/1/2002 AA- 837,437
400,000 Plymouth-Canton, MI Community School District, UT
GO Bonds (Series C), Q-SBLF, 6.00% (Michigan State
GTD)/(Original Issue Yield: 6.10%), 5/1/2003 AA- 436,020
500,000 Plymouth-Canton, MI Community School District, UT
GO Refunding Bonds (Series B), Q-SBLF, 6.80%
(Michigan State GTD)/(United States Treasury PRF)/
(Original Issue Yield: 6.90%), 5/1/2001 (@101) AA 562,380
615,000 Riverview, MI Community School District, UT GO
Bonds, 6.20% (FGIC INS)/(United States Treasury PRF),
5/1/2002 (@101.5) Aaa 683,388
570,000 Riverview, MI Community School District, UT GO
Bonds, 6.20% (FGIC INS)/(United States Treasury PRF),
5/1/2002 (@101.5) Aaa 633,384
350,000 Rochester, MI Community School District, UT GO
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.60%),
5/1/2002 (@100) AA 390,124
250,000 Rochester, MI Community School District, UT GO
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.75%),
5/1/2002 (@100) AA 278,660
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
MICHIGAN-CONTINUED
$ 270,000 Shelby Charter Townships, MI Building Authority,
Revenue Bonds, 6.25% (AMBAC INS)/(Original Issue
Yield: 6.45%), 11/1/2006 Aaa $ 294,683
230,000 Shelby Charter Townships, MI Building Authority,
Revenue Bonds, 6.25% (AMBAC INS)/(Original Issue
Yield: 6.50%), 11/1/2007 Aaa 249,706
250,000 University of Michigan, Hospital Revenue Bonds, 7.00%
(United States Treasury PRF)/(Original Issue Yield:
7.25%), 12/1/2000 (@102) AA 284,438
1,500,000 University of Michigan, Hospital Revenue Refunding
Bonds (Series A), 5.70% (Original Issue Yield: 5.80%),
12/1/2004 AA 1,620,930
1,000,000 University of Michigan, Student Fee Revenue Bonds
(Series B), 5.20% (Original Issue Yield: 5.30%), 4/1/2004 AA+ 1,043,190
955,000 Washtenaw Community College, MI, UT GO Refunding
Bonds (Series 1995)., 4.75% (FGIC INS)/(Original Issue
Yield: 4.80%), 4/1/2004 Aaa 968,733
1,000,000 Western Michigan University, Revenue Bonds, 5.50%
(FGIC INS)/(Original Issue Yield: 5.55%), 11/15/2002 Aaa 1,064,750
885,000 Wyandotte, MI Electric Authority, Revenue Refunding
Bonds, 6.10% (MBIA INS), 10/1/2002 Aaa 971,535
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $57,965,726) 61,867,727
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL NOTE-1.3%
PUERTO RICO-1.3%
$ 800,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ $ 800,000
TOTAL MUNICIPAL SECURITIES INVESTMENTS
(IDENTIFIED COST $58,765,726)(A) $ 62,667,727
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$58,765,726. The net unrealized appreciation of investments on a
federal tax basis amounts to $3,902,001 which is comprised of
$3,939,972 appreciation and $37,971 depreciation at February 29, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($63,448,901) at February 29, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
COL -Collateralized
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
GO -General Obligation
GTD -Guaranty
INS -Insured
LOC -Letter of Credit
LT -Limited Tax
MBIA -Municipal Bond Investors Assurance
PCR -Pollution Control Revenue
PRF -Prerefunded
Q-SBLF -Qualified State Bond Loan Fund
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $58,765,726) $ 62,667,727
Income receivable 1,017,396
Receivable for shares sold 527,253
Total assets 64,212,376
LIABILITIES:
Income distribution payable $ 255,433
Payable to Bank 508,042
Total liabilities 763,475
NET ASSETS for 5,791,565 shares outstanding $ 63,448,901
NET ASSETS CONSIST OF:
Paid in capital $ 60,794,224
Net unrealized appreciation of investments 3,902,001
Accumulated net realized loss on investments (1,247,324)
Total Net Assets $ 63,448,901
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($63,448,901 / 5,791,565 shares outstanding) $10.96
Offering Price Per Share (100/97.00 of $10.96)* $11.30
Redemption Proceeds Per Share (100.00/100 of $10.96)** $10.96
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,682,978
EXPENSES:
Investment advisory fee $ 122,901
Administrative personnel and services fee 62,158
Custodian fees 11,310
Transfer and dividend disbursing agent fees and expenses 13,215
Directors'/Trustees' fees 546
Auditing fees 6,916
Legal fees 1,820
Portfolio accounting fees 29,628
Shareholder services fee 76,819
Share registration costs 8,372
Printing and postage 5,460
Insurance premiums 2,002
Miscellaneous 4,550
Total expenses 345,697
Waivers and reimbursements-
Waiver of investment advisory fee $ (122,901)
Waiver of shareholder services fee (55,311)
Reimbursement of other operating expenses (12,492)
Total waivers and reimbursements (190,704)
Net expenses 154,993
Net investment income 1,527,985
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment 13,130
Net change in unrealized appreciation of investments 841,432
Net realized and unrealized gain on investments 854,562
Change in net assets resulting from operations $ 2,382,547
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 1,527,985 $ 3,027,122
Net realized gain (loss) on investments ($13,130 net gain and
$310,181 net gain, respectively, as computed for federal
tax purposes) 13,130 (994,664)
Net change in unrealized appreciation (depreciation) 841,432 2,337,762
Change in net assets resulting from operations 2,382,547 4,370,220
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income (1,527,985) (3,027,122)
SHARE TRANSACTIONS-
Proceeds from sale of shares 5,805,544 15,838,005
Net asset value of shares issued to shareholders in payment of
distributions declared 173,636 423,109
Cost of shares redeemed (4,005,648) (15,463,625)
Change in net assets resulting from share transactions 1,973,532 797,489
Change in net assets 2,828,094 2,140,587
NET ASSETS:
Beginning of period 60,620,807 58,480,220
End of period $ 63,448,901 $ 60,620,807
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.80 $10.59 $11.02 $10.38 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.54 0.53 0.55 0.56
Net realized and unrealized gain (loss) on
investments 0.16 0.21 (0.43) 0.64 0.38
Total from investment operations 0.43 0.75 0.10 1.19 0.94
LESS DISTRIBUTIONS
Distributions from net investment income (0.27) (0.54) (0.53) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $10.96 $10.80 $10.59 $11.02 $10.38
TOTAL RETURN(B) 4.01% 7.39% 0.88% 11.73% 9.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50%* 0.50% 0.50% 0.37% 0.07%*
Net investment income 4.97%* 5.19% 4.87% 5.11% 5.66%*
Expense waiver/reimbursement(c) 0.62%* 0.65% 0.57% 1.06% 1.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $63,449 $60,621 $58,480 $50,625 $26,998
Portfolio turnover 1% 23% 13% 3% 26%
</TABLE>
* Computed on an annualized basis.
(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 charge 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (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. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated Michigan
Intermediate Municipal Trust (the "Fund"), a non-diversified portfolio. 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 March 31, 1996, the Board of Trustees ("Trustees") changed the name
of the Fund from Michigan Intermediate Municipal Trust to Federated Michigan
Intermediate Municipal Trust.
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.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
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.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
At August 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $326,186, 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 as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2001 $12,267
2002 $3,738
2003 $310,181
</TABLE>
Additionally, net capital losses of $934,269 attributable to security
transactions incurred after October 31, 1994 are treated as arising on
the first day of the Fund's next taxable year.
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.
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 29, 1996, 55.8% 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 from any one institution or agency did
not exceed 20.3% of total investments.
OTHER-Investment transactions are accounted for on the trade date.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 530,828 1,533,015
Shares issued to shareholders in payment of distributions declared 15,864 40,304
Shares redeemed (366,645) (1,484,327)
Net change resulting from share transactions 180,047 88,992
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.40% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its
fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors 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 0.25% of average daily net assets of the Fund shares for
the period. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholder Service Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO ACCOUNTING FEES-FServ also maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES-Organizational and start-up administrative
service expenses of $111,559 were borne initially by the Adviser. The
Fund has agreed to reimburse the Adviser for the organizational and
start-up administrative expenses during the five year period following
effective date. For the period ended February 29, 1996, the Fund paid
$1,537 and $3,073, respectively pursuant to this agreement.
INTERFUND TRANSACTIONS-During the period ended February 29, 1996, the
Fund engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $5,800,000 and $5,150,000, respectively.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 1,920,676
SALES $ 262,500
</TABLE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <S>
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 Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
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.
FEDERATED
MICHIGAN
INTERMEDIATE
MUNICIPAL
TRUST
(formerly, Michigan Intermediate Municipal Trust)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
(LOGO)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 625922703
3032602 (4/96)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated New York
Municipal Income Fund covering the six-month period from September 1, 1995,
through February 29, 1996. The fund's name now begins with "Federated" to
make it easy for investors to locate all Federated funds in newspapers and
other publications. In addition, Fortress Shares of the fund are now known as
Class F Shares.
This report begins with a review of the economy and the municipal market.
Following the review are the fund's portfolio holdings and financial
statements.
Federated New York Municipal Income Fund continues to deliver a high level of
tax relief in the form of monthly income that is exempt from federal regular
income tax and New York state and municipality personal income tax.*
During the six-month period, the fund's quality portfolio of investment-
grade, long-term New York municipal securities achieved a total return of
6.17% based on net asset value.** This return was the result of dividends
totaling $0.29 per share and an increase in share price from $10.13 to
$10.46. On February 29, 1996, the fund's total net assets stood at $21.5
million.
Your investment in this fund is a wise way to pursue tax-free earnings. We
encourage you to increase your holdings to take advantage of this
opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total
return for the six-month period based on offering price was 4.13%.
INVESTMENT REVIEW
The domestic fixed income markets have experienced an interval of increased
uncertainty and volatility over the six-month period ended February 29, 1996.
The cyclical direction of the U.S. economy has been difficult to determine
while technical factors, such as treasury auctions and the Yen carry trade,
have had clear directional impacts on interest rates. During the late summer
and fall of 1995, several economic statistics began to indicate that the
economy was slowing to a greater extent than was acceptable. As a result, the
Federal Reserve Board (the "Fed") felt it was necessary to cut the Federal
Funds rate to provide the economy with enough stimulus to avoid slipping into
recession. The Fed cut the Federal Funds rate to 5.75% in July of 1995 and by
another 25 basis points in both December of 1995 and January of 1996 to its
current level of 5.25%. The market's perception of slower real growth,
constrained government spending and a benign inflationary environment
resulted in the treasury yield curve steepening as interest rates fell
through the middle of February 1996.
The condition of declining interest rates changed abruptly near the end of
February 1996 as certain key economic reports gave indications that perhaps
the economy was not as weak as anticipated and that the Fed would not find it
necessary to further reduce interest rates. Economic activity may also have
been briefly impacted by the severe winter weather, two federal government
shutdowns and a strike against Boeing Corporation. As a result, interest
rates rose significantly (44 basis points) in the second half of February
1996. Inflation stayed reasonably benign during this period as the core
Producer Price Index showed an increase of only 0.4% for the entire month of
January 1996. There was considerable economic evidence to suggest that
inflation may have been near its cyclical trough. However, conflicting
economic signals continued as consumer confidence, with a reading of 87 in
January 1996, and jobless claims at 359,000 as of February 24, 1996, were
both stronger than consensus estimates. The Purchasing Manager's Index,* with
a reading of 50.9 for January 1996, was also better than market analysts had
expected.
The municipal yield curve flattened during the six-month period ended
February 29, 1996. The basis point spread between the two year and twenty-
five year maturities narrowed by 31 basis points. By way of contrast, the
treasury yield curve became steeper as the spread widened by 24 basis points
between the two year and twenty-five year maturities. The municipal yield
curve has remained steeper than the treasury yield curve due to the
segmentation of demand along the curve. The bulk of new municipal bond
issuance in the market is concentrated in the long end of the curve (20 years
and longer) while demand has been concentrated on the shorter end of the
municipal yield curve (ten years and under). The municipal markets technical
factors, the supply of and demand for municipal bonds, were mixed over the
six-month period ended February 29, 1996. The new supply of municipal debt
continued to be constrained which, combined with heavy redemptions, resulted
in a net overall decline in the amount of municipal debt outstanding. This
situation by itself would have been positive for municipal bond prices.
However, the demand for municipal debt was impacted by the generally low
level of interest rates and the threat of tax reform impact on interest
exemption for municipal bonds. The municipal bond market was able to
outperform the treasury bond market in the first two months of 1996 with the
assistance of higher yields available to investors and the loss of tax reform
momentum.
* The National Association of Purchasing Manager's Index is a diffusion index
that measures the economic activity of the largest manufacturers in the
United States.
During the six-month period ended February 29, 1996, yields in the municipal
bond market, as measured by the Bond Buyer Municipal Index,* fell
consistently to a low of 5.47 on February 13, 1996. The yield on the index
then rose abruptly through the end of February 1996 to finish the six-month
period at 5.71%. The U.S. Treasury bond market reached its low for market
yields on December 29, 1995, at a yield of 5.95%. The long (30 year) treasury
finished the twelve-month period at 6.47% on February 29, 1996.
The fund's management is maintaining a neutral average maturity target as a
result of our outlook on interest rates and the economy. We believe that the
best strategy at this point is to maintain a market neutral duration until
the economy provides a clear signal as to its direction. Economic indicators
have not yet allowed the market to determine, with any conviction, whether
the economy is moving in the direction of a hard landing (recession), re-
acceleration, and a continuation of the bear market or a growth slow down.
The portfolio's income objective involved booking attractive income streams
for distribution to shareholders. Management continues to focus on "essential
service" revenue bonds of stable established projects which can generate
strong cash flow. Examples of such projects would include electric power
authorities and water and sewer utilities. Management has avoided debt backed
by municipal leases such as certificates of participation. These debt
instruments are subject to annual appropriation and present risks which are
not present in bonds backed by a general obligation, full faith and credit
pledge. Insured municipal bonds have also been purchased in the fund.
However, the use of bond insurance is limited to monoline bond insurers who
indemnify municipal obligations only. Management continues to avoid market
discount securities, priced beyond the de minimus rule, so as to avoid
distributing ordinary income to shareholders.
Management continues to favor high-quality securities due to the narrow
credit spreads available in the market place. The basis point spread between
an "AAA" rated general obligation bond and a single "A" rated general
obligation bond is currently 29 basis points. Credit spreads in the municipal
market have not widened to the extent they historically have at this stage of
the business cycle. The narrow credit spreads are a result of the limited
amount of new municipal bond issuance relative to prior years, the low level
of absolute yields available which encourages investors to reach for yield
and the penetration of municipal bond insurers (approximately 40% of the new
issue market). Sectors of the municipal market which management anticipates
will outperform the general market over the next twelve months include water
and sewer utilities, single family housing programs, and transportation and
infrastructure projects. Sectors which are expected to underperform the
market include multifamily housing, resource recovery, and state and local
general obligations. The healthcare and electric revenue sectors are facing
considerable regulatory and legislative changes which may present significant
opportunities to investors who are able to find individual credits that will
perform well in a more competitive operating environment.
Management is not currently allowing the tax reform debate to effect
investment decisions. We believe that it is much too early in the
presidential cycle and political process to consider the talk of major tax
reform as anything more than speculation. Any chance of significant tax
reform occurring before the presidential election is small and would most
likely not occur until after 1997. Municipal bond investors
* The Bond Buyer's Index is a standard against which municipal bonds are
measured.
should keep themselves focused on relevant investment considerations such as
the business cycle, inflation, and municipal market technicals (supply and
demand). Any overreaction by the market at this point should be considered a
buying opportunity since the probabilities that can be associated with major
tax reform (flat tax or consumption tax) are quite low.
The proposals currently on the table are differing forms of a consumption
tax. These taxing schemes would essentially tax the difference between income
and savings, which of course is consumption. Instead of changing the tax
status of municipal bonds it would alter the taxability of alternative
investment vehicles, which to date, are not federally exempt. This change in
the tax status of traditionally taxable investments would eliminate the
special status of municipal bonds and force them to compete with alternative
investments. Grandfathering would then of course not be an issue for
municipal bonds. We believe that this would be the most significant change in
the tax code possible and has the least chance of eventually becoming the law
of the land. Some form of rate reduction has the most likely chance of
occurring and is probably the most benign of any of the potential tax reform
outcomes. However, a reduction in unearned income tax rates would effect
municipal bonds by reducing the value of the tax-exemption. Of course, tax
reform at the federal level would not effect state and local tax rates. Also,
several of the tax reform proposals would not effect the federal
deductibility of state and local taxes on a taxpayer's federal return. In
fact, we would even expect state and local income tax rates to increase to
compensate for the loss of federal dollars. Under these conditions, state and
local tax rates would drive the municipal market, and municipal bonds
originated in specialty states (high tax states) would still derive
considerable value from their tax-exempt status.
From September 1, 1995, to February 29, 1996, net assets of the fund declined
from $21.6 million to $21.5 million. Reflecting market activity, the net
asset value of the fund increased from $10.13 on September 1, 1995, to $10.46
on February 29, 1996. On that date, the credit breakdown of the holdings of
the fund was: 7.0% in "AAA" issues; 39.2% in "AA" issues; 17.1% in "A"
issues; 29.4% in "BBB" issues and 7.3% in non-rated issues.
Municipal securities subject to the federal Alternative Minimum Tax ("AMT")
have been included in the portfolio due to the favorable yield spreads
available from AMT issues. An additional 15 to 25 basis points can be gained
currently as a result of increased issuance of AMT securities in the
municipal market place. The latest Internal Revenue Service figures for 1993
report only 0.28% of the total returns filed being subject to the AMT.
The average purchase yield for new investments by the fund was 6.21%. For the
six-month period ended February 29, 1996, an investor in the fund experienced
a total return of 6.17% based on net asset value and 4.13% based on offering
price.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-95.1%
NEW YORK-95.1%
$ 305,000 Nassau County, NY IDA, Civic Facility Revenue Bonds,
6.85% (Hofstra University), 1/1/2012 A $ 334,448
330,000 Nassau County, NY IDA, Civic Facility Revenue Bonds,
6.85% (Hofstra University), 1/1/2013 A 360,650
350,000 New York City Municipal Water Finance Authority,
Water & Sewer System Revenue Bonds (Series B),
6.375% (Original Issue Yield: 6.57%), 6/15/2022 A 368,466
1,000,000 New York City, NY IDA, (Series 1995) Civic Facility
Revenue Bonds, 6.30% (College of New Rochelle)/
(Original Issue Yield: 6.45%), 9/1/2015 NR 1,007,730
500,000 New York City, NY IDA, Civic Facility Revenue Bonds,
7.00% (Mt. St. Vincent College, NY), 5/1/2008 NR 528,435
1,000,000 New York City, NY IDA, Special Facilities Revenue
Bonds, 6.125% (Terminal One Group Association)/
(Original Issue Yield: 6.50%), 1/1/2024 A 1,001,800
750,000 New York City, NY IDA, Special Facilities Revenue
Bonds, 6.90% (American Airlines), 8/1/2024 Baa2 811,980
2,000,000 New York City, NY, UT GO Bonds (Series B), 7.25%
(Original Issue Yield: 7.55%), 8/15/2019 BBB+ 2,246,120
900,000 New York State Dormitory Authority, Revenue Bonds
(Series A), 6.50% (University of Rochester, NY)/
(Original Issue Yield: 6.582%), 7/1/2019 A+ 985,185
</TABLE>
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
NEW YORK-CONTINUED
$ 500,000 New York State Energy Research & Development
Authority, Revenue Bonds (Series B), 6.375%
(Consolidated Edison Co.)/(Original Issue Yield:
6.521%), 12/1/2027 Aa2 $ 517,440
1,000,000 New York State Environmental Facilities Corp., Solid
Waste Disposal Revenue Bonds, 6.10% (Occidental
Petroleum Corp.)/(Original Issue Yield: 6.214%),
11/1/2030 BBB 998,610
900,000 New York State Environmental Facilities Corp., Water
Facilities Revenue Refunding Bonds (Series A), 6.30%
(Spring Valley Water Co., NY)/(AMBAC INS), 8/1/2024 Aaa 945,198
1,000,000 New York State HFA, (Series 1995A) Service Contract
Obligation Revenue Bonds, 6.375% (Original Issue
Yield: 6.45%), 9/15/2015 Baa1 1,048,290
1,000,000 New York State Medical Care Facilities Finance Agency,
FHA-Mortgage Revenue Bonds (Series A), 6.50%
(Lockport Memorial Hospital, NY)/(FHA GTD),
2/15/2035 AA 1,062,420
1,000,000 New York State Medical Care Facilities Finance Agency,
Revenue Bonds (Series B), 6.60% (FHA GTD)/
(Original Issue Yield: 6.625%), 8/15/2034 AA 1,069,750
1,200,000 New York State Mortgage Agency, Homeowner
Mortgage Revenue Bonds (Series 46), 6.65%, 10/1/2025 Aa 1,259,424
3,850,000 New York State Mortgage Agency, Revenue Bonds
(Series 40A), 6.70%, 4/1/2025 Aa 4,044,695
1,000,000 New York State Thruway Authority, Local Highway
and Bridge Service Contract Revenue Bonds, Series
1995, 6.25% (Original Issue Yield: 6.435%), 4/1/2014 Baa1 1,034,300
300,000 Port Authority of New York and New Jersey, Revenue
Bonds (Series 76), 6.50% (Original Issue Yield: 6.782%),
11/1/2026 AA- 317,451
</TABLE>
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
NEW YORK-CONTINUED
$ 500,000 Port Authority of New York and New Jersey, Revenue
Bonds (Series 96), 6.60% (FGIC INS)/(Original Issue
Yield: 6.65%), 10/1/2023 Aaa $ 545,915
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $19,180,147) 20,488,307
SHORT-TERM MUNICIPAL SECURITIES-2.7%
PUERTO RICO-2.7%
550,000 Puerto Rico Electric Power Authority, Revenue Bonds
(Series T), 6.375% (Original Issue Yield: 6.58%),
7/1/2024 A- 591,783
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 591,783
TOTAL MUNICIPAL SECURITIES (IDENTIFIED
COST $19,715,685)(A) $ 21,080,090
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $19,715,685.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,364,405 which is comprised of $1,364,405 appreciation and
$0 depreciation at February 29, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($21,554,079) at February 29, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <S>
AMBAC - American Municipal Bond Assurance
GTD - Guaranty Corporation
HFA - Housing Finance Authority
FGIC - Financial Guaranty Insurance Company
IDA - Industrial Development Authority
FHA - Federal Housing Administration
INS - Insured
GO - General Obligation
UT - Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $19,715,685) $ 21,080,090
Cash 62,931
Income receivable 383,792
Receivable for investments sold 133,490
Receivable for shares sold 9,500
Deferred expenses 2,221
Prepaid expenses 43,544
Total assets 21,715,568
LIABILITIES:
Payable for shares redeemed $ 61,801
Income distribution payable 99,688
Total liabilities 161,489
Net Assets for 2,059,766 shares outstanding $ 21,554,079
NET ASSETS CONSIST OF:
Paid in capital $ 21,905,626
Net unrealized appreciation of investments 1,364,405
Accumulated net realized loss on investments (1,715,952)
Total Net Assets $ 21,554,079
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($21,554,079 / 2,059,766 shares outstanding) $10.46
Offering Price Per Share (100/99.00 of $10.46)* $10.57
Redemption Proceeds Per Share (99.00/100 of $10.46)** $10.36
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 680,468
EXPENSES:
Investment advisory fee $ 43,748
Administrative personnel and services fees 62,158
Custodian fees 8,608
Transfer and dividend disbursing agent fees and expenses 10,445
Directors'/Trustees' fees 1,456
Auditing fees 6,916
Legal fees 1,456
Portfolio accounting fees 24,992
Distribution services fee 54,685
Shareholder services fee 27,343
Share registration costs 7,462
Printing and postage 3,640
Insurance premiums 1,820
Miscellaneous 8,372
Total expenses 263,101
Waivers and reimbursements-
Waiver of investment advisory fee $ (43,748)
Waiver of distribution services fee (52,498)
Waiver of shareholder services fee (2,187)
Reimbursement of other operating expenses (98,563)
Total waivers and reimbursements (196,996)
Net expenses 66,105
Net investment income 614,363
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 41,483
Net change in unrealized appreciation of investments 682,749
Net realized and unrealized gain on investments 724,232
Change in net assets resulting from operations $ 1,338,595
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 614,363 $ 1,296,245
Net realized gain (loss) on investments ($41,483 net gain and
$716,692 net loss respectively, as computed for federal tax
purposes) 41,483 (1,275,390)
Net change in unrealized appreciation (depreciation) 682,749 1,320,408
Change in net assets resulting from operations 1,338,595 1,341,263
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income (614,363) (1,296,245)
SHARE TRANSACTIONS-
Proceeds from sale of shares 1,226,504 4,339,252
Net asset value of shares issued to shareholders in payment of
distributions declared 163,740 335,077
Cost of shares redeemed (2,160,667) (6,271,295)
Change in net assets resulting from share transactions (770,423) (1,596,966)
Change in net assets (46,191) (1,551,948)
NET ASSETS:
Beginning of period 21,600,270 23,152,218
End of period $ 21,554,079 $ 21,600,270
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.13 $10.10 $10.92 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.57 0.57 0.44
Net realized and unrealized gain (loss) on investments 0.33 0.03 (0.82) 0.88
Total from investment operations 0.62 0.60 (0.25) 1.32
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.57) (0.57) (0.44)
NET ASSET VALUE, END OF PERIOD $10.46 $10.13 $10.10 $10.92
TOTAL RETURN(B) 6.17% 6.41% (2.31%) 13.38%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%* 0.59% 0.39% 0.25%*
Net investment income 5.62%* 5.94% 5.49% 5.53%*
Expense waiver/reimbursement(c) 1.80%* 1.74% 2.07% 1.91%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $21,554 $21,600 $23,152 $14,495
Portfolio turnover 5% 55% 37% 0%
</TABLE>
* Computed on an annualized basis.
(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 charge 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (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. The Trust consists of five non-diversified
portfolios. The financial statements included herein are only those of
Federated 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.
Effective March 31, 1996, the Board of Trustees ("Trustees") changed the name
of the Fund from New York Municipal Income Fund to Federated New York
Municipal Income Fund and changed the name of Fortress Shares to Class F
Shares.
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.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
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.
FEDERATED NEW YORK MUNICIPAL INCOME FUND
At August 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $716,692, 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 as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2003 $716,692
</TABLE>
Additionally, net capital losses of $1,040,743 attributable to
security transactions incurred after October 31, 1994, are treated as
arising on the first day of the Fund's next taxable year.
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.
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 over a period of five
years from the Fund's commencement date.
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 29, 1996, 17.2% 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 from any one institution or agency did not exceed
10.1% of total investments.
OTHER-Investment transactions are accounted for on the trade date.
FEDERATED NEW YORK 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 shares were as follows:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 118,519 446,112
Shares issued to shareholders in payment of distributions declared 15,757 34,269
Shares redeemed (207,591) (639,821)
Net change resulting from share transactions (73,315) (159,440)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.40% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its
fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE-The 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
0.40% of the average daily net assets of the Fund, annually, to
compensate FSC. FSC may voluntarily choose to waive a portion of this
fee. FSC can modify or terminate this voluntary waiver at any time at
its sole discretion.
FEDERATED NEW YORK MUNICIPAL INCOME FUND
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of average daily net assets of the Fund for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive a portion of this fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ also maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES-Organizational expenses of $24,367 and start-
up administrative service expenses of $54,637 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 period ended February 29, 1996, the Fund
paid $0 and $0, respectively, pursuant to this agreement.
INTERFUND TRANSACTIONS-During the period ended February 29, 1996, the
Fund engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $1,300,000 and $1,500,000 respectively.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 983,750
SALES $ 2,669,085
</TABLE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <S>
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 Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
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.
FEDERATED
NEW YORK
MUNICIPAL
INCOME
FUND
(formerly, New York Muncipal Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
(LOGO)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 625922208
4031009 (4/96)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Ohio Municipal
Income Fund covering the six-month period from September 1, 1995, through
February 29, 1996. The fund's name now begins with "Federated" to make it
easy for investors to locate all Federated funds in newspapers and other
publications. In addition, Fortress Shares of the fund are now known as Class
F Shares.
This report begins with a review of the economy and the municipal market.
Following the review are the fund's portfolio holdings and financial
statements.
Federated Ohio Municipal Income Fund continues to deliver a high level of tax
relief in the form of monthly income that is exempt from federal regular
income tax and Ohio personal income tax.*
During the six-month period, the fund's quality portfolio of investment-
grade, long-term Ohio municipal securities achieved a total return of 4.94%
based on net asset value.** This return was the result of dividends totaling
$0.30 per share and an increase in share price from $11.22 to $11.47. On
February 29, 1996, the fund's total net assets stood at $72.6 million.
Your investment in this fund is a wise way to pursue tax-free earnings. We
encourage you to increase your holdings to take advantage of this
opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total return
for the six-month period based on offering price was 2.93%.
INVESTMENT REVIEW
The domestic fixed income markets have experienced an interval of increased
uncertainty and volatility over the six-month period ended February 29, 1996.
The cyclical direction of the U.S. economy has been difficult to determine
while technical factors, such as treasury auctions and the Yen carry trade,
have had clear directional impacts on interest rates. During the late summer
and fall of 1995, several economic statistics began to indicate that the
economy was slowing to a greater extent than was acceptable. As a result, the
Federal Reserve Board (the "Fed") felt it was necessary to cut the Federal
Funds rate to provide the economy with enough stimulus to avoid slipping into
recession. The Fed cut the Federal Funds rate to 5.75% in July of 1995 and by
another 25 basis points in both December of 1995 and January of 1996 to its
current level of 5.25%. The market's perception of slower real growth,
constrained government spending and a benign inflationary environment
resulted in the treasury yield curve steepening as interest rates fell
through the middle of February 1996.
The condition of declining interest rates changed abruptly near the end of
February 1996 as certain key economic reports gave indications that perhaps
the economy was not as weak as anticipated and that the Fed would not find it
necessary to further reduce interest rates. Economic activity may also have
been briefly impacted by the severe winter weather, two federal government
shutdowns and a strike against Boeing Corporation. As a result, interest
rates rose significantly (44 basis points) in the second half of February
1996. Inflation stayed reasonably benign during this period as the core
Producer Price Index showed an increase of only 0.4% for the entire month of
January 1996. There was considerable economic evidence to suggest that
inflation may have been near its cyclical trough. However, conflicting
economic signals continued as consumer confidence, with a reading of 87 in
January 1996, and jobless claims at 359,000 as of February 24, 1996, were
both stronger than consensus estimates. The Purchasing Manager's Index,* with
a reading of 50.9 for January 1996, was also better than market analysts had
expected.
The municipal yield curve flattened during the six-month period ended
February 29, 1996. The basis point spread between the two year and twenty-
five year maturities narrowed by 31 basis points. By way of contrast, the
treasury yield curve became steeper as the spread widened by 24 basis points
between the two year and twenty-five year maturities. The municipal yield
curve has remained steeper than the treasury yield curve due to the
segmentation of demand along the curve. The bulk of new municipal bond
issuance in the market is concentrated in the long end of the curve (20 years
and longer) while demand has been concentrated on the shorter end of the
municipal yield curve (ten years and under). The municipal markets technical
factors, the supply of and demand for municipal bonds, were mixed over the
six-month period ended February 29, 1996. The new supply of municipal debt
continued to be constrained which, combined with heavy redemptions, resulted
in a net overall decline in the amount of municipal debt outstanding. This
situation by itself would have been positive for municipal bond prices.
However, the demand for municipal debt was impacted by the generally low
level of interest rates and the threat of tax reform impact on interest
exemption for municipal bonds. The municipal bond market was able to
outperform the treasury bond market in the first two months of 1996 with the
assistance of higher yields available to investors and the loss of tax reform
momentum.
* The National Association of Purchasing Manager's Index is a diffusion
index that measures the economic activity of the largest manufacturers in
the United States.
During the six-month period ended February 29, 1996, yields in the municipal
bond market, as measured by the Bond Buyer Municipal Index*, fell
consistently to a low of 5.47% on February 13, 1996. The yield on the index
then rose abruptly through the end of February 1996 to finish the six-month
period at 5.71%. The U.S. Treasury bond market reached its low for market
yields on December 29, 1995, at a yield of 5.95%. The long (30 year) treasury
finished the twelve-month period at 6.47% on February 29, 1996.
The fund's management is maintaining a neutral average maturity target as a
result of our outlook on interest rates and the economy. We believe that the
best strategy at this point is to maintain a market neutral duration until
the economy provides a clear signal as to its direction. Economic indicators
have not yet allowed the market to determine, with any conviction, whether
the economy is moving in the direction of a hard landing (recession), re-
acceleration, and a continuation of the bear market or a growth slow down.
The portfolio's income objective involved booking attractive income streams
for distribution to shareholders. Management continues to focus on "essential
service" revenue bonds of stable established projects which can generate
strong cash flow. Examples of such projects would include electric power
authorities and water and sewer utilities. Management has avoided debt backed
by municipal leases such as certificates of participation. These debt
instruments are subject to annual appropriation and present risks which are
not present in bonds backed by a general obligation, full faith and credit
pledge. Insured municipal bonds have also been purchased in the fund.
However, the use of bond insurance is limited to monoline bond insurers who
indemnify municipal obligations only. Management continues to avoid market
discount securities, priced beyond the de minimus rule, so as to avoid
distributing ordinary income to shareholders.
Management continues to favor high-quality securities due to the narrow
credit spreads available in the market place. The basis point spread between
an "AAA" rated general obligation bond and a single "A" rated general
obligation bond is currently 29 basis points. Credit spreads in the municipal
market have not widened to the extent they historically have at this stage of
the business cycle. The narrow credit spreads are a result of the limited
amount of new municipal bond issuance relative to prior years, the low level
of absolute yields available which encourages investors to reach for yield
and the penetration of municipal bond insurers (approximately 40% of the new
issue market). Sectors of the municipal market which management anticipates
will outperform the general market over the next twelve months include water
and sewer utilities, single family housing programs, and transportation and
infrastructure projects. Sectors which are expected to underperform the
market include multifamily housing, resource recovery, and state and local
general obligations. The healthcare and electric revenue sectors are facing
considerable regulatory and legislative changes which may present significant
opportunities to investors who are able to find individual credits that will
perform well in a more competitive operating environment.
Management is not currently allowing the tax reform debate to effect
investment decisions. We believe that it is much too early in the
presidential cycle and political process to consider the talk of major tax
reform as anything more than speculation. Any chance of significant tax
reform occurring before the presidential election is small and would most
likely not occur until after 1997. Municipal bond investors should keep
themselves
* The Bond Buyer's Index is a standard against which municipal bonds are
measured.
focused on relevant investment considerations such as the business cycle,
inflation, and municipal market technicals (supply and demand). Any
overreaction by the market at this point should be considered a buying
opportunity since the probabilities that can be associated with major tax
reform (flat tax or consumption tax) are quite low.
The proposals currently on the table are differing forms of a consumption
tax. These taxing schemes would essentially tax the difference between income
and savings, which of course is consumption. Instead of changing the tax
status of municipal bonds it would alter the taxability of alternative
investment vehicles, which to date, are not federally exempt. This change in
the tax status of traditionally taxable investments would eliminate the
special status of municipal bonds and force them to compete with alternative
investments. Grandfathering would then of course not be an issue for
municipal bonds. We believe that this would be the most significant change in
the tax code possible and has the least chance of eventually becoming the law
of the land. Some form of rate reduction has the most likely chance of
occurring and is probably the most benign of any of the potential tax reform
outcomes. However, a reduction in unearned income tax rates would effect
municipal bonds by reducing the value of the tax exemption. Of course, tax
reform at the federal level would not effect state and local tax rates. Also,
several of the tax reform proposals would not effect the federal
deductibility of state and local taxes on a taxpayer's federal return. In
fact, we would even expect state and local income tax rates to increase to
compensate for the loss of federal dollars. Under these conditions, state and
local tax rates would drive the municipal market, and municipal bonds
originated in specialty states (high tax states) would still derive
considerable value from their tax-exempt status.
From September 1, 1995, to February 29, 1996, net assets of the fund
increased from $70.5 million to $72.6 million. Reflecting market activity,
the net asset value of the fund increased from $11.22 on September 1, 1995,
to $11.47 on February 29, 1996. On that date, the credit breakdown of the
holdings of the fund was: 46.2% in "AAA" issues; 14.5% in "AA" issues; 24.8%
in "A" issues; 12.2% in "BBB" issues; 0% in non-rated issues; and 2.3% in
municipal cash equivalents within the highest rating category.
Municipal securities subject to the federal Alternative Minimum Tax ("AMT")
have been included in the portfolio due to the favorable yield spreads
available from AMT issues. An additional 15 to 25 basis points can be gained
currently as a result of increased issuance of AMT securities in the
municipal market place. The latest Internal Revenue Service figures for 1993
report only 0.28% of the total returns filed being subject to the AMT.
The average purchase yield for new investments by the fund was 6.12%. For the
six-month period ended February 29, 1996, an investor in the fund experienced
a total return of 4.94% based on net asset value and 2.93% based on offering
price.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-96.9%
OHIO-90.9%
$ 400,000 Akron, Bath & Copley, OH Joint Township,
Revenue Bonds, 7.45% (Children's Hospital Medical
Center, Akron)/(United States Treasury PRF)/(Original
Issue Yield: 7.698%), 11/15/2000 (@102) A+ $ 462,704
200,000 Akron, Bath & Copley, OH Joint Township,
Revenue Bonds, 7.45% (Children's Hospital Medical
Center, Akron)/(United States Treasury PRF)/(Original
Issue Yield: 7.698%), 11/15/2000 (@102) Aaa 231,352
750,000 Ashland County, OH, LT GO Bonds, 7.00%
12/1/2011 A 820,815
300,000 Bellefontaine, OH, Storm Water Utility LT GO Bonds
7.05%, 6/1/2011 A 326,847
750,000 Bowling Green State University, OH, Revenue Bonds
6.35% (Original Issue Yield: 6.45%), 6/1/2008 A 809,467
900,000 Brunswick, OH, UT GO Bonds, 7.35% (Original Issue
Yield: 7.446%), 12/1/2010 A 1,012,662
2,500,000 Cleveland, OH Airport System, Revenue Bonds
(Series A), 6.00% (FGIC INS)/(Original Issue Yield:
6.378%), 1/1/2024 Aaa 2,581,325
2,000,000 Cleveland, OH Public Power System, Revenue Bonds,
First Mortgage (Series A), 7.00% (MBIA INS)/(Original
Issue Yield: 7.15%)/11/15/2024 Aaa 2,307,800
2,600,000 Columbus, OH Municipal Airport Authority,
Improvement Revenue Bonds, 6.25% (Port Columbus
Intl Airport )/(MBIA INS)/(Original Issue Yield: 6.35%),
1/1/2024 Aaa 2,733,302
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES- CONTINUED
OHIO-CONTINUED
$ 1,000,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.25% (Fairview General Hospital)/(Original
Issue Yield: 6.321%), 8/15/2010 A1 $ 1,038,500
1,500,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.25% (Meridia Health System)/(Original Issue
Yield: 6.80%), 8/15/2024 A1 1,551,450
800,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.50% (University Hospital of Cleveland)/
(Original Issue Yield: 6.68%), 1/15/2019 AA 836,744
780,000 Cuyahoga County, OH Hospital Authority, Revenue
Refunding Bonds, 6.875% (University Hospital of
Cleveland)/(AMBAC INS)/(Original Issue Yield:
6.954%), 1/15/2019 Aaa 839,530
500,000 Cuyahoga County, OH Hospital Authority, Revenue
Refunding Bonds, 8.00% (Cleveland Clinic)/(Original
Issue Yield: 8.068%), 12/1/2015 Aa 530,035
800,000 Cuyahoga County, OH, UT GO Jail Facilities Bonds,
7.00% (Original Issue Yield: 7.065%), 10/1/2013 Aa 920,600
1,000,000 Eaton, OH IDA, Revenue Refunding Bonds, 6.50%
(Baxter International, Inc.), 12/1/2012 A- 1,037,000
500,000 Franklin County, OH Hospital Facility Authority,
Hospital Revenue Refunding & Improvement Bonds,
7.25% (Riverside United Methodist Hospital)/(MBIA
INS)/(Original Issue Yield: 7.29%), 5/15/2020 Aaa 556,270
260,000 Franklin County, OH Hospital Facility Authority,
Revenue Refunding & Improvement Bonds (Series B),
7.50% (Riverside United Methodist Hospital)/(United
States Treasury PRF)/(Original Issue Yield: 7.60%),
5/15/2000 (@102) Aa 297,796
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES- CONTINUED
OHIO-CONTINUED
$ 2,000,000 Franklin County, OH Hospital Facility Authority,
Revenue Refunding Bonds (Series A), 5.75% (Riverside
United Methodist Hospital)/(Original Issue Yield:
6.10%), 5/15/2020 Aa $ 1,972,800
1,300,000 Hamilton County, OH Health System, Revenue
Refunding Bonds (Providence Hospital) 6.875%
(Franciscan Sisters of Christian Charity HealthCare
Ministry, Inc.)/(Original Issue Yield: 7.05%), 7/1/2015 BBB- 1,336,322
700,000 Hamilton County, OH Hospital Facilities Authority,
Revenue Refunding & Improvement Bonds, 7.00%
(Deaconess Hospital)/(Original Issue Yield: 7.046%),
1/1/2012 A 755,440
2,500,000 Hamilton County, OH Hospital Facilities Authority,
Revenue Refunding Bonds (Series A), 6.25% (Bethesda
Hospital, OH)/(Original Issue Yield: 6.55%), 1/1/2012 A1 2,600,350
440,000 Lakewood, OH Hospital Improvement Authority,
Revenue Refunding Bonds (Series One), 6.00%
(Lakewood Hospital, OH)/(MBIA INS)/(Original Issue
Yield: 6.90%), 2/15/2010 Aaa 450,806
500,000 Lebanon, OH Waterworks System, Revenue
Improvement and Refunding Bonds, 7.10%, 3/1/2008 A 553,520
420,000 Marysville, OH, LT Sewer System GO Bonds, 7.15%,
12/1/2011 A 460,034
650,000 Middleburg Heights, OH, LT GO Bonds, 7.20%,
12/1/2011 Aa 731,783
1,000,000 Montgomery County, OH Health Facilities Authority,
Revenue Bonds (Series A), 6.625% (Sisters of Charity
Health Care System)/(MBIA INS)/(Original Issue Yield:
6.80%), 5/15/2021 Aaa 1,098,550
3,000,000 Moraine, OH Solid Waste Disposal Authority, Revenue
Bonds, 6.75% (General Motors Corp.)/(Original Issue
Yield: 6.80%), 7/1/2014 BBB+ 3,433,200
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES- CONTINUED
OHIO-CONTINUED
$ 500,000 Northeast OH Regional Sewer District, Wastewater
Revenue Bonds, 6.50% (AMBAC INS)/(United States
Treasury PRF)/(Original Issue Yield: 6.85%), 11/15/2001
(@101) Aaa $ 560,680
10,515,000 Ohio HFA, Residential Mortgage Revenue Bonds
(Series B-2), 6.70% (GNMA COL), 3/1/2025 AAA 10,900,059
2,440,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65%
(GNMA COL)/(Original Issue Yield: 7.669%), 3/1/2029 AAA 2,584,594
295,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80%
(GNMA COL), 3/1/2030 Aaa 313,007
2,500,000 Ohio State Air Quality Development Authority, PCR
Refunding Bonds (Series A), 5.95% (Ohio Edison Co.),
5/15/2029 Baa2 2,398,625
1,250,000 Ohio State Air Quality Development Authority, PCR
Refunding Bonds (Series A), 7.45% (Ohio Edison Co.)/
(FGIC INS), 3/1/2016 Aaa 1,396,638
4,800,000 Ohio State Air Quality Development Authority,
Revenue Refunding Bonds, 6.375% (JMG Funding
Limited Partnership)/(AMBAC INS)/(Original Issue
Yield: 6.493%), 1/1/2029 Aaa 5,107,632
2,000,000 Ohio State Department of Transportation, Certificates of
Participation, 6.125% (Rickenbacker, OH Port
Authority), 4/15/2015 A+ 2,000,460
1,700,000 Ohio State Water Development Authority, PCR
Refunding Bonds, 5.95% (Ohio Edison Co.), 5/15/2029 Baa2 1,590,605
650,000 Ohio State Water Development Authority, Pure Water
Revenue Bonds, 7.00% (United States Treasury PRF)/
(Original Issue Yield: 7.65%), 6/1/1998 (@100) A 695,520
350,000 Rocky River, OH City School District, UT GO Bonds
(Series A), 6.90% (Original Issue Yield: 6.98%),
12/1/2011 Aa 383,415
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
OHIO-CONTINUED
$ 500,000 South Euclid, OH, UT GO Refunding Bonds, 7.00%,
12/1/2011 A1 $ 550,215
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 547,895
3,500,000 Toledo-Lucas County, OH Port Authority, Port Facilities
Revenue Refunding Bonds, 5.90% (Cargill, Inc.)/
(Original Issue Yield: 5.981%), 12/1/2015 Aa3 3,572,135
500,000 University of Cincinnati, OH, General Receipts Revenue
Bonds (Series B), 7.00% (Original Issue Yield: 7.05%),
6/1/2011 AA- 553,500
500,000 University of Cincinnati, OH, Revenue Bonds (Series
12), 6.50% (Original Issue Yield: 6.613%), 6/1/2011 AA- 537,980
Total 65,979,964
PUERTO RICO-3.6%
2,400,000 Puerto Rico Electric Power Authority, Revenue Bonds
(Series T), 6.375% (Original Issue Yield: 6.58%),
7/1/2024 A- 2,582,328
VIRGIN ISLANDS-2.4%
1,750,000 Virgin Islands HFA, SFM Revenue Refunding Bonds
(Series A), 6.50% (GNMA COL)/(Original Issue Yield:
6.522%), 3/1/2025 AAA 1,783,040
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED
COST $65,898,121) 70,345,332
SHORT-TERM MUNICIPAL SECURITIES-1.5%
PUERTO RICO-1.5%
1,100,000 Puerto Rico Government Development Bank Weekly
VRDNs (Credit Suisse, Zurich LOC) AA+ 1,100,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) 1,100,000
TOTAL INVESTMENTS (IDENTIFIED COST $66,998,121)(A) $ 71,445,332
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
(a) The cost of investments for federal tax purposes amounts to $66,998,121.
The unrealized appreciation of investments on a federal tax cost basis
amounts to $4,447,211 which is comprised of $4,597,246
appreciation and $150,035 depreciation at February 29, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($72,605,217) at February 29, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <S>
AMBAC - American Municipal Bond Assurance Corporation
COL - Collateralized
FGIC - Financial Guaranty Insurance Co
GNMA - Government National Mortgage Association
GO - General Obligation
HFA - Housing Finance Authority
IDA - Industrial Development Authority
INS - Insured
LOC - Letter of Credit
LT - Limited Tax
MBIA - Municipal Bond Investors Assurance
PCR - Pollution Control Revenue
PRF - Prerefunded
SFM - Single Family Mortgage
UT - Unlimited Tax
VRDNs - Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $66,998,121) $ 71,445,332
Cash 35,265
Income receivable 1,255,881
Receivable for shares sold 50,470
Total assets 72,786,948
LIABILITIES:
Payable for shares redeemed $ 28,985
Income distribution payable 125,217
Accrued expenses 27,529
Total liabilities 181,731
NET ASSETS for 6,330,679 shares outstanding $ 72,605,217
NET ASSETS CONSIST OF:
Paid in capital $ 68,854,562
Net unrealized appreciation of investments 4,447,211
Accumulated net realized loss on investments (757,883)
Undistributed net investment income 61,327
Total Net Assets $ 72,605,217
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($72,605,217 / 6,330,679 shares outstanding) $11.47
Offering Price Per Share (100/99.00 of $11.47)* $11.59
Redemption Proceeds Per Share (99.00/100 of $11.47)** $11.36
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,189,604
EXPENSES:
Investment advisory fee $ 142,243
Administrative personnel and services fee 62,158
Custodian fees 12,625
Transfer and dividend disbursing agent fees and expenses 25,863
Directors'/Trustees' fees 1,456
Auditing fees 6,916
Legal fees 2,002
Portfolio accounting fees 24,846
Distribution services fee 142,243
Shareholder services fee 88,902
Share registration costs 6,552
Printing and postage 8,008
Insurance premiums 2,184
Taxes 728
Miscellaneous 2,366
Total expenses 529,092
Waivers-
Waiver of investment advisory fee $ (118,579)
Waiver of distribution services fee (85,346)
Waiver of shareholder services fee (3,556)
Total waivers (207,481)
Net expenses 321,611
Net investment income 1,867,993
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 220,046
Net change in unrealized appreciation of investments 1,307,628
Net realized and unrealized gain on investments 1,527,674
Change in net assets resulting from operations $ 3,395,667
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income $ 1,867,993 $ 4,028,250
Net realized gain (loss) on investments ($220,046 net gain and $782,520
net loss, respectively, as computed for federal tax purposes) 220,046 (712,819)
Net change in unrealized appreciation (depreciation) 1,307,628 1,576,901
Change in net assets resulting from operations 3,395,667 4,892,332
NET EQUALIZATION CREDITS (DEBITS)- (173) (39,884)
DISTRIBUTIONS TO SHAREHOLDERS -
Distributions from net investment income (1,871,716) (3,954,127)
SHARE TRANSACTIONS -
Proceeds from sale of shares 4,278,071 6,748,209
Net asset value of shares issued to shareholders in payment of
distributions declared 1,140,320 1,562,674
Cost of shares redeemed (4,868,475) (20,243,640)
Change in net assets resulting from share transactions 549,916 (11,932,757)
Change in net assets 2,073,694 (11,034,436)
Net Assets:
Beginning of period 70,531,523 81,565,959
End of period (including undistributed net investment income of
$61,327 and $65,223, respectively) $ 72,605,217 $ 70,531,523
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS - CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.22 $11.01 $11.65 $10.89 $10.40 $10.00
Income from investment operations
Net investment income 0.30 0.60 0.56 0.57 0.61 0.57
Net realized and unrealized gain (loss)
on investments 0.25 0.20 (0.64) 0.77 0.49 0.41
Total from investment operations 0.55 0.80 (0.08) 1.34 1.10 0.98
Less distributions
Distributions from net investment income (0.30) (0.59) (0.56) (0.57) (0.61) (0.57)
Distributions in excess of net investment
income - - - (0.01)(b) - (0.01)(b)
Total distributions (0.30) (0.59) (0.56) (0.58) (0.61) (0.58)
NET ASSET VALUE, END OF PERIOD $11.47 $11.22 $11.01 $11.65 $10.89 $10.40
Total return(c) 4.94% 7.65% (0.72%) 12.69% 10.91% 10.01%
Ratios to average net assets
Expenses 0.90%* 0.90% 0.90% 0.87% 0.73% 0.28%*
Net investment income 5.25%* 5.53% 5.02% 5.13% 5.79% 6.35%*
Expense waiver/reimbursement(d) 0.58%* 0.60% 0.55% 0.83% 1.35% 1.66%*
Supplemental data
Net assets, end of period (000 omitted) $72,605 $70,532 $81,566 $73,973 $28,924 $19,840
Portfolio turnover 3% 33% 20% 0% 0% 11%
</TABLE>
* Computed on an annualized basis.
(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 charge 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (UNAUDITED)
(1) ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, (the "Act") as an open-end, management
investment company. The Trust consists of five, non-diversified portfolios.
The financial statements included herein are only those of Federated 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.
Effective March 31, 1996, the Board of Trustees ("Trustees") changed the name
of the Fund from Ohio Municipal Income Fund to Federated Ohio Municipal
Income Fund and changed the name of Fortress Shares to Class F Shares.
(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.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
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.
FEDERATED OHIO MUNICIPAL INCOME FUND
At August 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $792,780, 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 as
follows:
<TABLE>
<Caption)
Expiration Year Expiration Amount
<S> <C>
2000 $9,665
2002 $595
2003 $782,520
</TABLE>
Additionally, net capital losses of $185,150 attributable to security
transactions incurred after October 31, 1994, are treated as arising
on the first day of the Fund's next taxable year.
EQUALIZATION-The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales
and costs of redemptions of fund shares (equivalent, on a per share
basis, to the amount of undistributed net investment income on the
date of the transaction) is credited or charged to undistributed net
investment income. As a result, undistributed net investment income
per share is unaffected by sales or redemptions of fund shares.
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.
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 over a period of five
years from the Fund's commencement date.
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 29, 1996, 50.4% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of
various financial institutions and financial guaranty assurance
agencies. The value of investments insured by or supported (backed) by
a letter of credit from any one institution or agency did not exceed
21.8% of total investments.
OTHER-Investment transactions are accounted for on the trade date.
FEDERATED OHIO 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 shares were as follows:
<TABLE>
<CAPTION>
SIX
MONTHS YEAR
ENDED ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 371,861 626,737
Shares issued to shareholders in payment of
distributions declared 99,858 144,421
Shares redeemed (425,970) (1,896,511)
Net change resulting from share transactions 45,749 (1,125,353
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.40% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE-The 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
0.40% of the average daily net assets of the Fund, annually, to
compensate FSC. FSC may voluntarily choose to waive a portion of this
fee. FSC can modify or terminate this voluntary waiver at any time at
its sole discretion.
FEDERATED OHIO MUNICIPAL INCOME FUND
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of average daily net assets of the Fund for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive a portion of this fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
INTERFUND TRANSACTIONS-During the period ended February 29, 1996, the
Fund engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $3,700,000 and $2,900,000, respectively.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
Purchases $ 2,000,000
Sales $ 2,320,193
</TABLE>
<TABLE>
<S> <S>
TRUSTEES OFFICERS
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 Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
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.
FEDERATED
OHIO
MUNICIPAL
INCOME
FUND
(formerly, Ohio Muncipal Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
(LOGO)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 625922307
2032305 (4/96)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Pennsylvania
Municipal Income Fund covering the six-month period from September 1, 1995,
through February 29, 1996. The fund's name now begins with "Federated" to
make it easy for investors to locate all Federated funds in newspapers and
other publications.
This report begins with a review of the economy and the municipal market.
Following the review are the fund's portfolio holdings and financial
statements.
Federated Pennsylvania Municipal Income Fund continues to deliver a high
level of tax relief in the form of monthly income that is exempt from federal
regular income tax and Pennsylvania personal income tax.* Also, the shares
are exempt from Pennsylvania personal property tax, which can further
increase your tax benefit.
During the six-month period, the fund's quality portfolio of investment-
grade, long-term Pennsylvania municipal securities achieved a total return of
5.44% based on net asset value.** This return was the result of dividends
totaling $0.32 per share and an increase in share price from $11.23 to
$11.51. On February 29, 1996, the fund's total net assets stood at $86.7
million.
Your investment in this fund is a wise way to pursue tax-free earnings. We
encourage you to increase your holdings to take advantage of this
opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total return for the six-
month period based on offering price was 2.25%.
INVESTMENT REVIEW
The domestic fixed income markets have experienced an interval of increased
uncertainty and volatility over the six-month period ended February 29, 1996.
The cyclical direction of the U.S. economy has been difficult to determine
while technical factors, such as treasury auctions and the Yen carry trade,
have had clear directional impacts on interest rates. During the late summer
and fall of 1995, several economic statistics began to indicate that the
economy was slowing to a greater extent than was acceptable. As a result, the
Federal Reserve Board (the "Fed") felt it was necessary to cut the Federal
Funds rate to provide the economy with enough stimulus to avoid slipping into
recession. The Fed cut the Federal Funds rate to 5.75% in July of 1995 and by
another 25 basis points in both December of 1995 and January of 1996 to its
current level of 5.25%. The market's perception of slower real growth,
constrained government spending and a benign inflationary environment
resulted in the treasury yield curve steepening as interest rates fell
through the middle of February 1996.
The condition of declining interest rates changed abruptly near the end of
February 1996 as certain key economic reports gave indications that perhaps
the economy was not as weak as anticipated and that the Fed would not find it
necessary to further reduce interest rates. Economic activity may also have
been briefly impacted by the severe winter weather, two federal government
shutdowns and a strike against Boeing Corporation. As a result, interest
rates rose significantly (44 basis points) in the second half of February
1996. Inflation stayed reasonably benign during this period as the core
Producer Price Index showed an increase of only 0.4% for the entire month of
January 1996. There was considerable economic evidence to suggest that
inflation may have been near its cyclical trough. However, conflicting
economic signals continued as consumer confidence, with a reading of 87 in
January 1996, and jobless claims at 359,000 as of February 24, 1996, were
both stronger than consensus estimates. The Purchasing Manager's Index,* with
a reading of 50.9 for January 1996, was also better than market analysts had
expected.
The municipal yield curve flattened during the six-month period ended
February 29, 1996. The basis point spread between the two year and twenty-
five year maturities narrowed by 31 basis points. By way of contrast, the
treasury yield curve became steeper as the spread widened by 24 basis points
between the two year and twenty-five year maturities. The municipal yield
curve has remained steeper than the treasury yield curve due to the
segmentation of demand along the curve. The bulk of new municipal bond
issuance in the market is concentrated in the long end of the curve (20 years
and longer) while demand has been concentrated on the shorter end of the
municipal yield curve (ten years and under). The municipal markets technical
factors, the supply of and demand for municipal bonds, were mixed over the
fsix-month period ended February 29, 1996. The new supply of municipal debt
continued to be constrained which, combined with heavy redemptions, resulted
in a net overall decline in the amount of municipal debt outstanding. This
situation by itself would have been positive for municipal bond prices.
However, the demand for municipal debt was impacted by the generally low
level of interest rates and the threat of tax reform impact on interest
exemption for municipal bonds. The municipal bond market was able to
outperform the treasury bond market in the first two months of 1996 with the
assistance of higher yields available to investors and the loss of tax reform
momentum.
* The National Association of Purchasing Manager's Index is a diffusion index
that measures the economic activity of the largest manufacturers in the
United States.
During the six-month period ended February 29, 1996, yields in the municipal
bond market, as measured by the Bond Buyer Municipal Index,* fell
consistently to a low of 5.47 on February 13, 1996. The yield on the index
then rose abruptly through the end of February 1996 to finish the six-month
period at 5.71%. The U.S. Treasury bond market reached its low for market
yields on December 29, 1995, at a yield of 5.95%. The long (30 year) treasury
finished the twelve-month period at 6.47% on February 29, 1996.
The fund's management is maintaining a neutral average maturity target as a
result of our outlook on interest rates and the economy. We believe that the
best strategy at this point is to maintain a market neutral duration until
the economy provides a clear signal as to its direction. Economic indicators
have not yet allowed the market to determine, with any conviction, whether
the economy is moving in the direction of a hard landing (recession), re-
acceleration, and a continuation of the bear market or a growth slow down.
The portfolio's income objective involved booking attractive income streams
for distribution to shareholders. Management continues to focus on "essential
service" revenue bonds of stable established projects which can generate
strong cash flow. Examples of such projects would include electric power
authorities and water and sewer utilities. Management has avoided debt backed
by municipal leases such as certificates of participation. These debt
instruments are subject to annual appropriation and present risks which are
not present in bonds backed by a general obligation, full faith and credit
pledge. Insured municipal bonds have also been purchased in the fund.
However, the use of bond insurance is limited to monoline bond insurers who
indemnify municipal obligations only. Management continues to avoid market
discount securities, priced beyond the de minimus rule, so as to avoid
distributing ordinary income to shareholders.
Management continues to favor high-quality securities due to the narrow
credit spreads available in the market place. The basis point spread between
an "AAA" rated general obligation bond and a single "A" rated general
obligation bond is currently 29 basis points. Credit spreads in the municipal
market have not widened to the extent they historically have at this stage of
the business cycle. The narrow credit spreads are a result of the limited
amount of new municipal bond issuance relative to prior years, the low level
of absolute yields available which encourages investors to reach for yield
and the penetration of municipal bond insurers (approximately 40% of the new
issue market). Sectors of the municipal market which management anticipates
will outperform the general market over the next twelve months include water
and sewer utilities, single family housing programs, and transportation and
infrastructure projects. Sectors which are expected to underperform the
market include multifamily housing, resource recovery, and state and local
general obligations. The healthcare and electric revenue sectors are facing
considerable regulatory and legislative changes which may present significant
opportunities to investors who are able to find individual credits that will
perform well in a more competitive operating environment.
Management is not currently allowing the tax reform debate to effect
investment decisions. We believe that it is much too early in the
presidential cycle and political process to consider the talk of major tax
reform as anything more than speculation. Any chance of significant tax
reform occurring before the presidential election is small and would most
likely not occur until after 1997. Municipal bond investors
* The Bond Buyer's Index is a standard against which municipal bonds are
measured.
should keep themselves focused on relevant investment considerations such as
the business cycle, inflation, and municipal market technicals (supply and
demand). Any overreaction by the market at this point should be considered a
buying opportunity since the probabilities that can be associated with major
tax reform (flat tax or consumption tax) are quite low.
The proposals currently on the table are differing forms of a consumption
tax. These taxing schemes would essentially tax the difference between income
and savings, which of course is consumption. Instead of changing the tax
status of municipal bonds it would alter the taxability of alternative
investment vehicles, which to date, are not federally exempt. This change in
the tax status of traditionally taxable investments would eliminate the
special status of municipal bonds and force them to compete with alternative
investments. Grandfathering would then of course not be an issue for
municipal bonds. We believe that this would be the most significant change in
the tax code possible and has the least chance of eventually becoming the law
of the land. Some form of rate reduction has the most likely chance of
occurring and is probably the most benign of any of the potential tax reform
outcomes. However, a reduction in unearned income tax rates would effect
municipal bonds by reducing the value of the tax exemption. Of course, tax
reform at the federal level would not effect state and local tax rates. Also,
several of the tax reform proposals would not effect the federal
deductibility of state and local taxes on a taxpayer's federal return. In
fact, we would even expect state and local income tax rates to increase to
compensate for the loss of federal dollars. Under these conditions state and
local tax rates would drive the municipal market, and municipal bonds
originated in specialty states (high tax states) would still derive
considerable value from their tax-exempt status.
From September 1, 1995, to February 29, 1996, net assets of the fund
increased from $83.7 million to $86.7 million. Reflecting market activity,
the net asset value of the fund increased from $11.23 on September 1, 1995,
to $11.51 on February 29, 1996. On that date, the credit breakdown of the
holdings of the fund was: 19.9% in "AAA" issues; 17.2% in "AA" issues; 19.2%
in "A" issues; 40.3% in "BBB" issues; 3.0% in non-rated issues; and 0.4% in
municipal cash equivalents within the highest rating category.
Municipal securities subject to the federal Alternative Minimum Tax ("AMT")
have been included in the portfolio due to the favorable yield spreads
available from AMT issues. An additional 15 to 25 basis points can be gained
currently as a result of increased issuance of AMT securities in the
municipal market place. The latest Internal Revenue Service figures for 1993
report only 0.28% of the total returns filed being subject to the AMT.
The average purchase yield for new investments by the fund was 6.52%. For the
six-month period ended February 29, 1996, an investor in the fund experienced
a total return of 5.44% based on net asset value and 2.25% based on offering
price.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-98.3%
PENNSYLVANIA-98.3%
$ 2,000,000 Allegheny County, PA HDA, Health & Education
Revenue Bonds, 7.00% (Rehabilitation Institute of
Pittsburgh)/(Original Issue Yield: 7.132%), 6/1/2022 BBB $ 2,044,280
1,900,000 Allegheny County, PA HDA, Health Facilities Revenue
Refunding Bonds, 6.00% (South Hills Health System)/
(Original Issue Yield: 6.40%), 5/1/2020 A 1,877,124
2,525,000 Allegheny County, PA HDA, Revenue Refunding Bonds,
6.875% (Children's Hospital of Pittsburgh)/(MBIA INS)/
(Original Issue Yield: 7.061%), 7/1/2014 Aaa 2,740,660
500,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds (Series K), 7.75% (GNMA COL),
12/1/2022 Aaa 531,570
775,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds (Series Q), 7.40% (GNMA COL),
12/1/2022 Aaa 826,235
7,000,000 Bradford County, PA IDA, Solid Waste Disposal Revenue
Bonds (Series A), 6.60% (International Paper Co.),
3/1/2019 A- 7,334,740
750,000 Butler County, PA Hospital Authority, Hospital Revenue
Bonds (Series A), 7.00% (North Hills Passavant
Hospital)/(CGIC INS), 6/1/2022 AAA 836,528
1,000,000 Central Bucks, PA School District, UT GO Bonds, 6.90%,
2/1/2008 A1 1,090,360
750,000 Derry Township, PA School District, GO Bonds, 7.00%,
9/15/2009 A1 825,450
1,600,000 Dormont Borough PA, Allegheny County, UT GO Bonds
(Series 1995), 7.00% (United States Treasury PRF)/
(Original Issue Yield: 7.125%), 3/1/2000 (@100) BBB 1,758,016
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
PENNSYLVANIA-CONTINUED
$ 1,000,000 Geisinger Authority, PA Health System, Revenue Bonds,
7.625% (United States Treasury PRF)/(Original Issue
Yield: 7.697%), 7/1/1999 (@102) AA $ 1,128,350
455,000 Hanover, PA Area School District, UT GO Bonds, 7.00%
(FGIC INS), 6/1/2008 Aaa 481,449
1,000,000 Lackawanna Trail School District, PA, UT GO
Refunding Bonds, 6.90% (AMBAC INS), 3/15/2010 Aaa 1,110,120
1,380,000 Latrobe, PA Industrial Development Authority, College
Revenue Bonds, 6.75% (St. Vincent College, PA)/
(Original Issue Yield: 7.00%), 5/1/2024 Baa1 1,416,059
1,875,000 Lebanon County, PA Good Samarital Hospital Authority,
Hospital Revenue Bonds, 6.00% (Good Samaritan
Hospital)/(Original Issue Yield: 6.10%), 11/15/2018 BBB+ 1,767,469
1,000,000 Lehigh County, PA General Purpose Authority, Hospital
Refunding Revenue Bonds (Series 1996A), 5.75%
(Muhlenberg Hospital Center)/(Original Issue Yield:
5.85%), 7/15/2010 A 989,810
2,500,000 Luzerne County, PA IDA, Revenue Refunding Bonds
(Series A), 7.00% (Pennsylvania Gas & Water Company),
12/1/2017 Aaa 2,825,050
4,000,000 Lycoming County PA Authority, Hospital Lease
Revenue Bonds (Series B), 6.50% (Divine Providence
Hospital, PA)/(Original Issue Yield: 6.70%), 7/1/2022 A- 4,355,520
4,000,000 Monroeville, PA Hospital Authority, Hospital Refunding
Revenue Bonds (Series 1995), 6.25% (Forbes Health
System, PA)/(Original Issue Yield: 6.60%), 10/1/2015 Baa1 3,984,080
4,000,000 Pennsylvania EDFA, Revenue Bonds, 7.60% (Macmillan
Bloedel LTD Partnership)/(Original Issue Yield: 7.65%),
12/1/2020 Baa2 4,515,040
8,000,000 Pennsylvania EDFA, Wastewater Treatment Revenue
Bonds (Series A), 7.60% (Sun Co., Inc.)/(Original Issue
Yield: 7.653%), 12/1/2024 Baa1 8,962,080
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
PENNSYLVANIA-CONTINUED
$ 2,290,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bond Bonds (Series 39B), 6.875%, 10/1/2024 AA $ 2,392,249
750,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 33), 6.90%, 4/1/2017 AA 795,165
1,000,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 34-B), 7.00% (FHA GTDs), 4/1/2024 AA 1,047,620
500,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 38), 6.125%, 10/1/2024 AA 507,670
4,540,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series28), 7.65% (FHA GTD), 10/1/2023 AA 4,839,549
2,500,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue Bond, Philadelphia Funding
Program, 6.75% (FGIC INS)/(Original Issue Yield:
7.13%), 6/15/2021 Aaa 2,814,900
1,600,000 Pennsylvania State Higher Education Facilities
Authority, College & University Revenue Bonds
(Series A), 6.625% (University of Pennsylvania)/
(Original Issue Yield: 6.742%), 1/1/2017 Aa 1,625,504
1,000,000 Pennsylvania State Higher Education Facilities
Authority, Hospital Revenue Bonds (Series A), 7.25%
(Allegheny General Hospital)/(Original Issue Yield:
7.40%), 9/1/2017 AA- 1,079,400
4,000,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds (Series A), 7.375% (Medical
College of Pennsylvania)/(Original Issue Yield: 7.45%),
3/1/2021 Baa1 4,152,360
2,000,000 Pennsylvania State Higher Education Facilities
Authority, Revenue Bonds, 6.375% (Drexel University)/
(Original Issue Yield: 6.415%), 5/1/2017 BBB+ 2,064,200
4,000,000 Philadelphia, PA, (Series 1995A) Airport Revenue Bonds,
6.10% (Philadelphia Airport System)/(AMBAC INS)/
(Original Issue Yield: 6.40%), 6/15/2025 Aaa 4,143,320
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES-CONTINUED
PENNSYLVANIA-CONTINUED
$ 600,000 Pittsburgh, PA Water & Sewer Authority, Water & Sewer
System Revenue Refunding Bonds, 7.25% (United States
Treasury COL)/(Original Issue Yield: 7.766%), 9/1/2014 Aaa $ 712,236
2,500,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series 1994-A), 7.60% (Allied Services
Rehabilitation Hospitals, PA), 7/15/2020 NR 2,604,375
2,650,000 Sharon, PA General Hospital Authority, Hospital
Revenue Bonds, 6.875% (Sharon Regional Health
System), 12/1/2022 BBB+ 2,686,093
1,000,000 Swarthmore Boro Authority PA, College Revenue
Bonds, 7.375% (Swarthmore College)/(United States
Treasury PRF)/(Original Issue Yield: 7.416%),
9/15/2000 (@102) AA 1,137,470
1,000,000 Warren County, PA Hospital Authority, Revenue Bonds
(Series A), 7.00% (Warren General Hospital, PA)/
(Original Issue Yield: 7.101%), 4/1/2019 BBB+ 1,015,440
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $78,787,662)(A) $ 85,017,541
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $78,787,662.
The unrealized appreciation of investments on a federal tax basis amounts
to $6,229,879 which is comprised of $6,318,524 appreciation and $88,645
depreciation at February 29, 1996.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($86,684,670) at February 29, 1996.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
The following acronym(s) are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC - American Municipal Bond Assurance Corporation
CGIC - Capital Guaranty Insurance Corporation
COL - Collateralized
EDFA - Economic Development Financing Authority
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Administration
GNMA - Government National Mortgage Association
GO - General Obligation
GTD - Guaranty
HDA - Hospital Development Authority
IDA - Industrial Development Authority
INS - Insured
LTD - Limited
MBIA - Municipal Bond Investors Assurance
PRF - Prerefunded
SFM - Single Family Mortgage
UT - Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $78,787,662) $ 85,017,541
Cash 34,245
Interest receivable 1,779,736
Receivable for shares sold 33,020
Total assets 86,864,542
LIABILITIES:
Payable for shares redeemed $ 8,155
Income distribution payable 148,837
Accrued expenses 22,880
Total liabilities 179,872
NET ASSETS for 7,529,456 shares outstanding $ 86,684,670
NET ASSETS CONSIST OF:
Paid in capital $ 82,606,065
Net unrealized appreciation of investments 6,229,879
Accumulated net realized loss on investments (2,332,292)
Undistributed net investment income 181,018
Total Net Assets $ 86,684,670
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($86,684,670 / 7,529,456 shares outstanding) $11.51
Offering Price Per Share (100/97.00 of $11.51)* $11.87
Redemption Proceeds Per Share** $11.51
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,757,751
EXPENSES:
Investment advisory fee $ 170,001
Administrative personnel and services fees 62,158
Custodian fees 12,112
Transfer and dividend disbursing agent fees and expenses 18,233
Directors'/Trustees' fees 910
Auditing fees 6,916
Legal fees 6,006
Portfolio accounting fees 24,905
Shareholder services fee 106,251
Share registration costs 6,734
Printing and postage 11,102
Insurance premiums 2,184
Miscellaneous 7,280
Total expenses 434,792
Waivers-
Waiver of investment advisory fee $ (105,670)
Waiver of shareholder services fee (8,500)
Total waivers (114,170)
Net expenses 320,622
Net investment income 2,437,129
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 154,252
Net change in unrealized appreciation of investments 1,971,492
Net realized and unrealized gain on investments 2,125,744
Change in net assets resulting from operations $ 4,562,873
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 29, AUGUST 31
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 2,437,129 $ 5,043,454
Net realized gain (loss) on investments ($154,252 net gain and
$1,036,056 net loss, respectively, as computed for federal tax
purposes) 154,252 (1,957,166)
Net change in unrealized appreciation (depreciation) 1,971,492 3,480,605
Change in net assets resulting from operations 4,562,873 6,566,893
NET EQUALIZATION CREDITS (DEBITS)- 1,234 (4,832)
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares (2,420,414) (4,814,395)
Income Shares - (83,724)
Change in net assets resulting from distributions to shareholders (2,420,414) (4,898,119)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME)-
Proceeds from sale of shares 3,733,331 18,979,060
Net asset value of shares issued to shareholders in payment of
distributions declared 1,528,805 2,687,386
Cost of shares redeemed (4,443,228) (34,449,869)
Change in net assets resulting from share transactions 818,908 (12,783,423)
Change in net assets 2,962,601 (11,119,481)
NET ASSETS:
Beginning of period 83,722,069 94,841,550
End of period (including undistributed net investment income of
$181,018 and $163,069, respectively) $ 86,684,670 $ 83,722,069
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS-CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.23 $10.94 $11.68 $10.93 $10.44 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.65 0.60 0.60 0.627 0.588
Net realized and unrealized gain (loss) on
investments 0.28 0.27 (0.75) 0.75 0.493 0.456
Total from investment operations 0.60 0.92 (0.15) 1.35 1.120 1.044
LESS DISTRIBUTIONS
Distributions from net investment
income (0.32) (0.63) (0.59) (0.60) (0.627) (0.588)
Distributions in excess of net investment
income(c) - - - - (0.003) (0.016)
Total distributions (0.32) (0.63) (0.59) (0.60) (0.630) (0.604)
NET ASSET VALUE, END OF PERIOD $11.51 $11.23 $10.94 $11.68 $10.93 $10.44
TOTAL RETURN(B) 5.44% 8.76% (1.34%) 12.71% 11.06% 10.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.75%* 0.75% 0.75% 0.83% 0.73% 0.26%*
Net investment income 5.73%* 5.92% 5.27% 5.33% 5.88% 6.45%*
Expense waiver/reimbursement(d) 0.27%* 0.28% 0.45% 0.70% 0.97% 1.24%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $86,685 $83,722 $85,860 $69,947 $48,261 $31,067
Portfolio turnover 9% 59% 17% 0% 0% 10%
</TABLE>
* Computed on an annualized basis.
(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 charge 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS-INCOME SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995(A) 1994 1993(B)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.85 $11.68 $11.43
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.19 0.51 0.09
Net realized and unrealized gain (loss) on
investments (1.00) (0.75) 0.21
Total from investment operations (0.81) (0.24) 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.15) (0.51) (0.05)
Distributions in excess of net investment income - (0.08)(e) -
Total distributions (0.15) (0.59) (0.05)
NET ASSET VALUE, END OF PERIOD $ 9.89 $10.85 $11.68
TOTAL RETURN(C) (8.00%) (2.13%) 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%* 1.50% 1.48%*
Net investment income 5.38%* 4.62% 6.13%*
Expense waiver/reimbursement(d) 0.26%* 0.45% 0.60%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) - $8,982 $2,419
Portfolio turnover 59% 17% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1994 to November 18,
1994 (date Income Shares ceased operations).
(b) Reflects operations for the period from July 29, 1993 (date of initial
public investment) to August 31, 1993.
(c) Based on net asset value, which does not reflect the sales charge 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) 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (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. The Trust consists of five non-diversified
portfolios. The financial statements included herein are only those of
Federated Pennsylvania Municipal Income Fund (the "Fund"), a non-diversified
portfolio. 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 March 31, 1996, the Board of Trustees ("Trustees") changed the name
of the Fund from Pennsylvania Municipal Income Fund to Federated Pennsylvania
Municipal Income Fund.
Previously, the Fund provided two classes of shares ("Class A Shares" and
"Income Shares"). As of November 18, 1994, the Income 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.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
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.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
At August 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $1,048,956, 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 as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2000 $12,837
2001 $63
2003 $1,036,056
</TABLE>
Additionally, net capital losses of $1,437,588 attributable to
security transactions incurred after October 31, 1994, are treated as
arising on the first day of the Fund's next taxable year.
EQUALIZATION-The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales
and costs of redemptions of fund shares (equivalent, on a per share
basis, to the amount of undistributed net investment income on the
date of the transaction) is credited or charged to undistributed net
investment income. As a result, undistributed net investment income
per share is unaffected by sales or redemptions of fund shares.
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.
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 over a period of five
years from the Fund's commencement date.
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 29, 1996, 28.4% of the securities in the portfolio of
investments are backed by letters of credit or bond insurance of
various financial institutions and financial guaranty assurance
agencies. The value of investments insured by or supported (backed) by
a letter of credit from any one institution or agency did not exceed
5.7% of total investments.
OTHER-Investment transactions are accounted for on the trade date.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
3. SHARES OF BENEFICIAL INTEREST
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR END
FEBRUARY 29, 1996 AUGUST 31, 1995
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 326,033 $ 3,733,331 4,627,974 $ 18,593,886
Shares issued to shareholders in payment
of distributions declared 134,098 1,528,805 242,874 2,621,531
Shares redeemed (389,018) (4,443,228) (5,262,476) (25,822,912)
Net change resulting from share transactions 71,113 $ 818,908 (391,628) $ (4,607,495)
</TABLE>
<TABLE>
<CAPTION>
Year End
August 31, 1995(a)
<S> <C> <C>
Income Shares Shares Dollars
Shares sold 39,353 $ 385,174
Shares issued to shareholders in
payment of distributions declared 6,434 65,855
Shares redeemed (873,482) (8,626,957)
Net change resulting from share transactions (827,695) $(8,175,928)
</TABLE>
(a) Reflect operations for the period from September 1, 1993 to November 18,
1994 (date Income Shares ceased operations).
INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.40% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors 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.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of daily average net assets of the Fund for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholders Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
INTERFUND TRANSACTIONS-During the period ended February 29, 1996, the
Fund engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $4,650,000 and $4,650,000, respectively.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 7,525,810
SALES $ 6,715,500
</TABLE>
<TABLE>
<S> <S>
TRUSTEES OFFICERS
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 Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
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.
FEDERATED
PENNSYLVANIA
MUNICIPAL
INCOME
FUND
(formerly, Pennsylvania Muncipal Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
(LOGO)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 625922505
2032304 (4/96)
