MUNICIPAL SECURITIES INCOME TRUST, N-30D, 1996-10-31

MUNICIPAL SECURITIES INCOME TRUST
N-30D, 1996-10-31

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Federated Pennsylvania Municipal Income Fund
(Class A Shares)

ANNUAL REPORT FOR FISCAL YEAR ENDED AUGUST 31, 1996

MANAGEMENT DISCUSSION AND ANALYSIS

During the twelve-month period ended August 31, 1996, the municipal bond
market continued to exhibit the attributes which had been predominant since
the beginning of the fiscal year. Tight credit spreads, interest rate
volatility, a steep yield curve and a limited supply of bonds are all
characteristics of the municipal bond market during this period. The Bond
Buyer Municipal Index* reflected the volatility which existed over this
period. Interest rates began September of 1995 at 6.03% and subsequently
rallied to a low for the twelve-month period of 5.47% on February 13, 1996.
A trading range for the market then developed of between 6.00% and 6.20%
from March through August of 1996, as market expectations vacilated between
stronger growth, which would typically require a Federal Reserve Board ("the
Fed") tightening and slower economic growth, which would likely leave the
Fed on hold. The municipal yield curve remains considerably steeper than the
Treasury yield curve, due mainly to supply and demand imbalances which exist
along different segments of the maturity spectrum. Currently, the spread
between bonds of ten and thirty years in maturity is in excess of 70 basis
points while the spread in the same maturity range of the Treasury yield
curve is approximately 21 basis points. The ratio of "AAA" rated general
obligation municipal bond yields to Treasury bond yields narrowed
considerably over the fiscal year in the ten to thirty year portion of the
municipal yield curve. This ratio can provide some indication as to the
richness or cheapness of municipal bonds versus comparable maturity Treasury
securities. This ratio has narrowed, or municipal bonds have become more
expensive relative to Treasury securities, as a result of improved retail
participation in the market and the erosion of the market premium for tax
reform.

Pennsylvania's economy has continued to lag other mid-Atlantic states in
areas such as job creation, infrastructure development and business
expansion. In general, Pennsylvania trades 10 to 15 basis points cheaper
than Ohio or Michigan paper as a result of credit quality and market supply
differences. Municipal bond insurance has become a significant factor in the
Pennsylvania municipal bond market with approximately 69% of the state's
issuance coming to the market insured in the calendar year 1995. The supply
of municipal bonds in the market is a very important technical factor which
can have a considerable impact on relative performance.

Because of the considerable supply constraints that exist in the market,
duration management and yield curve positioning have been a more suitable
way to add performance than individual security selection. Duration has been
kept near the peer group average (7.5 years), which is considered a neutral
duration position. Management continues to target the 15-20 year portion of
the yield curve which can provide the best risk/return tradeoff. Portfolio
strategy continues to emphasize credit quality. The yield spread between a
"AAA" rated insured municipal bond and an "A" rated revenue bond is
currently approximately 18 basis points, which is less than the average
spread (25 basis points) over the last 12 months.

* The Bond Buyer Municipal Index is a standard against which municipal bonds
are measured. This index is unmanaged.

Federated Pennsylvania Municipal Income Fund's performance over the past
fiscal year reflects the fund's neutral duration position relative to the
fund's peer group. The fund's total return, was 3.75%** for the period
September 1, 1995 to August 31, 1996. The concentration of high coupon
premium bonds in the portfolio helped to dampen net asset value volatility
over the period. The fund posted a 30-day distribution rate of 5.65%,**
based on net asset value, as of August 31, 1996, which is comparable to a
yield of 9.35% on a taxable equivalent basis, assuming a top marginal tax
rate of 39.6%. The fund's yield for the 30-day period ended August 31, 1996
was 5.11%.** As interest rates rose over the fiscal year, management took
the opportunity to improve the fund's yield by "couponing up," or swapping
into bonds with better yield characteristics, while also recognizing tax
losses which can be used to offset future realized capital gains.

** Performance quoted reflects 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. The fund's
30-day distribution rate based on offering price was 5.48%.

Federated Pennsylvania Municipal Income Fund
(Class A Shares)

GROWTH OF $10,000 INVESTED IN FEDERATED PENNSYLVANIA
MUNICIPAL INCOME FUND
(CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Pennsylvania Municipal Income Fund (Class A Shares) (the "Fund")
from October 11, 1990 (start of performance) to August 31, 1996, compared to
the Lehman Brothers Revenue Bond Index (LBRBI)<.

["Graphic representation A1 omitted. See Appendix."]

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

This report must be preceded or accompanied by the Fund's prospectus dated
October 31, 1996, and, together with financial statements contained therein,
constitutes the Fund's annual report.

* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 3.00% ($10,000 investment minus $300
sales charge = $9,700) which was effective on October 11, 1990. Effective
November 1, 1996, the maximum sales charge has been increased to 4.50%. The
Fund's performance assumes the reinvestment of all dividends and
distributions. The LBRBI has been adjusted to reflect reinvestment of
dividends on securities in the index.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

< The LBRBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.

[Graphic]

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.

[Graphic]

Cusip 625922505
G00577-01 (10/96)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND

(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND

(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS A SHARES

PROSPECTUS

The Class A Shares of Federated Pennsylvania Municipal Income Fund (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Municipal Securities Income Trust (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund is
to provide current income which is exempt from federal regular income tax
and the personal income taxes imposed by the Commonwealth of Pennsylvania.
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and Pennsylvania state and local
income tax ("Pennsylvania Municipal Securities"). These securities include
those issued by or on behalf of the Commonwealth of Pennsylvania and
Pennsylvania municipalities, as well as those issued by states, territories
and possessions of the United States which are exempt from federal regular
income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania and Pennsylvania municipalities.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class A Shares. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, dated October 31, 1996, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free
of charge by calling 1-800-341-7400. To obtain other information or to make
inquiries about the Fund, contact your financial institution. The Statement
of Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated October 31, 1996

TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS -- CLASS A SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
NET ASSET VALUE 7
INVESTING IN CLASS A SHARES 7
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Eliminating/Reducing the Sales Charges 9
Systematic Investment Program 11
Certificates and Confirmations 11
Dividends and Distributions 11
EXCHANGE PRIVILEGE 11
Requirements for Exchange 11
Tax Consequences 12
Making an Exchange 12
REDEEMING CLASS A SHARES 12
Through a Financial Institution 13
Directly from the Fund 13
Contingent Deferred Sales Charge 14
Systematic Withdrawal Program 14
Accounts with Low Balances 14
TRUST INFORMATION 15
Management of the Trust 15
Distribution of Class A Shares 16
Administration of the Fund 17
SHAREHOLDER INFORMATION 17
Voting Rights 17
TAX INFORMATION 18
Federal Income Tax 18
Pennsylvania Taxes 19
State and Local Taxes 19
PERFORMANCE INFORMATION 19
FINANCIAL HIGHLIGHTS -- INCOME SHARES 20
FINANCIAL STATEMENTS 21
INDEPENDENT AUDITORS' REPORT 34
ADDRESSES 35

SUMMARY OF FUND EXPENSES

CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)(1) 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(2) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(3) 0.17%
12b-1 Fee(4) 0.00%
Total Other Expenses 0.58%
Shareholder Services Fee (after waiver)(5) 0.23%
Total Operating Expenses(6) 0.75%
</TABLE>

(1) The maximum sales charge imposed on purchases for the fiscal year ended
August 31, 1996 was 3.00%. Effective November 1, 1996, the maximum sales
charge has been increased to 4.50%.

(2) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50% for redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge."

(3) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.

(4) The class did not pay or accrue 12b-1 fees during the fiscal year ended
August 31, 1996. The class has no present intention of paying or accruing
the 12b-1 fee during the fiscal year ending August 31, 1997. If the class
were paying or accruing the 12b-1 fee, the class would be able to pay up to
0.40% of its average daily net assets for the 12b-1 fee. See "Trust
Information."

(5) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
services provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(6) The total operating expenses would have been 1.00% absent the voluntary
waivers of a portion of the management fee and a portion of the shareholder
services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class A Shares" and "Trust
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return;
(2) redemption at the end of each time period;
and (3) payment of the maximum sales charge $52 $68 $85 $134
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS -- CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 34.
<TABLE>
<CAPTION>
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 0.65 0.65 0.60 0.60 0.627 0.588
Net realized and unrealized gain
(loss) on investments 0.12 0.27 (0.75) 0.75 0.493 0.456
Total from investment operations 0.77 0.92 (0.15) 1.35 1.120 1.044
LESS DISTRIBUTIONS
Distributions from net investment
income (0.65) (0.63) (0.59) (0.60) (0.627) (0.588)
Distributions in excess of net
investment income -- -- -- -- (0.003)(c) (0.016)(c)
Total distributions (0.65) (0.63) (0.59) (0.60) (0.630) (0.604)
NET ASSET VALUE, END OF PERIOD $11.35 $11.23 $10.94 $11.68 $10.93 $10.44
TOTAL RETURN(B) 6.99% 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%(e)
Net investment income 5.73% 5.92% 5.27% 5.33% 5.88% 6.45%(e)
Expense waiver/reimbursement(d) 0.25% 0.28% 0.45% 0.70% 0.97% 1.24%(e)
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $84,116 $83,722 $85,860 $69,947 $48,261 $31,067
Portfolio turnover 23% 59% 17% 0% 0% 10%
</TABLE>

(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.

(e) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

Further Information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. With respect to the
Fund, as of the date of this prospectus, the Board of Trustees (the
"Trustees") has established one class of shares, known as Class A Shares
("Shares").

The Fund is designed for customers of financial institutions such as banks,
fiduciaries, investment advisers, and broker/dealers as a convenient means
of accumulating an interest in a professionally managed, non-diversified
portfolio investing primarily in Pennsylvania Municipal Securities. A
minimum initial investment of $1,000 is required. The Fund is not likely to
be a suitable investment for non-Pennsylvania taxpayers or retirement plans
since Pennsylvania Municipal Securities are not likely to produce
competitive after tax yields for such persons and entities when compared to
other investments.

Except as otherwise noted in this prospectus, Shares are sold at net asset
value plus an applicable sales charge and redeemed at net asset value.

The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax (federal regular income tax does not
include the federal alternative minimum tax) and the personal income taxes
imposed by the Commonwealth of Pennsylvania. The investment objective cannot
be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so
by following the investment policies described in this prospectus.

The Fund invests its assets so at least 80% of its annual interest income is
exempt from federal regular income tax and the Commonwealth of Pennsylvania
personal income taxes. Interest income of the Fund that is exempt from the
income taxes described above retains its exempt status when distributed to
the Fund's shareholders. However, income distributed by the Fund may not
necessarily be exempt from state or municipal taxes in states other than
Pennsylvania.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing in a portfolio of
Pennsylvania Municipal Securities. Unless indicated otherwise, the
investment policies of the Fund may be changed by the Trustees without
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include:

* obligations issued by or on behalf of the Commonwealth of Pennsylvania,
its political subdivisions, or agencies;

* debt obligations of any state, territory, or possession of the United
States, or any political subdivision of any of these; and

* participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Fund and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income taxes imposed by the Commonwealth of Pennsylvania. At least
80% of the value of the Fund's total assets will be invested in Pennsylvania
Municipal Securities.

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.
CHARACTERISTICS. The securities which the Fund buys are investment grade
bonds rated, at the time of purchase, Aaa, Aa, A, or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A, or BBB by Standard &
Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"). In
certain cases the Fund's investment adviser may choose bonds which are
unrated if it determines that such bonds are of comparable quality or have
similar characteristics to the investment grade bonds described above. If
the Fund purchases an investment grade bond, and the rating of such bond is
subsequently downgraded so that the bond is no longer classified as
investment grade, the Fund is not required to drop the bond from the
portfolio, but will consider whether such action is appropriate. Bonds rated
"BBB" by S&P or Fitch or "Baa" by Moody's. have speculative characteristics.
Changes in economic or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. A description of the rating categories is contained in the Appendix
to the Statement of Additional Information.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Pennsylvania Municipal Securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Trustees
will determine that participation interests meet the prescribed quality
standards for the Fund.

VARIABLE RATE MUNICIPAL SECURITIES. Some of the Pennsylvania Municipal
Securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily based on a published interest rate,
interest rate index, or a similar standard, such as the 91-day U.S. Treasury
bill rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Fund in not more than seven days. All variable
rate municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund on the basis of published
financial information and reports of the rating agencies and other
analytical services.

MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation certificate on any of the above. Lease obligations may be
subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. In the event of failure of appropriation, unless the participation
interests are credit enhanced, it is unlikely that the participants would be
able to obtain an acceptable substitute source of payment.

RESTRICTED SECURITIES. As a matter of fundamental policy, the Fund may
invest up to 10% of its net assets in restricted securities. Restricted
securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies but which are subject to
restriction upon resale under federal securities laws. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Trustees to be liquid, to 15% of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay more/less than
the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter in
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.

TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
Commonwealth of Pennsylvania personal income taxes. However, from time to
time when the investment adviser determines that market conditions call for
a temporary defensive posture, the Fund may invest in short-term
non-Pennsylvania municipal tax-exempt obligations or taxable temporary
investments. These temporary investments include: notes issued by or on
behalf of municipal or corporate issuers; obligations issued or guaranteed
by the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the
Fund a bond or temporary investment agrees at the time of sale to repurchase
it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to those
rated within the investment grade categories described under "Acceptable
Investments -- Characteristics" (if rated) or those which the investment
adviser judges to have the same characteristics as such investment grade
securities (if unrated). Although the Fund is permitted to make taxable,
temporary investments, there is no current intention of generating income
subject to federal regular income tax or the Commonwealth of Pennsylvania
personal income taxes.

PENNSYLVANIA MUNICIPAL SECURITIES

Pennsylvania Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.

Pennsylvania Municipal Securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid to
acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. However, interest on and principal of
revenue bonds are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.

INVESTMENT RISKS

Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including, but not limited to: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. Further, any adverse economic
conditions or developments affecting the Commonwealth of Pennsylvania or its
municipalities could impact the Fund's portfolio. The ability of the Fund to
achieve its investment objective also depends on the continuing ability of
the issuers of Pennsylvania Municipal Securities and participation
interests, or the guarantors of either, to meet their obligations for the
payment of interest and principal when due. Investing in Pennsylvania
Municipal Securities which meet the Fund's quality standards may not be
possible if the Commonwealth of Pennsylvania or its municipalities do not
maintain their current credit ratings. In addition, any Pennsylvania
constitutional amendments, legislative measures, executive orders,
administrative regulations, and voter initiatives could result in adverse
consequences affecting Pennsylvania Municipal Securities.

A further discussion of the risks of a portfolio which invests largely in
Pennsylvania Municipal Securities is contained in the Statement of
Additional Information.

NON-DIVERSIFICATION

The Fund is a non-diversified investment portfolio. As such, there is no
limit on the percentage of assets which can be invested in any single
issuer. An investment in the Fund, therefore, will entail greater risk than
would exist in a diversified portfolio of securities because the higher
percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of the Fund's portfolio. Any economic,
political, or regulatory developments affecting the value of the securities
in the Fund's portfolio will have a greater impact on the total value of the
portfolio than would be the case if the portfolio were diversified among
more issuers.

The Fund intends to comply with Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). This undertaking requires that at the end of
each quarter of the taxable year: (a) with regard to at least 50% of the
Fund's total assets, no more than 5% of its total assets are invested in the
securities of a single issuer and (b) no more than 25% of its total assets
are invested in the securities of a single issuer.

INVESTMENT LIMITATIONS

The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for
a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of total assets to secure such borrowings.

In order to pass-through to investors the tax-free income from the Fund for
purposes of the Commonwealth of Pennsylvania personal income taxes, the Fund
will invest in securities for income earnings rather than trading for
profit. The Fund will not vary its investments, except to: (i) eliminate
unsafe investments and investments not consistent with the preservation of
the capital or the tax status of the investments of the Fund; (ii) honor
redemption orders, meet anticipated redemption requirements, and negate
gains from discount purchases; (iii) reinvest the earnings from securities
in like securities; or (iv) defray normal administrative expenses (the
"Pennsylvania Investment Restrictions"). Legislation enacted in December
1993, eliminates the necessity of the Pennsylvania Investment Restrictions.

The above investment limitation cannot be changed without shareholder
approval. The following limitation, however, can be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.

The Fund will not invest more than 5% of its total assets in industrial
development bonds when the payment of principal and interest is the
responsibility of companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation of any
predecessor.

NET ASSET VALUE

The Fund's net asset value per Share fluctuates. It is determined by
dividing the sum of market value of all securities and all other assets,
less liabilities, by the number of Shares outstanding.

INVESTING IN CLASS A SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has
a sales agreement with the distributor, or directly from the distributor,
Federated Securities Corp., once an account has been established. The Fund
reserves the right to reject any purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or broker/dealer) to place an order to purchase
Shares. Orders through a financial institution are considered received when
the Fund is notified of the purchase order. Purchase orders through a
financial institution must be received by the financial institution before
4:00 p.m. (Eastern time) and must be transmitted by the financial
institution to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.

DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established.
To do so: complete and sign the new account form available from the Fund;
enclose a check made payable to Federated Pennsylvania Municipal Income Fund
- -- Class A Shares; and mail both to Federated Pennsylvania Municipal Income
Fund, P.O. Box 8600, Boston, MA 02266-8600.

The order is considered received after the check is converted by the
transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after
State Street Bank receives the check.

To purchase Shares directly from Federated Securities Corp. by Federal
Reserve wire once an account has been established, call the Fund. All
information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: Federated Shareholder Services Company,
c/o State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Pennsylvania Municipal Income Fund --
Class A Shares; (Fund Number -- this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and Order
Number; Group Number or Dealer Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,000. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value, less any applicable sales charge,
next determined after an order is received:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
A PERCENTAGE A PERCENTAGE AS A PERCENTAGE
OF PUBLIC OF NET AMOUNT OF PUBLIC
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
</TABLE>

* See sub-section entitled "Dealer Concession."

No sales charge is imposed for Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other
fee by the financial intermediary. Additionally, no sales charge is imposed
on shareholders designated as Liberty Life Members or on Shares purchased
through "wrap accounts" or similar programs under which clients pay a fee
for services.

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Under certain circumstances described under "Redeeming Class A Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time shares are redeemed.

DEALER CONCESSION. For sales of Shares, the distributor will normally offer
to pay dealers up to 90% of the applicable sales charge. Any portion of the
sales charge which is not paid to a dealer will be retained by the
distributor. However, the distributor may offer to pay dealers up to 100% of
the sales charge retained by it. Such payments may take the form of cash or
promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items
of material value. In some instances, these incentives will be made
available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the
investor pays no sales charge; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price
over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

The sales charge for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp. Federated
Securities Corp. may pay fees to banks out of the sales charge in exchange
for sales and/or administrative services performed on behalf of the bank's
customers in connection with the initiation of customer accounts and
purchases of Shares.

ELIMINATING/REDUCING THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Shares
through:

* quantity discounts and accumulated purchases;

* signing a 13-month letter of intent;

* using the reinvestment privilege;

* concurrent purchases; or

* purchases with proceeds from redemptions of unaffiliated investment
companies.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge
effective as of the date on which the Fund confirms the previous purchases
(which under normal circumstances, would be the date on which the Fund
received the notice from the shareholder that Shares are already owned.)

LETTER OF INTENT. If a shareholder intends to purchase a specific dollar
amount of Shares over the next 13 months, the sales charge may be reduced if
the shareholder signs a letter of intent to that effect. For example, if a
shareholder intends to purchase at least $100,000 in Shares, the letter of
intent shall include a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for
the custodian to hold 4.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The applicable portion of the 4.50% held in escrow will be applied to the
shareholder's account at the end of the 13-month period unless the amount
specified in the letter of intent is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize
the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase Shares,
but if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90
days towards the dollar fulfillment of the letter of intent. Prior trade
prices will not be adjusted.

REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
charge. If the shareholder redeems his Shares, there may be tax
consequences.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
elimination, a shareholder has the privilege of combining concurrent
purchases of Class A Shares of two or more funds for which affiliates of
Federated Investors serve as investment advisers or principal underwriter
(the "Federated Funds"), the purchase prices of which include a sales
charge. For example, if a shareholder concurrently invested $80,000 in one
of the other Class A Shares of the Federated Funds and $20,000 in Shares,
the sales charge would be reduced. To receive this sales charge elimination,
Federated Securities Corp. must be notified by the shareholder in writing or
by his financial institution at the time the concurrent purchases are made.
The Fund will eliminate the sales charge after it confirms the purchases.

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES. Investors may purchase Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an investment
company which was sold with a sales charge or commission and was not
distributed by Federated Securities Corp. The purchase must be made within
60 days of the redemption, and Federated Securities Corp. must be notified
by the investor in writing, or by his financial institution, at the time the
purchase is made. From time to time, the Fund may offer dealers a payment of
.50 of 1% for Shares purchased under this program. If Shares are purchased
in this manner, Fund purchases will be subject to a contingent deferred
sales charge for one year from the date of purchase.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Shares at the net asset value
next determined after an order is received by Federated Shareholder Services
Company, plus the applicable sales charge. A shareholder may apply for
participation in this program through his financial institution.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing to the transfer agent.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly to all shareholders invested in the
Fund on the record date. Distributions of any net realized long-term capital
gains will be made at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares on payment
dates at the ex-dividend date net asset value without a sales charge, unless
shareholders request cash payments on the new account form or by writing to
Federated Shareholder Services Company. All shareholders on the record date
are entitled to the dividend.

EXCHANGE PRIVILEGE

Class A shareholders may exchange all or some of their Shares for Class A
Shares of other Federated Funds at net asset value. Neither the Fund nor any
of the Federated Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange all or some of
their shares for Class A Shares.

Shareholders of Class A Shares who have been designated Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between
the Class A Shares of any Federated Fund, as long as they maintain a $500
balance in one of the Federated Funds. Instructions for exchanging Shares
must be given in writing by the shareholder. Written instructions may
require a signature guarantee.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive the prospectus of the fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, Shares submitted for
exchange are redeemed and the proceeds invested in shares of the other fund.
The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon circumstances, a capital gain or loss
may be realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Federated Funds may be given in writing
or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to: Federated
Shareholder Services Company, 1099 Hingham Street, Rockland, Massachusetts
02370-3317.

Shareholders who desire to automatically exchange Shares of a predetermined
amount on a monthly, quarterly, annual, or other periodic basis may take
advantage of a systematic exchange privilege. Further information on these
exchange privileges is available by calling Federated Securities Corp. or
the shareholder's financial institution.

TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor
is on file with the Fund. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file with
the Fund. Shares may be exchanged between two funds by telephone only if the
two funds have identical shareholder registrations. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Any Fund shares held in certificate form cannot be
exchanged by telephone, but must be forwarded to Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, and
deposited to the shareholder's account before being exchanged. Telephone
instructions will be processed as of 4:00 p.m. (Eastern time) and must be
received by the Fund before that time for shares to be exchanged the same
day. Shareholders exchanging into a fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.

REDEEMING CLASS A SHARES

The Fund redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Redemptions will be made on days on which the Fund computes its net asset
value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "By Mail," should be
considered.

THROUGH A FINANCIAL INSTITUTION

DIRECTLY FROM THE FUND

BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares of the Fund by telephoning Federated
Shareholder Services Company. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$1,000. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day. Questions
about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the
telephone number listed on your account statement. If at any time the Fund
shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.

An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it
may be liable for losses due to unauthorized or fraudulent telephone
instructions.

BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.

The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number
of Shares to be redeemed or the dollar amount requested. All owners of the
account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, Trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.

The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.

CONTINGENT DEFERRED SALES CHARGE

Class A Shares purchased under a periodic special offering withe the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales charge and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50%
for redemptions made within one full year of purchase. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of the redemption.

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholders and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
one full year from the date of purchase with respect to applicable Class A
Shares. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following
order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than one full year from
the date of purchase with respect to applicable Class A Shares; and (3)
Shares held for less than one full year from the date of purchase with
respect to applicable Class A Shares on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an
exchange of Fund Shares for Shares of Federated Funds in the same class (see
"Exchange Privilege"). Any contingent deferred sales charge imposed at the
time the exchanged-for Shares are redeemed is calculated as if the
shareholder had held the shares from the date on which he became a
shareholder of the exchanged-from Shares.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may
take advantage of the Systematic Withdrawal Program. Under this program,
Shares are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Shareholders may redeem by periodic withdrawal
payments in a minimum amount of $100. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Shares, and the fluctuation of the net asset
value of Shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program
through his financial institution. Due to the fact that Shares are sold with
a sales charge, it is not advisable for shareholders to be purchasing Shares
while participating in this program.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value. Before Shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional Shares to meet the minimum requirement.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Trustee's responsibilities between meetings of the Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by Federated Advisers, the
Fund's investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.

Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violation of the codes are subject
to review by the Trustees, and could result in severe penalties.

ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee
equal to .40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver
or reimbursement of expenses at any time in its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

J. Scott Albrecht has been the Fund's portfolio manager since March, 1995.
Mr. Albrecht joined Federated Investors in 1989 and has been a Vice
President of the Fund's investment adviser since October, 1994. From 1992 to
1994, Mr. Albrecht served as an Assistant Vice President of the Fund's
investment adviser. In 1991, Mr. Albrecht acted as an investment analyst.
Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in
Public Management from Carnegie Mellon University.

Jonathan C. Conley has been the Fund's portfolio manager since its
inception. Mr. Conley joined Federated Investors in 1979 and has been a
Senior Vice President of the Fund's investment adviser since 1995. Mr.
Conley was a Vice President of the Fund's investment adviser from 1982 to
1995. Mr. Conley was a Vice President of the Fund's investment adviser from
1982 to 1995. Mr. Conley is a Chartered Financial Analyst and received his
M.B.A. in Finance from the University of Virginia.

DISTRIBUTION OF CLASS A SHARES

Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Investment Company Act Rule 12b-1 (the
"Distribution Plan"), the Fund may pay to the distributor an amount,
computed at an annual rate of 0.40% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in
the sale of Shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution related support services as agents for their
clients or customers.

The Distribution Plan is a compensation-type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it from
the Fund, interest, carrying or other financing charges in connection with
excess amounts expended, or the distributor's overhead expenses. However,
the distributor may be able to recover such amount or may earn a profit from
future payments made by the Fund under the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of Shares, computed at an annual rate, to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts.
Under the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.
will pay financial institutions, at the time of purchase of Shares, an
amount equal to .50% of the net asset value of Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months
after purchase.)

Furthermore, in addition to payments made pursuant to the Distribution Plan
and Shareholder Services Agreement, Federated Securities Corp and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services. The support
may include sponsoring sales, educational and training seminars for their
employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support
furnished by the financial institution. Any payments made by the distributor
may be reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.

SHAREHOLDER INFORMATION

VOTING RIGHTS

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting of
shareholders for this purpose shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding
shares of all series of the Trust entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet
requirements of the Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies. The Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and losses
realized by the Trust's other portfolios will not be combined for tax
purposes with those realized by the Fund.

Shareholders are not required to pay federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds, although tax-exempt interest will increase the taxable
income of certain recipients of social security benefits. However, under the
Tax Reform Act of 1986, dividends representing net interest income earned on
some municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.

The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is
equal to the regular taxable income of the taxpayer increased by certain
"tax preference" items not included in regular taxable income and reduced by
only a portion of the deductions allowed in the calculation of the regular
tax.

The Tax Reform Act of 1986 treats interest on certain "private activity"
bonds issued after August 7, 1986, as a tax preference item for both
individuals and corporations. Unlike traditional governmental purpose
municipal bonds, which finance roads, schools, libraries, prisons, and other
public facilities, private activity bonds provide benefits to private
parties. The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such bonds, a portion
of the Fund's dividends may be treated as a tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.

Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.

PENNSYLVANIA TAXES

The Fund has received a ruling from the Commonwealth of Pennsylvania
Department of Revenue that interest or gain derived by the Fund from
obligations free from state taxation in Pennsylvania is not taxable on
pass-through to Fund shareholders for purposes of Pennsylvania personal
income taxes. This is based on the existence of the Pennsylvania Investment
Restrictions (see "Investment Limitations"). However, legislation enacted in
December 1993, eliminates the necessity of Pennsylvania Investment
Restrictions. This legislation also generally repeals the Pennsylvania
personal income tax exemption for gains from the sale of tax-exempt
obligations, including the exemption for distributions from the Fund to the
extent that they are derived from gains from tax-exempt obligations.

STATE AND LOCAL TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Fund, Fund
Shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return, yield, and
tax-equivalent yield for Shares.

Total return represents the change, over a specific period of time, in the
value of an investment in Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
Share (as defined by the Securities and Exchange Commission) earned by
Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
Shares would have had to earn to equal its actual yield, assuming a specific
tax rate. The yield and the tax-equivalent yield do not necessarily reflect
income actually earned by Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales charge
and other similar non-recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield,
and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS -- INCOME SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 34.
<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%(f) 1.50% 1.48%(f)
Net investment income 5.38%(f) 4.62% 6.13%(f)
Expense waiver/reimbursement(d) 0.26%(f) 0.45% 0.60%(f)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) -- $8,982 $2,419
Portfolio turnover 59% 17% 0%
</TABLE>

(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.

(f) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- 97.2%
PENNSYLVANIA -- 97.2%
$ 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 $ 2,027,100
2,325,000 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 2,467,337
465,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds (Series K), 7.75% (GNMA COL), 12/1/2022 Aaa 489,087
775,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds (Series Q), 7.40% (GNMA COL), 12/1/2022 Aaa 815,548
2,060,000 Allentown, PA Area Hospital Authority, Revenue Bonds
(Series B), 6.75% (Sacred Heart Hospital of Allentown),
11/15/2015 BBB 2,064,326
4,250,000 Bradford County, PA IDA, Solid Waste Disposal Revenue
Bonds (Series A), 6.60% (International Paper Co.), 3/1/2019 A- 4,394,713
750,000 Butler County, PA Hospital Authority, Hospital Revenue
Bonds (Series A), 7.00% (North Hills Passavant Hospital)/
(FSA INS), 6/1/2022 AAA 809,798
1,750,000 Delaware County, PA Authority, Hospital Revenue Bonds,
5.30% (Crozer-Chester Medical Center)/(MBIA INS)/
(Original Issue Yield: 5.55%), 12/15/2020 AAA 1,603,630
750,000 Derry Township, PA School District, GO Bonds, 7.00%
(United States Treasury PRF), 9/15/2009 A1 832,110
1,600,000 Dormont Borough, PA, Allegheny County, UT GO Bonds
(Series 1995), 7.00% (United States Treasury PRF)/
(Original Issue Yield: 7.125%), 3/1/2010 (@100) BBB 1,719,872
</TABLE>

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 2,000,000 Fayette County, PA Hospital Authority, Hospital Revenue
Bonds (Series 1996A), 5.75% (Uniontown Hospital)/
(Connie Lee INS)/(Original Issue Yield: 6.05%), 6/15/2015 AAA $ 1,898,580
1,000,000 Geisinger Authority, PA Health System, Revenue Bonds,
7.625% (United States Treasury PRF)/(Original Issue Yield:
7.697%), 7/1/2009 (@102) AA 1,101,990
1,000,000 Lackawanna Trail School District, PA, UT GO Refunding
Bonds, 6.90% (AMBAC INS), 3/15/2010 AAA 1,089,060
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 1,389,067
1,500,000 Lebanon County, PA Good Samaritan Hospital Authority,
Hospital Revenue Bonds, 6.00% (Good Samaritan Hospital)/
(Original Issue Yield: 6.10%), 11/15/2018 BBB+ 1,395,705
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 975,680
2,500,000 Luzerne County, PA IDA, Revenue Refunding Bonds
(Series A), 7.00% (Pennsylvania Gas & Water Company)/
(AMBAC INS), 12/1/2017 AAA 2,747,100
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- 4,275,440
1,000,000 Monroeville, PA Hospital Authority, Hospital Refunding
Revenue Bonds (Series 1995), 6.25% (Forbes Health System,
PA)/(Original Issue Yield: 6.60%), 10/1/2015 BBB 983,530
4,000,000 Pennsylvania EDFA, Revenue Bonds, 7.60% (Macmillan
Bloedel LTD Partnership)/(Original Issue Yield: 7.65%),
12/1/2020 BBB- 4,398,080
</TABLE>

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 8,000,000 Pennsylvania EDFA, Wastewater Treatment Revenue Bonds
(Series A), 7.60% (Sun Co., Inc.)/(Original Issue Yield:
7.653%), 12/1/2024 BBB- $ 8,807,840
2,290,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 39B), 6.875%, 10/1/2024 AA 2,380,157
750,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 33), 6.90%, 4/1/2017 AA 785,490
1,000,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 34-B), 7.00% (FHA GTDs), 4/1/2024 AA 1,040,410
4,540,000 Pennsylvania Housing Finance Authority, SFM Revenue
Bonds (Series 28), 7.65% (FHA GTD), 10/1/2023 AA 4,774,673
2,500,000 Pennsylvania Intergovernmental Coop Authority, Special
Tax Revenue Bond, Philadelphia Funding Program, 6.75%
(FGIC INS)/(United States Treasury PRF)/(Original Issue
Yield: 7.13%), 6/15/2021 AAA 2,803,200
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Health Services Revenue Bonds (Series A of 1996), 5.75%
(University of Pennsylvania)/(Original Issue Yield: 6.035%),
1/1/2022 AA 1,949,080
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- 1,065,760
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds (Series 1996), 7.20% (Thiel College),
5/15/2026 NR 2,000,480
4,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds (Series A), 7.375% (Medical College of
Pennsylvania)/(United States Treasury PRF)/(Original Issue
Yield: 7.45%), 3/1/2021 AAA 4,475,720
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds (Series N), 5.875% (MBIA INS)/(Original
Issue Yield: 5.913%), 6/15/2021 AAA 1,993,320
</TABLE>

Securities that are subject to alternative minimum tax represent 41.1% of
the portfolio as calculated based upon total portfolio market value.

(a) The cost of investments for federal tax purposes amounts to $77,683,811.
The net unrealized appreciation of investments on a federal tax basis
amounts to $4,611,761 which is comprised of $4,838,788 appreciation and
$227,027 depreciation at August 31, 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
($84,115,530) at August 31, 1996.

The following acronym(s) are used throughout this portfolio:

AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
EDFA -- Economic Development Financing Authority
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
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
VRDNs -- Variable Rate Demand Notes

(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

AUGUST 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $77,683,811) $ 82,295,572
Cash 84,381
Income receivable 1,798,545
Receivable for shares sold 168,137
Total assets 84,346,635
LIABILITIES:
Income distribution payable $176,401
Accrued expenses 54,704
Total liabilities 231,105
NET ASSETS for 7,408,593 shares outstanding $ 84,115,530
NET ASSETS CONSIST OF:
Paid in capital $ 81,237,429
Net unrealized appreciation of investments 4,611,761
Accumulated net realized loss on investments (1,930,489)
Undistributed net investment income 196,829
Total Net Assets $ 84,115,530
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
($84,115,530 O 7,408,593 shares outstanding) $11.35
OFFERING PRICE PER SHARE (100/97.00 of $11.35)* $11.70
</TABLE>

* See "What Shares Cost." Effective November 1, 1996, the maximum sales
charge has been increased to 4.50%.

(See Notes which are an integral part of the Financial Statements)

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS

YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 5,530,462
EXPENSES:
Investment advisory fee $ 341,175
Administrative personnel and services fee 125,000
Custodian fees 20,600
Transfer and dividend disbursing agent fees and expenses 37,388
Directors'/Trustees' fees 3,302
Auditing fees 13,772
Legal fees 5,061
Portfolio accounting fees 50,654
Shareholder services fee 213,235
Share registration costs 14,447
Printing and postage 18,838
Insurance premiums 4,394
Miscellaneous 8,084
Total expenses
855,950
Waivers and reimbursements--
Waiver of investment advisory fee $ (195,433)
Waiver of shareholder services fee (17,059)
Total waivers (212,492)
Net expenses 643,458
Net investment income 4,887,004
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 556,055
Net change in unrealized appreciation of investments 353,374
Net realized and unrealized gain on investments 909,429
Change in net assets resulting from operations $ 5,796,433
</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>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income/operating loss $ 4,887,004 $ 5,043,454
Net realized gain (loss) on investments ($881,533 and $1,036,056,
net losses, respectively, as computed for federal tax purposes) 556,055 (1,957,166)
Net change in unrealized appreciation 353,374 3,480,605
Change in net assets resulting from operations 5,796,433 6,566,893
NET EQUALIZATION CREDITS (DEBITS) -- (6,300) (4,832)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (4,846,944) (4,814,395)
Income Shares 0 (83,724)
Change in net assets resulting from distributions to shareholders (4,846,944) (4,898,119)
SHARE TRANSACTIONS--
Proceeds from sale of shares 10,957,322 18,979,060
Net asset value of shares issued to shareholders in payment of
distributions declared 3,064,941 2,687,386
Cost of shares redeemed (14,571,991) (34,449,869)
Change in net assets resulting from share transactions (549,728) (12,783,423)
Change in net assets 393,461 (11,119,481)
NET ASSETS:
Beginning of period 83,722,069 94,841,550
End of period (including undistributed net investment income of
$196,829 and $163,069, respectively) $ 84,115,530 $ 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)

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 1996

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
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. The
investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania. Previously, the Fund provided two
classes of shares: Class A Shares and Income Shares. As of November 18,
1994, the Income Shares were exchanged for Class A Shares and Income Shares
are no longer offered.

The Board of Trustees approved a change in the name of the Fund as follows:
<TABLE>
<CAPTION>
EFFECTIVE DATE NEW NAME
<S> <S>
March 31, 1996 Federated Pennsylvania Municipal Income Fund
</TABLE>

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.

At August 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,930,489, 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
2004 $ 881,533
</TABLE>

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.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.

OTHER -- Investment transactions are accounted for on the trade date.

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 ENDED AUGUST 31,
1996 1995
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 965,079 $ 10,957,322 4,627,974 $ 18,593,886
Shares issued to shareholders in
payment of distributions declared 270,041 3,064,941 242,874 2,621,531
Shares redeemed (1,284,868) (14,571,991) (5,262,476) (25,822,912)
Net change resulting from
share transactions (49,748) $ (549,728) (391,628) $ (4,607,495)
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995*
INCOME SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
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>

*Reflect operations for the period from September 1, 1994 to November 18,
1994 (date Income Shares ceased operations).

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.

PORTFOLIO ACCOUNTING FEES -- FServ maintains the 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 August 31, 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 $9,850,000 and $9,350,000, 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 August 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $19,063,621
SALES $20,266,375
</TABLE>

6. 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 August 31, 1996, 32% 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 9.5% of total
investments.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(formerly, PENNSYLVANIA MUNICIPAL INCOME FUND):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Pennsylvania Municipal
Income Fund as of August 31, 1996, the related statement of operations for
the year then ended, the statements of changes in net assets for the years
ended August 31, 1996 and 1995, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at August 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Pennsylvania Municipal Income Fund as of August 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 11, 1996

ADDRESSES

Federated Pennsylvania Municipal Income Fund
Class A Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENNSYLVANIA MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS A SHARES

PROSPECTUS

A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company

October 31, 1996

[Graphic]
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.

[Graphic]

Cusip 625922505
0090701A-A (10/96)

FEDERATED PENSYLVANIA MUNICIPAL INCOME FUND
(FORMERLY, PENSYLVANIA MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS A SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Pennsylvania Municipal Income Fund (the
`Fund''), a portfolio of Municipal Securities Income Trust (the
`Trust'') dated October 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1996
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 625922505
0090701B(10/96)

GENERAL INFORMATION ABOUT THE FUND 3

INVESTMENT OBJECTIVE AND POLICIES 3

Acceptable Investments 3
When-Issued and Delayed Delivery Transactions 6
Temporary Investments 6
Portfolio Turnover 8
Investment Limitations 8
Pennsylvania Investment Risks 12
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 14

Fund Ownership 23
Trustees Compensation 23
Trustee Liability 25
INVESTMENT ADVISORY SERVICES 25

Adviser to the Fund 25
Advisory Fees 26
OTHER SERVICES 27

Fund Administration 27
Custodian and Portfolio Accountant 27
Transfer Agent 27
Independent Auditors 28
BROKERAGE TRANSACTIONS 28

PURCHASING CLASS A SHARES 29

Distribution Plan and Shareholder Services Agreement 29

Purchases by Sales Representatives, Fund Trustees, and
Employees 30
DETERMINING NET ASSET VALUE 31

Valuing Municipal Bonds 31
Use of Amortized Cost 31
REDEEMING CLASS A SHARES 31

Redemption in Kind 32
Massachusetts Partnership Law 32
TAX STATUS 33

The Fund's Tax Status 33
Shareholders' Tax Status 34
TOTAL RETURN 34

YIELD 35

TAX-EQUIVALENT YIELD 35

Tax-Equivalency Table 36
PERFORMANCE COMPARISONS 37

Economic and Market Information 39
ABOUT FEDERATED INVESTORS 40

Mutual Fund Market 40
Institutional Clients 41
Trust Organizations 41
Broker/Dealers and Bank Broker/Dealer Subsidiaries 41
APPENDIX 42

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in Municipal Securities Income Trust. The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 6, 1990. On September 16, 1992 (effective date October 31,
1992) the Board of Trustees (`Trustees'') approved changing the name of
the Trust from Federated Municipal Income Trust to Municipal Securities
Income Trust. On February 26, 1996 (effective date March 31, 1996), the
Trustees approved changing the name of the Fund from Pennsylvania Municipal
Income Fund to Federated Pennsylvania Municipal Income Fund. Shares of the
Fund are presently offered in one class known as Class A Shares
(`Shares'').
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and Pennsylvania state and local tax
(`Pennsylvania Municipal Securities''). These securities include those
issued by or on behalf of the Commonwealth of Pennsylvania and Pennsylvania
municipalities, and those issued by states, territories and possessions of
the United States which are exempt from federal regular income tax and the
personal income taxes imposed by the Commonwealth of Pennsylvania and
Pennsylvania municipalities.
CHARACTERISTICS
The Pennsylvania Municipal Securities in which the Fund invests have

the characteristics set forth in the prospectus. If a rated bond loses
its rating or has its rating reduced after the Fund has purchased it,
the Fund is not required to drop the bond from the portfolio, but will
consider doing so. If ratings made by Moody's Investors Service, Inc.,
Standard & Poor's's Ratings Group or Fitch's Investors Service, Inc.
change because of changes in those organizations or in their rating
systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's
prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Pennsylvania Municipal Securities are:
omunicipal notes and municipal commercial paper;
oserial bonds sold with differing maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities;
obond anticipation notes sold prior to the issuance of longer-term
bonds;
opre-refunded municipal bonds; and
ogeneral obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days).

VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many municipal
securities with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the
Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests,
or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the

investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
owhether the lease can be terminated by the lessee:
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
``event of non-appropriation'');
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.

REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's investment adviser to
be creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Pennsylvania municipal bonds
are not available, the Fund may invest a portion of its assets in
cash. Any portion of the Fund's assets maintained in cash will reduce
the amount of assets in Pennsylvania municipal bonds and thereby
reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase

agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and maintained until the
transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%. For the fiscal years ended August 31,
1996 and 1995, the portfolio turnover rates were 23% and 59%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities.

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. During
the period any reverse repurchase agreements are outstanding, but only
to the extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.

INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate although it may invest in
municipal bonds secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its assets in
securities subject to restrictions on resale under the Securities Act
of 1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money

market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the Officers and Trustees of the Trust or its investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds where the principal and interest are
the responsibility of companies (or guarantors, where applicable) with
less than three years of continuous operations, including the
operation of any predecessor.

INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction. The Fund did not borrow money or pledge
securities in excess of 5% of the value of its net assets during the last
fiscal year and has no present intent to do so in the current fiscal year.
In order to comply with certain state restrictions, the Fund will not
invest in real estate limited partnerships or oil, gas or other mineral
leases.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
PENNSYLVANIA INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of
the issue. Further, any adverse economic conditions or developments
affecting the Commonwealth of Pennsylvania or its county and local
governments could impact the Fund's portfolio. The Fund's concentration in
securities issued by the Commonwealth of Pennsylvania and its political

subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities.
Pennsylvania's economic base is mature but substantial. In spite of
efficiency gains owed to modernization and restructuring, the
Commonwealth's dependence upon manufacturing and mining continue to leave
it vulnerable to long term national economic trends. The cyclicality of the
economy results in wide swings in employment and state social services
spending. Recent data shows improvement in economic diversification,
however, employment growth still lags the nation. Other challenges for the
Commonwealth and its municipalities include slow population growth and an
aging population which will pressure health care services expenditures. The
Commonwealth plans to address these problems with business tax cuts,
controlled social services spending and increased reserves in the event of
an economic downturn. Fiscal 1996 brought a corporate net income tax cut.
The rate fell from 11.99% to 9.99%. In addition, the Governor's budget
hopes to build up Pennsylvania's `rainy day'' fund to as much as 3% of
expenditures in coming years. The ability of the Commonwealth or its
municipalities to meet their obligations will depend on the availability of
tax and other revenues; economic, political and demographic conditions
within Pennsylvania and their underlying fiscal condition.
Concerning the constitutional provisions pertaining to debt, the
Commonwealth may issue tax anticipation notes for its General Fund and/or
Motor License Fund. However, the aggregate amount of newly issued and
outstanding tax anticipation notes is limited to a maximum of 20% of the
estimated revenues of the appropriate fund for the fiscal year in which the
notes are issued. The notes must mature within the fiscal year of issuance.
The Commonwealth of Pennsylvania may also issue bond anticipation notes
with a term not to exceed three years. The bond anticipation notes are

subject to applicable statutory limitations pertaining to the issuance of
bonds. The ability of the Fund to achieve its investment objective depends
on the continuing ability of the issuers of Pennsylvania Municipal
Securities and participation interests, or the guarantors of either, to
meet their obligations for the payment of interest and principal when due.
Investing in Pennsylvania Municipal Securities which meet the Fund's
quality standards may not be possible if the Commonwealth of Pennsylvania
and its municipalities do not maintain their current credit rating. The
Commonwealth is currently rated A1, AA-, and AA- by Moody's, Standard &
Poor's and Fitch, respectively.

MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated California Municipal Income Fund, and principal
occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor

Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

James E. Dowd
571 Hayward Mill Road

Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University

Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference

Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 7, 1996, the following shareholder of record owned 5% or more
of the outstanding Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, owned approximately 1,081,853 Shares (15.28%).
TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

Trustee and Exec. Vice Pres. 16 other investment
companies in the Fund Complex
James E. Dowd $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Peter E. Madden $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Gregor F. Meyer $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John E. Murray, Jr. $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Wesley W. Posvar $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Marjorie P. Smuts $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

*Information is furnished for the fiscal year ended August 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
five portfolios.
+The information is provided for the last calendar year.
++Mr Bigley served on 39 investment companies in the Federated funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated funds.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISORY FEES
For its advisory services, the Advisers receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
August 31, 1996, 1995, and 1994, the Adviser earned $341,175, $341,354, and
$394,564, respectively, of which $195,433, $222,052, and $394,564,
respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.

OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended August 31,
1996, 1995 and 1994, the Administrators collectively earned $125,000,
$134,042 and $247,255, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
Federated Services Company, Pittsburgh, Pennsylvania, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, Boston, Massachusetts, maintains all
necessary shareholder records. For its services, the transfer agent
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.

INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those that are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Trustees. The Adviser
may select brokers and dealers who offer brokerage and research services.
These services may be furnished directly to the Fund or to the Adviser and
may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt
of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or by
its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal
years ended August 31, 1996, 1995 and 1994, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made

independently from those of the other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Fund.
PURCHASING CLASS A SHARES

Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value plus a sales charge
on days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the prospectus under `Investing in Class
A Shares.''
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and

redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal years ended August 31, 1996, 1995 and 1994, payments in the
amount of $0, $8,482 and $49,274, respectively, were made pursuant to the
Distribution Plan, none of which were waived. In addition, for the fiscal
year ended August 31, 1996, the Fund paid shareholder service fees in the
amount of $213,235, of which $17,059 were waived.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.
and their spouses and children under 21, may buy Shares at net asset value
without a sales charge. Shares may also be sold without a sales charge to
trusts or pension or profit-sharing plans for these persons. These sales
are made with the purchaser's written assurance that the purchase is for

investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the market
value of municipal bonds. The independent pricing service takes into
consideration yield, stability, risk, quality, coupon rate, maturity, type
of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers relevant
in determining valuations for normal institutional size trading units of
debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase, shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING CLASS A SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures and contingent

deferred sales charges are explained in the prospectus under `Redeeming
Class A Shares.''Although the Fund does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the net asset value of the respective class, whichever is less, for any
one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Fund will pay all or a portion
of the remainder of the redemption in portfolio instruments, valued in the
same way that net asset value is determined. The portfolio instruments will
be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transactions costs.

each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to
use the property of the Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against
a shareholder of the Fund for any act or obligation of the Trust on behalf
of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS

SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares. Any loss by a shareholder
on Fund shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN

The Fund's average annual total return for the fiscal year ended August 31,
1996, and for the period from October 11, 1990 (date of initial public
investment) to August 31, 1996, were 3.75% and 7.64%, respectively.
The average annual total return for Shares of the Fund is the average
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the offering price per share at the end
of the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with

$1,000, less any applicable sales charge, adjusted over the period by any
additional shares, assuming a monthly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted
from the ending value of the investment based on the lesser of the original
purchase price or the offering price of shares redeemed.
YIELD

The Fund's yield for the thirty-day period ended August 31, 1996 was 5.11%.
The yield for the Fund is determined by dividing the net investment income
per Share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per Share
of the respective class on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in any class of shares of the
Fund, performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the thirty-day period ended August 31,
1996 was 7.38%.
The tax-equivalent yield for Shares of the Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that any class

would have had to earn to equal its actual yield, assuming a state and
federal tax rate of 30.80% and assuming that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax* and is
free from the income taxes imposed by the State of Pennsylvania. As the
table below indicates, a `tax-free'' investment is an attractive choice
for investors, particularly in times of narrow spreads between "tax-free"
and taxable yields.

TAXABLE YIELD EQUIVALENT FOR 1996

STATE OF PENNSYLVANIA

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The performance of Shares depends upon such variables as:
o portfolio quality;

o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's class expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attributes for the index are calculated semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in offering price over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the `general municipal bond
funds''category in advertising and sales literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than

1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specific period of
time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.

ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and

institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through it subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to theses institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide -- including 200 New York Stock Exchange firms --
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned
it high rankings in several DALBAR Surveys. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.

*source: Investment Company Institute

APPENDIX

NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from `AA'' to ``CCC'' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest

payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality. The
obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality.

The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the `AAA'' category.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.

F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well established access to a range of financial
markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Federated Ohio Municipal Income Fund
(Class F Shares)

(formerly, Fortress Shares)

ANNUAL REPORT FOR FISCAL YEAR ENDED AUGUST 31, 1996

MANAGEMENT DISCUSSION AND ANALYSIS

along different segments of the maturity spectrum. Currently, the spread
between bonds of ten and thirty years in maturity is in excess of 70 basis
points while the spread in the same maturity range of the Treasury yield
curve is approximately 21 basis points. The ratio of "AAA" rated general
obligation municipal bond yields to Treasury bond yields narrowed
considerably over the fiscal year in the ten to thirty year portion of the
municipal yield curve. This ratio can provide some indication as to the
richness or cheapness of municipal bonds versus comparable maturity Treasury
securities. This ratio has narrowed, or municipal bonds have become more
expensive relative to Treasury securities, as a result of improved retail
participation in the market and the erosion of the market premium for tax
reform.

Ohio's economy has continued to perform very well. Ohio's manufacturing and
service sectors have experienced solid growth, while the diversification
which the regional economy underwent over the last ten years has stabilized
the performance of state and local government finances. The manufacturing
sector, autos in particular, can provide some near term risk to the Ohio
economy if the national economy begins to slow. In general, Ohio trades 5 to
basis 10 points richer than Pennsylvania or Michigan paper as a result of
market supply and demand differences. Municipal bond insurance has become a
significant factor in the Ohio municipal bond market with approximately 49%
of the state's issuance coming to the market insured in calendar year 1995.
The supply of municipal bond issuance in the market is a very important
technical factor which can have a considerable impact on relative
performance.

* The Bond Buyer Market Index is a standard against which municipal bonds

are measured. This index is unmanaged.

Federated Ohio Municipal Income Fund's performance over the past fiscal year
reflects the fund's neutral duration position relative to the fund's peer
group. The fund's total return was 3.29%** for the period September 1, 1995
to August 31, 1996. The concentration of high coupon premium bonds in the
portfolio helped to dampen net asset value volatility over the period. The
fund posted a 30-day distribution rate of 5.29%**, based on net asset value,
as of August 31, 1996, which is comparable to a yield of 8.76% on a taxable
equivalent basis, assuming a top marginal tax rate of 39.6%. The fund's
yield for the 30-day period ended August 31, 1996 was 5.06%**. As interest
rates rose over the fiscal year management took the opportunity to improve
the fund's yield by "couponing up," or swapping into bonds with better yield
characteristics, while also recognizing tax losses which can be used to
offset future realized capital gains.

** Performance quoted reflects 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. The fund's 30-day
distribution rate based on offering price was 5.24%.

Federated Ohio Municipal Income Fund
(Class F Shares)
(formerly, Fortress Shares)

GROWTH OF $10,000 INVESTED IN FEDERATED OHIO MUNICIPAL INCOME FUND
(CLASS F SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Ohio Municipal Income Fund (Class F Shares) (the "Fund") from
October 12, 1990 (start of performance) to August 31, 1996, compared to the
Lehman Brothers Revenue Bond Index (LBRBI)+.

[`Graphic representation A2 omitted. See Appendix.'']

THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
OCTOBER 31, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.

* Represents a hypothetical investment of $10,000 in the Fund after

deducting the maximum sales charge of 1.00% ($10,000 investment minus $100
sales charge = $9,900). The Fund's performance assumes the reinvestment of
all dividends and distributions. The LBRBI has been adjusted to reflect
reinvestment of dividends on securities in the index.

** The ending value of the Fund reflects a contingent deferred sales charge
of 1.00% on any redemption less than four years from the purchase date.

*** Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.

+ The LBRBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.

[Graphic]
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.

[Graphic]

Cusip 625922307
G00579-01 (10/96)

FEDERATED OHIO MUNICIPAL INCOME FUND

(FORMERLY, OHIO MUNICIPAL INCOME FUND)

(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)

CLASS F SHARES

(FORMERLY, FORTRESS SHARES)

PROSPECTUS

The Class F Shares of Federated Ohio Municipal Income Fund (the "Fund")
offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Municipal Securities Income Trust (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund is
to provide current income exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities.
The Fund invests primarily in a portfolio of Ohio municipal securities.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE

FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class F Shares. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class F
Shares dated October 31, 1996, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference in this prospectus. You may request
a copy of the Statement of Additional Information or a paper copy of this
prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-341-7400. To obtain other information, or to make
inquiries about the Fund, contact your financial institution. The Statement
of Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

Prospectus dated October 31, 1996

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
NET ASSET VALUE 7
INVESTING IN CLASS F SHARES 7
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Eliminating/Reducing the Sales Charge 9
Systematic Investment Program 10
Exchange Privilege 11
Certificates and Confirmations 11
Dividends and Distributions 11
REDEEMING CLASS F SHARES 12
Through a Financial Institution 12
Directly by Mail 12
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14

TRUST INFORMATION 14
Management of the Trust 14
Distribution of Class F Shares 15
Administration of the Fund 17
SHAREHOLDER INFORMATION 17
Voting Rights 17
TAX INFORMATION 17
Federal Income Tax 17
State of Ohio Income Taxes 18
State and Local Taxes 19
PERFORMANCE INFORMATION 19
FINANCIAL STATEMENTS 20
INDEPENDENT AUDITORS' REPORT 33
ADDRESSES 34
</TABLE>

SUMMARY OF FUND EXPENSES

CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.07%
12b-1 Fee (after waiver)(3) 0.16%
Total Other Expenses 0.67%
Shareholder Services Fee(4) 0.24%
Total Operating Expenses(5) 0.90%
</TABLE>

(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
four years of their purchase date. For a more complete description see
"Contingent Deferred Sales Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.

(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The 12b-1 fee provider can terminate this
voluntary waiver at its sole discretion. The maximum 12b-1 fee is 0.40%.

(4) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
services provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(5) The total operating expenses would have been 1.48% absent a portion of
the voluntary waivers of the management fee, the
12b-1 fee and the shareholder services fee.

and expenses, see "Investing in Class F Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return;
(2) redemption at the end of each time period; and
(3) payment of maximum sales charge $29 $50 $59 $120

You would pay the following expenses on the same
investment, assuming no redemption $19 $38 $59 $120
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 33.

<TABLE>
<CAPTION>
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 0.60 0.60 0.56 0.57 0.61 0.57
Net realized and unrealized gain
(loss) on investments (0.01) 0.20 (0.64) 0.77 0.49 0.41
Total from investment operations 0.59 0.80 (0.08) 1.34 1.10 0.98
LESS DISTRIBUTIONS
Distributions from net
investment income (0.60) (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 (0.60) (0.59) (0.56) (0.58) (0.61) (0.58)
NET ASSET VALUE, END OF PERIOD $11.21 $11.22 $11.01 $11.65 $10.89 $10.40
TOTAL RETURN(C) 5.34% 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 5.28% 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) $70,568 $70,532 $81,566 $73,973 $28,924 $19,840
Portfolio turnover 11% 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)

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. The Declaration of Trust permits

the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. With respect to the
Fund, as of the date of this prospectus, the Board of Trustees ("Trustees")
has established one class of shares, known as Class F Shares ("Shares").

The Fund is designed for customers of financial institutions such as
broker/dealers, banks, fiduciaries, and investment advisers as a convenient
means of accumulating an interest in a professionally managed,
non-diversified portfolio investing primarily in Ohio municipal securities.
A minimum initial investment of $1,500 is required. Subsequent investments
must be in amounts of at least $100. The Fund is not likely to be a suitable
investment for non-Ohio taxpayers or retirement plans since Ohio municipal
securities are not likely to produce competitive after-tax yields for such
persons and entities when compared to other investments.

Except as otherwise noted in this prospectus, Shares are sold at net asset
value plus an applicable sales charge and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares,
other than Shares purchased through reinvestment of dividends, which are
redeemed within four years of their purchase dates. Fund assets may be used
in connection with the distribution of Shares.

The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income exempt
from federal regular income tax (federal regular income tax does not include
the federal alternative minimum tax) and the personal income taxes imposed
by the state of Ohio and Ohio municipalities. The investment objective
cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.

The Fund invests its assets so that at least 80% of its annual interest
income is exempt from federal regular income tax and the personal income
taxes imposed by the state of Ohio and Ohio municipalities. Interest income
of the Fund that is exempt from the income taxes described above retains its
exempt status when distributed to the Fund's shareholders. Income
distributed by the Fund may not necessarily be exempt from state or
municipal taxes in states other than Ohio.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing primarily in Ohio
municipal securities. Unless indicated otherwise, the investment policies of
the Fund may be changed by the Trustees without approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include:

* obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;

* debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and

* participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Fund and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of Ohio and Ohio municipalities
("Ohio municipal securities"). At least 80% of the value of the Fund's total
assets will be invested in Ohio municipal securities.

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

CHARACTERISTICS. The municipal securities which the Fund buys are investment
grade bonds rated Aaa, Aa, A, or Baa by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's Ratings Group
("S&P"), or Fitch Investors Service, Inc. ("Fitch"). In certain cases the
Fund's investment adviser may choose bonds which are unrated if it judges
the bonds to have the same characteristics as the investment grade bonds
described above. If a bond is rated below investment grade according to the
characteristics set forth here after the Fund has purchased it, the Fund is
not required to drop the bond from the portfolio, but will consider

appropriate action. Bonds rated "BBB" by S&P or Fitch or "Baa" by Moody's
have speculative characteristics. Changes in economic or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial institutions
from which the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees of the Trust will
determine that participation interests meet the prescribed quality standards
for the Fund.

VARIABLE RATE MUNICIPAL SECURITIES. Some of the Ohio municipal securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate
index, or a similar standard, such as the 91-day U.S. Treasury bill rate.
Many variable rate municipal securities are subject to payment of principal
on demand by the Fund in not more than seven days. All variable rate
municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund on the basis of published
financial information and reports of the rating agencies and other
analytical services.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay more/less than

the market value of the securities on the settlement date.

TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities.
However, from time to time, when the investment adviser determines that
market conditions call for a temporary defensive posture, the Fund may
invest in short-term non-Ohio municipal tax-exempt obligations or taxable
temporary investments. These temporary investments include: notes issued by
or on behalf of municipal or corporate issuers; obligations issued or
guaranteed by the U.S. government, its agencies, or instrumentalities; other
debt securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling the
Fund, a bond, or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).

investment grade securities.

Although the Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular
income tax or personal income taxes imposed by the state of Ohio or Ohio
municipalities.

OHIO MUNICIPAL SECURITIES

Ohio municipal securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.

Ohio municipal securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.

general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.

INVESTMENT RISKS

Yields on Ohio municipal securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of
the issue. Further, any adverse economic conditions or developments
affecting the state of Ohio or its municipalities could impact the Fund's
portfolio. The state of Ohio and certain underlying municipalities face
potential economic problems over the longer term. The state economy has
grown more slowly than that of the nation as a whole, resulting in a gradual
erosion of its relative economic affluence. The causes of this relative
decline are varied and complex, involving in many cases national and
international demographic and economic trends beyond the influence of the
state. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of Ohio municipal
securities and participation interests, or the guarantors of either, to meet
their obligations for the payment of interest and principal when due.
Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the state of Ohio or its municipalities do
not maintain their current credit ratings. In addition, certain Ohio
constitutional amendments, legislative measures, executive orders,
administrative regulations, and voter initiatives could result in adverse
consequences affecting Ohio municipal securities.

A further discussion of the risks of a portfolio which invests largely in

Ohio municipal securities is contained in the Statement of Additional
Information.

NON-DIVERSIFICATION

Any economic, political, or regulatory developments affecting the value of
the securities in the Fund's portfolio will have a greater impact on the
total value of the portfolio than would be the case if the portfolio were
diversified among more issuers.

INVESTMENT LIMITATIONS

The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for

a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of those assets to secure such borrowings.

NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and all other assets,
less liabilities, by the number of shares outstanding.

INVESTING IN CLASS F SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares
may be purchased through an investment dealer who has a sales agreement with

the distributor, Federated Securities Corp., or directly from the
distributor, Federated Securities Corp. either by mail or by wire once an
account has been established. The Fund reserves the right to reject any
purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or an investment dealer) to place an order to
purchase Shares. Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through financial institutions other than
broker/dealers must be received by the financial institution and transmitted
to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.

The financial institution which maintains investor accounts with the Fund
must do so on a fully disclosed basis unless it accounts for share ownership
periods used in calculating the contingent deferred sales charge (see
"Contingent Deferred Sales Charge"). In addition, advance payments made to
financial institutions may be subject to reclaim by the distributor for
accounts transferred to financial institutions which do not maintain
investor accounts on a fully disclosed basis and do not account for share
ownership periods (see "Supplemental Payments to Financial Institutions").

DIRECTLY BY MAIL. To purchase Shares by mail directly from Federated

Securities Corp. once an account has been established:

* complete and sign the new account form available from the Fund;

* enclose a check made payable to Federated Ohio Municipal Income Fund --
Class F Shares; and

* send both to the Fund's transfer agent, Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600.

Purchases by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), into federal funds. This is generally the next
business day after State Street Bank receives the check.

DIRECTLY BY WIRE. To purchase Shares directly from Federated Securities
Corp. by Federal Reserve Wire once an account has been established, call the
Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: Federated Ohio Municipal Income Fund -- Class F
Shares; (Fund Number -- this number can be found on the account statement or
by contacting the Fund); Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot
be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of
the net amount invested). Further, there is no sales charge for purchases of
$1 million or more. In addition, no sales charge is imposed for Shares
purchased through bank trust departments or investment advisers registered
under the Investment Advisers Act of 1940 purchasing on behalf of their
clients, or by sales representatives, Trustees, and employees of the Fund,
Federated Advisers, and Federated Securities Corp., or their affiliates, or
any investment dealer who has a sales agreement with Federated Securities
Corp., their spouses and children under age 21, or any trusts or pension or
profit-sharing plans for these persons. Unaffiliated institutions through
whom Shares are purchased may charge fees for services provided which may be
related to the ownership of Fund Shares. This prospectus should, therefore,
be read together with any agreement between customer and institution with
regard to services provided, the fees charged for these services, and any
restrictions and limitations imposed.

of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION. For sales of Shares, the distributor will normally offer
to pay dealers up to 100% of the sales charge retained by it. Any portion of
the sales charge which is not paid to a broker/dealer will be retained by
the distributor. However, from time to time, and at the sole discretion of
the distributor, all or part of that portion may be paid to a dealer.

ELIMINATING/REDUCING THE SALES CHARGE

The sales charge can be eliminated on the purchase of Shares through:

* quantity discounts and accumulated purchases;

* signing a 13-month letter of intent;

* using the reinvestment privilege; or

* concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. There is no sales charge for
purchases of $1 million or more. The Fund will combine purchases made on the
same day by the investor, his spouse, and his children under age 21 when it
calculates the sales charge.

If an additional purchase of Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Shares having a current value at the public offering price of
$900,000 and he purchases $100,000 more at the current public offering
price, there will be no sales charge on the additional purchase. The Fund
will also combine purchases for the purpose of reducing the contingent
deferred sales charge imposed on some Share redemptions. For example, if a
shareholder already owns Shares having a current value at public offering
price of $1 million and purchases an additional $1 million at the current
public offering price, the applicable contingent deferred sales charge would
be reduced to .50% of those additional Shares. For more information on the
levels of contingent deferred sales charges and holding periods, see the
section entitled "Contingent Deferred Sales Charge."

To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the

shareholder in writing or by their financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will eliminate the sales charge and/or reduce the
contingent deferred sales charge after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $1 million
of Shares over the next 13 months, the sales charge may be eliminated by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge elimination depending on the amount actually
purchased within the 13-month period and a provision for the Fund's
custodian to hold 1.00% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The 1.00% held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of
intent, which must be $1 million or more of Shares, is not purchased. In
this event, an appropriate number of escrowed Shares may be redeemed in
order to realize the 1.00% sales charge.

This letter of intent also includes a provision for reductions in the
contingent deferred sales charge and holding period depending on the amount
actually purchased within the 13-month period. For more information on the
various levels of contingent deferred sales charges and holding periods, see
the section entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares.
This letter may be dated as of a prior date to include any purchases made
within the past 90 days towards the dollar fulfillment of the letter of

intent. Prior trade prices will not be adjusted.

REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to receive this
elimination of the sales charge. If the shareholder redeems his Shares,
there may be tax consequences.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
elimination, a shareholder has the privilege of combining concurrent
purchases of Class F Shares of two or more funds for which affiliates of
Federated Investors serve as investment advisers or principal underwriter
(the "Federated Funds"), the purchase prices of which include a sales
charge. For example, if a shareholder concurrently invested $400,000 in
Class F Shares of one of the other Federated Funds and $600,000 in Shares,
the sales charge would be eliminated. (Not all Federated Funds currently
offer Class F Shares. Contact your financial institution regarding the
availability of other Federated Class F Shares.)

To receive this sales charge elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will eliminate the
sales charge after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum of $100. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in Shares at the net asset value next
determined after an order is received by Federated Shareholder Services
Company, plus the 1.00% sales charge for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp. or his financial institution.

EXCHANGE PRIVILEGE

Class F shareholders may exchange all or some of their Shares for shares of
Ohio Municipal Cash Trust or Class F Shares of other Federated Funds.
Exchanges are made at net asset value without being assessed a contingent
deferred sales charge. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class F
Shares received through an exchange will include the period for which your
original Class F Shares were held.

Shareholders using this privilege must exchange shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Shareholders who desire to automatically
exchange Shares of a predetermined amount on a monthly, quarterly, or annual
basis may take advantage of a systematic exchange privilege.

instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.

The exchange privilege is available to shareholders residing in any state in
which the Shares being acquired may be legally sold.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

An exercise of the exchange privilege is treated as sale for federal income
tax purposes. Depending on the circumstances, a capital gain or loss may be
realized.

Please contact your financial institution directly or Federated Securities
Corp. at 1-800-341-7400 for more information on and prospectuses for the
Federated Funds into which your Shares may be exchanged free of charge.
Instructions for exchanging Shares must be given in writing by the
shareholder. Written instructions may require a signature guarantee.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested on the application or by contacting the Fund.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the

month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends and distributions are automatically reinvested in additional
Shares at net asset value without a sales charge, unless shareholders
request cash payments on the application or by writing to Federated
Shareholder Services Company.

Shares purchased through a financial institution, for which payment by wire
is received by State Street Bank on the business day following the order,
begin to earn dividends on the day the wire payment is received. Otherwise,
Shares purchased by wire begin to earn dividends on the business day after
wire payment is received by State Street Bank. Shares purchased by mail, or
through a financial institution, if the financial institution's payment is
by check, begin to earn dividends on the second business day after the check
is received by Federated Shareholder Services Company.

Shares earn dividends through the business day that proper written
redemption instructions are received by Federated Shareholder Services
Company.

REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value, less any applicable
contingent deferred sales charge, next determined after Federated

Shareholder Services Company receives the redemption request. Redemptions
will be made on days on which the Fund computes its net asset value.
Redemption requests must be received in proper form and can be made through
a financial institution or directly from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares by calling his financial institution (such
as a bank or a broker/dealer) to request the redemption. Shares will be
redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption requests
through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial
institutions must be received by the financial institution and transmitted
to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
redeemed at that day's net asset value. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to Federated Services Company. The financial
institution may charge customary fees and commissions for this service. If,
at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders will be promptly notified.

in redeeming by telephone. If such a case should occur, another method of
redemption, such as "Directly by Mail," should be considered. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

DIRECTLY BY MAIL

Shareholders may also redeem Shares by sending a written request to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Shares will be redeemed at their net asset value, less any
applicable contingent deferred sales charge, next determined after the
transfer agent receives the redemption request. If share certificates have
been issued, they should be sent unendorsed with the written request by
registered or certified mail to the address noted above.

commercial or savings bank, Trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Shares from their Fund accounts within certain time
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the
original price or the net asset value of the Shares redeemed as follows:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
<S> <S> <C>
Up to $1,999,999 4 years or less 1.00%
$2,000,000 to $4,999,999 2 years or less 0.50%
$5,000,000 or more 1 year or less 0.25%
</TABLE>

In instances in which Shares have been acquired in exchange for Class F
Shares in other Federated Funds, (i) the purchase price is the price of the
shares when originally purchased and (ii) the time period during which the
shares are held will run from the date of the original purchase. The
contingent deferred sales charge will not be imposed on Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In computing the amount of contingent deferred sales charge for
accounts with Shares subject to a single holding period, if any, redemptions
are deemed to have occurred in the following order: (1) Shares acquired
through the reinvestment of dividends and long-term capital gains, (2)
purchases of Shares occurring prior to the number of years necessary to
satisfy the applicable hold period, and (3) purchases of Shares occurring
within the current hold period. For accounts with Shares subject to multiple
share holding periods, the redemption sequence will be determined first,
with reinvested dividends and long-term capital gains, and second, on a
first-in, first-out basis.

other redemptions made for purposes of reinvestment. Contingent deferred
sales charges are not charged in connection with exchanges of Shares for
shares in Ohio Municipal Cash Trust or Shares in other Federated Funds, or
in connection with redemptions by the Fund of accounts with low balances.
Shares of the Fund originally purchased through a bank trust department or
investment adviser registered under the Investment Advisers Act of 1940, as
amended, are not subject to the contingent deferred sales charge to the
extent that no payment was advanced for purchases made by or through such
entities.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of
predetermined amounts may take advantage of the Systematic Withdrawal
Program. Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder; the minimum
withdrawal amount is $100. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed under this program, redemptions may reduce, and eventually deplete,
the shareholder's investment in the Fund. For this reason, payments under
this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000 in the
Fund (at current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge,

it is not advisable for shareholders to be purchasing Shares while
participating in this program.

Contingent deferred sales charges are charged for Shares redeemed through
this program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,500. This
requirement does not apply, however, if the balance falls below $1,500
because of changes in the Fund's net asset value. Before Shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional Shares to meet the minimum requirement.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the business affairs of Municipal Securities
Income Trust and for exercising all of the powers of the Trust except those
reserved for the shareholders. An Executive Committee of the Board of
Trustees handles the Trustees' responsibilities between meetings of the
Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the

Trust, investment decisions for the Fund are made by Federated Advisers, the
Fund's investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase and sale of
portfolio instruments, for which it receives an annual fee from the Fund.

ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee
equal to .40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver
or reimbursement of expenses at any time at its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the

Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the Trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.

Jonathan C. Conley has been the Fund's portfolio manager since its
inception. Mr. Conley joined Federated Investors in 1979 and has been a

Senior Vice President of the Fund's investment adviser since 1995. Mr.
Conley was a Vice President of the Fund's investment adviser from 1982 to
1995. Mr. Conley is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Virginia.

DISTRIBUTION OF CLASS F SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Investment Company Act Rule 12b-1 (the
"Distribution Plan"), the Fund may pay to the distributor an amount,
computed at an annual rate of 0.40% of the average daily net asset value of
the Shares to finance any activity which is principally intended to result
in the sale of Shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution related support services as agents for their
clients or customers.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.
will pay financial institutions, for distribution and/or administrative
services, an amount equal to 1.00% of the offering price of the Shares
acquired by their clients or customers on purchases up to $1,999,999, .50%
of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in

addition to the 1.00% sales charge on purchases of less than $1 million.)

Furthermore, in addition to payments made pursuant to the Distribution Plan
and Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution related support services, or shareholder services. The support
may include sponsoring sales, educational and training seminars for their
employees at recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the
financial institution sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or
its affiliates, and not the Fund.

ADMINISTRATION OF THE FUND

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund, only shares of that fund are entitled to
vote. As of October 7, 1996, Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida owned 37.33% of the voting securities of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting of the
shareholders for this purpose shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding

shares of all series of the Trust entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund does not expect to pay federal income tax because it expects to
meet requirements of the Code, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies. The Fund will be treated as a single, separate entity for
federal income tax purposes so that income (including capital gains) and
losses realized by the Trust's other portfolios will not be combined for tax
purposes with those realized by the Fund.

In general, shareholders are not required to pay federal regular income tax
on any dividends received from the Fund that represent net interest on
tax-exempt municipal bonds, although tax exempt interest will increase the
taxable income of certain recipients of social security benefits. However,
under the Tax Reform Act of 1986, dividends representing net interest income
earned on some municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax
for corporations.

only a portion of the deductions allowed in the calculation of the regular
tax.

Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as

ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.

STATE OF OHIO INCOME TAXES

Under existing Ohio laws, distributions made by the Fund will not be subject
to Ohio individual income taxes to the extent that such distributions
qualify as "exempt-interest dividends" under the Code and represent (i)
interest from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) interest of dividends from obligations issued by
the United States and its territories or possessions or by any authority,
commission or instrumentality of the United States which are exempt from
state income tax under federal laws. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations,
such distributions will be subject to Ohio individual income taxes.

Distributions made by the Fund will not be subject to Ohio corporate
franchise tax to the extent that such distributions qualify as
"exempt-interest dividends" under the Code and represent (i) interest from
obligations of Ohio or its subdivisions which is exempt from federal income
tax; or (ii) net interest income from obligations issued by the United
States and its territories or possessions or by any authority, commission or
instrumentality of the United States, which is included in federal taxable
income and which is exempt from state income tax under federal laws.

Exempt-interest dividends that represent interest from obligations held by
the Fund which are issued by Ohio or its political subdivisions will be
exempt from any Ohio municipal income tax (even if the municipality is
permitted under Ohio law to levy a tax on intangible income).

STATE AND LOCAL TAXES

Income from the Fund is not necessarily free from taxes in states other than
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return, yield, and
tax-equivalent yield for Shares.

The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by
Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
Shares would have had to earn to equal its actual yield, assuming a specific

tax rate. The yield and the tax-equivalent yield do not necessarily reflect
income actually earned by Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales charge
and other similar non- recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield,
and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- 99.7%
OHIO -- 93.7%
$ 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 $ 224,580
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+ 449,160
750,000 Ashland County, OH, LT GO Bonds, 7.00%, 12/1/2011 A 809,415
300,000 Bellefontaine, OH, Storm Water Utility LT GO Bonds,
7.05%, 6/1/2011 A 322,215
500,000 Brunswick, OH, UT GO Bonds, 7.35% (Original Issue
Yield: 7.446%), 12/1/2010 A 553,480
2,500,000 Cleveland, OH Airport System, Revenue Bonds (Series A),
6.00% (FGIC INS)/(Original Issue Yield: 6.378%),
1/1/2024 AAA 2,481,500
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 2,246,200
2,600,000 Columbus, OH Municipal Airport Authority,
Improvement Revenue Bonds, 6.25% (Port Columbus

International Airport)/(MBIA INS)/(Original Issue
Yield: 6.35%), 1/1/2024 AAA 2,663,414
2,000,000 Cuyahoga County, OH Hospital Authority,
Improvement & Refunding Revenue Bonds (Series A),
5.625% (University Hospitals Health System, Inc.)/
(MBIA INS)/(Original Issue Yield: 5.90%), 1/15/2026 AAA 1,908,780
1,000,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.25% (Fairview General Hospital)/(Original
Issue Yield: 6.321%), 8/15/2010 A 1,010,090
</TABLE>

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 1,500,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.25% (Meridia Health System)/(Original Issue
Yield: 6.80%), 8/15/2024 A $ 1,495,035
800,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds, 6.50% (University Hospitals Health System, Inc.)/
(Original Issue Yield: 6.68%), 1/15/2019 AA 818,944
780,000 Cuyahoga County, OH Hospital Authority, Revenue
Refunding Bonds, 6.875% (University Hospitals Health
System, Inc.)/(AMBAC INS)/(Original Issue
Yield: 6.954%), 1/15/2019 AAA 837,556
500,000 Cuyahoga County, OH Hospital Authority, Revenue
Refunding Bonds, 8.00% (Cleveland Clinic)/(Original
Issue Yield: 8.068%), 12/1/2015 A+ 522,400
800,000 Cuyahoga County, OH, UT GO Jail Facilities Bonds,
7.00% (Original Issue Yield: 7.065%), 10/1/2013 Aa 893,624
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 543,705
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 289,474
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 1,938,200
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- 1,312,194
</TABLE>

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 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- $ 736,267
2,000,000 Hamilton County, OH Hospital Facilities Authority,
Revenue Refunding Bonds (Series A), 6.25%
(Bethesda Hospital, OH)/(Original Issue
Yield: 6.55%), 1/1/2012 A 2,019,820
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 444,730
500,000 Lebanon, OH Waterworks System, Revenue
Improvement and Refunding Bonds, 7.10%,
3/1/2008 A 544,925
1,000,000 Marion County, OH Hospital Authority, Hospital
Refunding & Improvement Revenue Bonds (Series
1996), 6.375% (Community Hospital of Springfield)/
(Original Issue Yield: 6.52%), 5/15/2011 BBB+ 991,880
420,000 Marysville, OH, LT Sewer System GO Bonds,
7.15%, 12/1/2011 A 453,319

1,000,000 Miami County, OH, Hospital Facilities Revenue
Refunding & Improvement Bonds (Series 1996A),
6.375% (Upper Valley Medical Center, OH)/
(Original Issue Yield: 6.62%), 5/15/2026 BBB 971,120
650,000 Middleburg Heights, OH, LT GO Bonds, 7.20%,
12/1/2011 Aa 716,580
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 1,063,420
</TABLE>

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 3,000,000 Moraine, OH Solid Waste Disposal Authority,
Revenue Bonds, 6.75% (General Motors Corp.)/
(Original Issue Yield: 6.80%), 7/1/2014 A- $ 3,260,250
10,515,000 Ohio HFA, Residential Mortgage Revenue Bonds
(Series B-2), 6.70% (GNMA COL), 3/1/2025 AAA 10,800,062
2,400,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65%
(GNMA COL)/(Original Issue Yield: 7.669%),
3/1/2029 AAA 2,516,496
275,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80%
(GNMA COL), 3/1/2030 AAA 288,761
2,500,000 Ohio State Air Quality Development Authority,
PCR Refunding Bonds (Series A), 5.95% (Ohio
Edison Co.), 5/15/2029 BBB- 2,296,950
500,000 Ohio State Air Quality Development Authority,
PCR Refunding Bonds (Series A), 7.45% (Ohio
Edison Co.)/(FGIC INS), 3/1/2016 AAA 547,920
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 4,980,384
2,000,000 Ohio State Department of Transportation,

Certificates of Participation, 6.125% (Rickenbacker,
OH Port Authority), 4/15/2015 A+ 1,915,540
2,000,000 Ohio State Turnpike Commission, Revenue
Bonds, Series A, 5.75%, 2/15/2024 AA- 1,947,460
1,700,000 Ohio State Water Development Authority, PCR
Refunding Bonds, 5.95% (Ohio Edison Co.),
5/15/2029 BBB- 1,545,045
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 680,290
</TABLE>

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 350,000 Rocky River, OH City School District, UT GO
Bonds (Series A), 6.90% (Original Issue Yield: 6.98%),
12/1/2011 Aa $ 378,102
500,000 South Euclid, OH, UT GO Refunding Bonds, 7.00%,
12/1/2011 A1 542,350
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 539,865
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 3,536,540
500,000 University of Cincinnati, OH, General Receipts
Revenue Bonds (Series B), 7.00% (Original Issue
Yield: 7.05%), 6/1/2011 AA- 545,360
500,000 University of Cincinnati, OH, Revenue Bonds (Series 12),
6.50% (Original Issue Yield: 6.613%), 6/1/2011 AA- 529,130
Total 66,112,532
PUERTO RICO -- 3.5%
2,400,000 Puerto Rico Electric Power Authority, Revenue Bonds
(Series T), 6.375% (Original Issue Yield: 6.58%), 7/1/2024 A- 2,501,182
VIRGIN ISLANDS -- 2.5%
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 1,767,220
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $67,769,855)(A) $ 70,380,934
</TABLE>

Securities that are subject to alternative minimum tax represents 43.6% of
the portfolio as calculated based upon total portfolio market value.

(a) The cost of investments for federal tax purposes amounts to $67,769,855.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,611,079 which is comprised of $3,040,769 appreciation and
$429,690 depreciation at August 31, 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
($70,567,715) at August 31, 1996.

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

The following acronyms are used throughout this portfolio:

AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GO -- General Obligation

HFA -- Housing Finance Authority
INS -- Insured
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax

(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
AUGUST 31, 1996

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $67,769,855) $70,380,934
Cash 51,488
Income receivable 1,268,739
Receivable for shares sold 22,095
Total assets 71,723,256
LIABILITIES:
Payable for investments purchased $ 990,737
Payable for shares redeemed 101
Income distribution payable 119,082
Accrued expenses 45,621
Total liabilities 1,155,541
NET ASSETS for 6,295,420 shares outstanding $70,567,715
NET ASSETS CONSIST OF:
Paid in capital $68,463,362
Net unrealized appreciation of investments 2,611,079
Accumulated net realized loss on investments (562,495)
Undistributed net investment income 55,769
Total Net Assets $70,567,715
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($70,567,715 / 6,295,420 shares outstanding) $11.21
Offering Price Per Share (100/99.00 of $11.21)* $11.32
Redemption Proceeds Per Share (99.00/100 of $11.21)** $11.10
</TABLE>

* See "What Shares Cost."
** See "Contingent Deferred Sales Charge."

(See Notes which are an integral part of the Financial Statements)

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $4,411,115
EXPENSES:
Investment advisory fee $ 285,381
Administrative personnel and services fee 125,000
Custodian fees 18,266
Transfer and dividend disbursing agent fees and expenses 51,504
Directors'/Trustees' fees 3,565
Auditing fees 13,711
Legal fees 3,276
Portfolio accounting fees 49,252
Distribution services fee 285,377
Shareholder services fee 178,361
Share registration costs 16,062
Printing and postage 20,895
Insurance premiums 4,236
Taxes 215
Miscellaneous 2,160
Total expenses 1,057,261
Waivers --
Waiver of investment advisory fee $ (233,662)
Waiver of distribution services fee (171,226)
Waiver of shareholder services fee (7,134)
Total waivers (412,022)
Net expenses 645,239
Net investment income 3,765,876

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 415,434
Net change in unrealized appreciation of investments (528,504)
Net realized and unrealized loss on investments (113,070)
Change in net assets resulting from operations $3,652,806
</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>
YEAR ENDED
AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,765,876 $ 4,028,250
Net realized gain (loss) on investments ($230,283 net gain and $782,520
net loss, respectively, as computed for federal tax purposes) 415,434 (712,819)
Net change in unrealized (depreciation) appreciation (528,504) 1,576,901
Change in net assets resulting from operations 3,652,806 4,892,332
NET EQUALIZATION CREDITS (DEBITS)-- (4,115) (39,884)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (3,771,215) (3,954,127)
Change in net assets resulting from distributions to shareholders (3,771,215) (3,954,127)
SHARE TRANSACTIONS--
Proceeds from sale of shares 7,290,549 6,748,209
Net asset value of shares issued to shareholders in payment of
distributions declared 2,308,433 1,562,674
Cost of shares redeemed (9,440,266) (20,243,640)
Change in net assets resulting from share transactions 158,716 (11,932,757)
Change in net assets 36,192 (11,034,436)
NET ASSETS:
Beginning of period 70,531,523 81,565,959
End of period (including undistributed net investment income
of $55,769 and $65,223, respectively) $ 70,567,715 $ 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)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996

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 Ohio
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. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax and the personal income taxes imposed by the state of Ohio and Ohio
municipalities.

The Board of Trustees approved a change in the name of the Fund as follows:

<TABLE>
<CAPTION>
EFFECTIVE DATE NEW NAME
<S> <S>
March 31, 1996 Federated Ohio Municipal Income Fund
</TABLE>

The Board of Trustees approved a change in the name of the Fortress Shares
as follows:

<TABLE>
<CAPTION>
EFFECTIVE DATE NEW NAME
<S> <S>
March 31, 1996 Class F Shares
</TABLE>

2. SIGNIFICANT ACCOUNTING POLICIES

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

At August 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $562,497 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
<C> <C>
2003 $ 562,497
</TABLE>

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Class F Shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995
SHARES SHARES
<S> <C> <C>
Shares sold 641,518 626,737
Shares issued to shareholders in payment of distributions declared 204,123 144,421
Shares redeemed (835,151) (1,896,511)
Net change resulting from share transactions 10,490 (1,125,353)
</TABLE>

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

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.

may incur distribution expenses up to 0.40% of the average daily net assets
of the Fund, annually, to compensate FSC. The distributor may voluntarily
choose to waive any portion of its fee. The distributor can modify or
terminate this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("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.

ORGANIZATIONAL EXPENSES -- Organizational expenses of $29,070 and start-up
administrative services expenses of $97,677 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
October 10, 1990 (date the Fund first became effective). For the year ended

August 31, 1996, the Fund paid $878 pursuant to this agreement.

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)

INTERFUND TRANSACTIONS -- During the year ended August 31, 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 $9,950,000 and $10,150,000, 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 August 31, 1996, were as follows:

<TABLE>
<S> <C>
PURCHASES $8,863,690
SALES $7,510,421
</TABLE>

6. 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 August 31, 1996, 49.4% 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 15.3% of total
investments.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of FEDERATED OHIO MUNICIPAL INCOME FUND
(formerly, OHIO MUNICIPAL INCOME FUND):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Ohio Municipal Income
Fund as of August 31, 1996, the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended
August 31, 1996 and 1995, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an

opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of August 31, 1996, by correspondence with the custodian
and brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Ohio
Municipal Income Fund as of August 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 11, 1996

ADDRESSES

Federated Ohio Municipal Income Fund
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED OHIO MUNICIPAL INCOME FUND

(FORMERLY, OHIO MUNICIPAL INCOME FUND)

(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)

CLASS F SHARES

(FORMERLY, FORTRESS SHARES)

PROSPECTUS

A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company

October 31, 1996

[Graphic]
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.

[Graphic]

Cusip 625922307
0090702A-F (10/96)

FEDERATED OHIO MUNICIPAL INCOME FUND
(FORMERLY, OHIO MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Ohio Municipal Income Fund (the `Fund''),
a portfolio of Municipal Securities Income Trust (the `Trust'') dated
October 31, 1996. This Statement is not a prospectus. You may request
a copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1996

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 625922307
0090702B (10/96)

GENERAL INFORMATION ABOUT THE FUND 3

INVESTMENT OBJECTIVE AND POLICIES 3

Acceptable Investments 3
When-Issued and Delayed Delivery Transactions 6
Temporary Investments 6
Portfolio Turnover 8
Investment Limitations 8
Ohio Investment Risks 12
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 14

Fund Ownership 22
Trustees Compensation 22
Trustee Liability 24
INVESTMENT ADVISORY SERVICES 25

Adviser to the Fund 25
Advisory Fees 25
OTHER SERVICES 26

Fund Administration 26
Custodian and Portfolio Accountant 27
Transfer Agent 27
Independent Auditors 27
BROKERAGE TRANSACTIONS 27

PURCHASING CLASS F SHARES 28

Distribution Plan and Shareholder Services Agreement
29

Conversion to Federal Funds 30
Purchases by Sales Representatives, Fund Trustees,
and Employees 30
DETERMINING NET ASSET VALUE 30

Valuing Municipal Bonds 31
Use of Amortized Cost 31
REDEEMING CLASS F SHARES 31

Redemption in Kind 32
Massachusetts Partnership Law 32
TAX STATUS 33

The Fund's Tax Status 33
Shareholders' Tax Status 33
TOTAL RETURN 34

YIELD 34

TAX-EQUIVALENT YIELD 35

Tax-Equivalency Table 35
PERFORMANCE COMPARISONS 37

Economic and Market Information 39
ABOUT FEDERATED INVESTORS 39

Mutual Fund Market 40
Institutional Clients 40
Trust Organizations 41
Broker/Dealers and Bank Broker/Dealer Subsidiaries41

APPENDIX 42

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Municipal Securities Income Trust. The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 6, 1990. On September 16, 1992, (effective October 31, 1992),
the Trustees approved changing the name of the Trust from Federated
Municipal Income Trust to Municipal Securities Income Trust. On February
26,1996 (effective date March 31, 1996), the Trustees approved changing the
name of the Fund from Ohio Municipal Income Fund to Federated Ohio
Municipal Income Fund and also approved changing the name of the Fund's
presently offered shares from Fortress Shares to Class F Shares
(`Shares'').
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income exempt from
federal regular income and the personal income taxes imposed by the state
of Ohio and Ohio municipalities. The investment objective cannot be changed
without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in Ohio municipal securities.
CHARACTERISTICS
The Ohio municipal securities in which the Fund invests have the
characteristics set forth in the prospectus. If a rated bond loses its
rating or has its rating reduced after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will
consider doing so. If ratings made by Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group or Fitch's Investors Service, Inc.
change because of changes in those organizations or in their rating
systems, the Fund will try to use comparable ratings as standards in

accordance with the investment policies described in the Fund's
prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Ohio municipal securities are:
ogovernmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment
payments for equipment, buildings, or other facilities being leased
by the state or municipality. Government lease certificates
purchased by the Fund will not contain non-appropriation clauses;
omunicipal notes and tax-exempt commercial paper;
oserial bonds;
otax anticipation notes sold to finance working capital needs of
municipalities;
obond anticipation notes sold in anticipation of the issuance of
long-term bonds;
opre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
and
ogeneral obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value

of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many municipal
securities with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the
Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests,
or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the
investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:

owhether the lease can be terminated by the lessee:
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
``event of non-appropriation''); and
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government

securities or certificates of deposit to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund may only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Ohio municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
Ohio municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will

repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at
the trade date. These assets are marked to market daily and are
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual
portfolio turnover rate exceeding 100%. For the fiscal years ended August
31, 1996 and 1995, the portfolio turnover rates were 11% and 33%,
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts

borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of
the reverse repurchase agreements, the Fund will restrict the purchase
of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate although it may invest in
municipal bonds secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.

INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under the Securities
Act of 1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds where the principal and interest are
the responsibility of companies (or guarantors, where applicable) with
less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in securities of issuers which invest in or sponsor such programs.
In addition, in order to comply with certain state restrictions, the Fund
may not invest in real estate limited partnerships.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in

percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
OHIO INVESTMENT RISKS
The economy of the State of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. During the past decade,
competition in various industries in the State of Ohio has changed from
being domestic to international in nature. In addition, these industries
may be characterized as having excess capacity in particular product
segments. The steel industry, in particular, and the automobile industry,
to a lesser extent, share these characteristics. Because the State of Ohio
and certain underlying municipalities have large exposure to these
industries and their respective aftermarkets, trends in these industries
may, over the long term, impact the demographic and financial position of
the State of Ohio and its municipalities. To the degree that domestic
manufacturers in industries to which Ohio municipalities have exposure fail
to make competitive adjustments, employment statistics and disposable
income of residents in Ohio may deteriorate, possibly leading to population
declines and erosion of municipality tax bases.
Both the economic trends above and the political climate in various
municipalities may have contributed to the decisions of various businesses
and individuals to relocate outside the State. A municipality's political
climate in particular may affect its own credit standing. For both the

State of Ohio and underlying Ohio municipalities, adjustment of credit
ratings by the rating agencies may affect the ability to issue securities
and thereby affect the supply of obligations meeting the quality standards
for investment by the Fund.
The State acted quickly in response to the national recession. Expenditure
reductions in excess of $700 million coupled with various revenue
adjustments enabled the State to maintain its General Fund balances and
restore $21 million to its budget stabilization reserve during fiscal 1993.
Strong performance in fiscal 1994 and 1995, resulted in additional revenue
levels that were well above the 1990 levels. Ohio's budget stabilization
fund is currently over $800 million. The State has relatively modest debt
outstanding as compared to its economic base.
Economic restructuring continues as the State's traditional manufacturing
sectors are gradually replaced by trade and service sectors. This
transformation will reduce the State's sensitivity to economic cycles.
The State has established procedures for municipal fiscal emergencies under
which joint state/local commissions are established to monitor the fiscal
affairs of a financially troubled municipality. When these procedures are
invoked, the municipality must develop a financial plan to eliminate
deficits and cure any defaults. Since their adoption in 1979, these
procedures have been applied to approximately twenty-one cities and
villages, including the City of Cleveland; in sixteen of these communities,
the fiscal situation has been resolved and the procedures terminated.
The foregoing discussion only highlights some of the significant financial
trends and problems affecting the State of Ohio and underlying
municipalities.

MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated California Municipal Income Fund, and principal
occupations.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee

Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, `The Funds'' and ``Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities

Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID

TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue $ -0- $ -0- for the Trust and
Trustee and Chairman 54 other investment companies in
the Fund Complex
Thomas G. Bigley++ $1,243.22 $86,331 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John T. Conroy $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
William J. Copeland $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Trust and
Trustee and Exec. Vice Pres. 16 other investment
companies in the Fund Complex
James E. Dowd $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $1,363.10 $115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Peter E. Madden $1,243.22 $104,898 for the Trust and

Trustee 54other investment companies in the
Fund Complex
Gregor F. Meyer $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John E. Murray, Jr. $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Wesley W. Posvar $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Marjorie P. Smuts $1,243.22 $104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are

not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the `Adviser''). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
August 31, 1996, 1995, and 1994, the Adviser earned $285,381, $291,144, and
$332,570, respectively, of which $233,662, $256,279, and $332,570,
respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary

expenses) exceed 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES

CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
Federated Services Company, Pittsburgh, Pennsylvania, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, Boston, Massachusetts, maintains all
necessary shareholder records. For its services, the transfer agent
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS

of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or by
its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal
years ended August 31, 1996, 1995 and 1994, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Fund.
PURCHASING CLASS F SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value plus a sales charge on days the New York

Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the prospectus under `Investing in Class F Shares.''
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the fiscal years ended August 31, 1996, 1995 and 1994, payments in the
amount of $285,377, $291,139 and $307,350, respectively, were made pursuant
to the Distribution Plan, of which $171,226, $180,166 and $96,875,
respectively, were waived. In addition, for the fiscal year ended August
31, 1996, the Fund paid shareholder service fees in the amount of $178,361,
of which $7,134 were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. State Street Bank acts as the shareholder's agent
in depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.
and their spouses and children under 21, may buy shares at net asset value
without a sales charge. Shares may also be sold without a sales charge to
trusts or pension or profit-sharing plans for these persons. These sales
are made with the purchaser's written assurance that the purchase is for
investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.

VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the market
value of municipal bonds. The independent pricing service takes into
consideration yield, stability, risk, quality, coupon rate, maturity, type
of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers relevant
in determining valuations for normal institutional size trading units of
debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase, shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING CLASS F SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures and contingent
deferred sales charges are explained in the prospectus under `Redeeming
Class F Shares.''Although the Fund does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.

REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the respective class's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion
of the remainder of the redemption in portfolio instruments, valued in the
same way that net asset value is determined. The portfolio instruments will
be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on
behalf of the Fund. To protect shareholders of the Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Fund for such acts or obligations of the
Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to
use the property of the Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against
a shareholder of the Fund for any act or obligation of the Trust on behalf

of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
o the availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or

oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned Shares. Any loss by a shareholder on Shares held for
less than six months and sold after a capital gains distribution will be
treated as a long-term capital loss to the extent of the capital gains
distribution.
TOTAL RETURN

The Fund's average annual total returns for the fiscal year ended August
31, 1996, and for the period from October 12, 1990 (date of initial public
investment) to August 31, 1996, were 3.29% and 7.52%, respectively.
The average annual total return for the Shares of the Fund is the average
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the offering price per Share at the end
of the period. The number of Shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000 less any applicable sales charge, adjusted over the period by any
additional Shares, assuming a monthly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge will be
deducted from the ending value of the investment based on the lesser of the
original purchase price or the offering price of Shares redeemed.
YIELD

The Fund's yield for the 30-day period ended August 31, 1996 was 5.06%.
The yield for the Fund is determined each day by dividing the net
investment income per Share (as defined by the Securities and Exchange

Commission) earned by Fund Shares over a thirty-day period by the maximum
offering price per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by
the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or
other distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the 30-day period ended August 31, 1996
was 7.57%.
The tax-equivalent yield for shares of the Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that either class
would have had to earn to equal its actual yield, assuming a 28% tax rate
and assuming that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax* and is
free from the income taxes imposed by the State of Ohio. As the table below
indicates, a `tax-free'' investment is an attractive choice for investors,

particularly in times of narrow spreads between `tax-free'' and taxable
yields.

TAXABLE YIELD EQUIVALENT FOR 1996

STATE OF OHIO

FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

COMBINED FEDERAL AND STATE TAX BRACKET:
19.457% 33.201% 37.900% 43.500% 47.100%

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%

5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%

PERFORMANCE COMPARISONS

The performance of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return as described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,

investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attributes for the index are calculated semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in offering price over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the `general municipal bond
funds''category in advertising and sales literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total
returns represent the historic change in the value of an investment in
either class of shares based on monthly reinvestment of dividends over a
specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through it subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and

financial advisors. The marketing effort to theses institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide -- including 200 New York Stock Exchange firms --
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned
it high rankings in several DALBAR Surveys. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.

*source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP("S&P") MUNICIPAL BOND RATINGS
AAA--Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from `AA'' to ``CCC'' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to

as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its generic rating category; the
modifier 1 indicates that the security ranks in the higher end of its

generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.

PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the `AAA'' category.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for
issues designated `A-1.''
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well established access to a range of financial
markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Federated Michigan Intermediate Municipal Trust

ANNUAL REPORT FOR FISCAL YEAR ENDED AUGUST 31, 1996

MANAGEMENT DISCUSSION AND ANALYSIS

During the twelve-month period ending August 31, 1996, the municipal bond
market continued to exhibit the attributes which had been predominant since
the beginning of the fiscal year. Tight credit spreads, interest rate
volatility, a steep yield curve and a limited supply of bonds are all
characteristics of the municipal bond market during this period. The Bond
Buyer Municipal Index* reflected the volatility which existed over this
period. Interest rates began September of 1995 at 6.03% and subsequently
rallied to a low for the twelve-month period of 5.47% on February 13, 1996.
A trading range for the market then developed of between 6.00% and 6.20%
from March through August of 1996 as market expectations vacillated between
stronger growth, which would typically require a Federal Reserve Board (the
"Fed") tightening and slower economic growth, which would likely leave the
Fed on hold. The municipal yield curve remains considerably steeper than the
Treasury yield curve, due mainly to supply and demand imbalances which exist
along different segments of the maturity spectrum. Currently, the spread
between bonds of five and ten years in maturity is in excess of 45 basis
points while the spread in the same maturity range of the treasury yield
curve is approximately 20 basis points. The yield available per increment of
additional risk (duration) is more favorable on the municipal yield curve,
providing a yield advantage for only small increases in duration. The ratio
of "AAA" rated general obligation municipal bond yields to Treasury bond
yields narrowed considerably over the fiscal year in the five to ten year
portion of the municipal yield curve. This ratio can provide some indication

as to the richness or cheapness of municipal bonds versus comparable
maturity Treasury securities. This ratio has narrowed, or municipal bonds
have become more expensive relative to Treasury securities, as a result of
significant institutional interest (property and casualty insurance
companies and commercial banks) in intermediate maturities.

Michigan's economy has continued to perform very well. Michigan's
manufacturing and service sectors have experienced solid growth while the
diversification the regional economy underwent over the last ten years has
stabilized the performance of state and local government finances. The
manufacturing sector, autos in particular, can provide some near term risk
to the Michigan economy if the national economy begins to slow. In general,
Michigan trades 5 to basis 10 points richer than Pennsylvania paper as a
result of market supply and demand differences. Municipal bond insurance has
become a significant factor in the Michigan municipal bond market with
approximately 40% of the state's issuance coming to the market insured in
the first quarter of this year. The supply of municipal bond issuance in the
market is a very important technical factor which can have a considerable
impact on relative performance.

* The Bond Buyer Municipal Index is a standard against which municipal bonds
are measured. This index is unmanaged.

Portfolio strategy continues to emphasize credit quality. The yield spread
between a "AAA" rated insured municipal bond and an "A" rated revenue bond
is currently approximately 17 basis points, which is less than the average
spread (25 basis points) over the last 12 months. Duration has
been kept at the peer group average (5.6 years), which is considered a

neutral duration position. Intermediate maturity municipal bonds (five to
tens years in maturity) performed very well on a price basis over the fiscal
year as investors shortened their position on the yield curve as a result of
concerns over tax reform proposals and the future direction of interest
rates. Institutional buying (property and casualty insurance companies and
commercial banks) has been strong in the intermediate part of the yield
curve which has resulted in making intermediate maturity municipal bonds
expensive relative to longer maturity municipal bonds. The intermediate
portion of the yield curve could therefore be negatively effected by
institutional selling in the future.

Federated Michigan Intermediate Municipal Trust's performance over the past
fiscal year reflects the fund's intermediate maturity and duration position
relative to the fund's peer group. The fund's total return was 1.04%** for
the period September 1, 1995 to August 31, 1996. The concentration of high
coupon premium bonds in the portfolio helped to dampen net asset value
volatility over the period. However, the fund is managed predominately for
tax-exempt income and posted a 30-day distribution rate of 4.99%**, based on
net asset value, as of August 31, 1996, which is comparable to a yield of
8.26% on a taxable equivalent basis, assuming a top marginal tax rate of
39.6%. The fund's yield for the thirty-day period ended August 31, 1996 was
4.38%**. As interest rates rose over the fiscal year management took the
opportunity to improve the fund's yield by "couponing up," or swapping into
bonds with better yield characteristics, while also recognizing tax losses
which can be used to offset future realized capital gains.

** Performance quoted reflects 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. The fund's 30-day
distribution rate based on offering price was 4.84%.

Federated Michigan Intermediate Municipal Trust

GROWTH OF $10,000 INVESTED IN FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Michigan Intermediate Municipal Trust (the "Fund") from September
18, 1991 (start of performance) to August 31, 1996, compared to the Lehman
Brothers 7 Year State General Obligation Bond Index (LB7YRSGOBI).+

[`Graphic representation A3 omitted. See Appendix.'']

THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
OCTOBER 31, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.

* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 3.00% ($10,000 investment minus $300
sales charge = $9,700). The Fund's performance assumes the reinvestment of
all dividends and distributions. The LB7YRSGOBI has been adjusted to reflect

reinvestment of dividends on securities in the index.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

+ The LB7YRSGOBI is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.

[Graphic]

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.

[Graphic]

Cusip 625922703
G01106-03 (10/96)

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)

PROSPECTUS

The shares of Federated Michigan Intermediate Municipal Trust (the "Fund")
offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Municipal Securities Income Trust (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund is
to provide current income exempt from federal regular income tax and the
personal income taxes imposed by the state of Michigan and Michigan
municipalities. The Fund invests primarily in a portfolio of Michigan
municipal securities.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information dated October
31, 1996, with the Securities and Exchange Commission ("SEC"). The

information contained in the Statement of Additional Information is
incorporated by reference in this prospectus. You may request a copy of the
Statement of Additional Information or a paper copy of this prospectus, if
you have received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or make inquiries about the
Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

Prospectus dated October 31, 1996

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Michigan Municipal Securities 5
Investment Risks 6
Non-Diversification 6
Investment Limitations 6
NET ASSET VALUE 7
INVESTING IN THE FUND 7
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Eliminating/Reducing the Sales Charge 9
Systematic Investment Program 10
Certificates and Confirmations 10
Dividends and Distributions 11
EXCHANGE PRIVILEGE 11
Requirements for Exchange 11
Tax Consequences 11
Making an Exchange 11
REDEEMING SHARES 12
Through a Financial Institution 12
Directly from the Fund 12

Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
TRUST INFORMATION 14
Management of the Trust 14
Distribution of Fund Shares 15
Administration of the Fund 16
SHAREHOLDER INFORMATION 17
Voting Rights 17
TAX INFORMATION 17
Federal Income Tax 17
Michigan Taxes 18
State and Local Taxes 18
PERFORMANCE INFORMATION 19
FINANCIAL STATEMENTS 20
INDEPENDENT AUDITORS' REPORT 36
ADDRESSES Inside Back Cover
</TABLE>

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 3.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(1) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.50%
Shareholder Services Fee (after waiver)(3) 0.07%
Total Operating Expenses(4) 0.50%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company, purchased or redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50% for redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of
the management fee. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.40%.

(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder services provider
can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.13% absent the voluntary
waivers of the management fee and a portion of the shareholder services
fee and the voluntary reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; (2) redemption
at the end of each time period and (3) payment of maximum
sales charge $35 $46 $57 $91
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 36.

<TABLE>
<CAPTION>
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 0.36 0.54 0.53 0.55 0.56
Net realized and unrealized gain
(loss) on investments (0.10) 0.21 (0.43) 0.64 0.38
Total from investment operations 0.26 0.75 0.10 1.19 0.94
LESS DISTRIBUTIONS
Distributions from net investment income (0.36) (0.54) (0.53) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $10.70 $10.80 $10.59 $11.02 $10.38
TOTAL RETURN(B) 4.13% 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 4.99% 5.19% 4.87% 5.11% 5.66%*
Expense waiver/reimbursement(c) 0.63% 0.65% 0.57% 1.06% 1.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,785 $60,621 $58,480 $50,625 $29,998
Portfolio turnover 7% 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.

(See Notes which are an integral part of the Financial Statements)

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. On June 1, 1994,
Michigan Municipal Income Fund changed its name to Michigan Intermediate

Municipal Trust.

The Fund is designed for customers of financial institutions such as banks,
fiduciaries, investment advisers and broker/dealers as a convenient means of
accumulating an interest in a professionally managed, non-diversified
portfolio investing primarily in Michigan municipal securities. A minimum
initial investment of $1,000 is required. Subsequent investments must be in
amounts of at least $100. The Fund is not likely to be a suitable investment
for non-Michigan taxpayers or retirement plans since Michigan municipal
securities are not likely to produce competitive after-tax yields for such
persons and entities when compared to other investments.

Except as otherwise noted in this prospectus, Fund shares are sold at net
asset value plus an applicable sales charge and are redeemed at net asset
value.

The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities. The investment
objective cannot be changed without approval of shareholders. While there is

no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

Interest income of the Fund that is exempt from the income taxes described
above retains its exempt status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from
state or municipal taxes in states other than Michigan.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing primarily in a
portfolio of Michigan municipal securities. Under normal market conditions,
the dollar-weighted average portfolio maturity of the Fund will be between
three and ten years, and the Fund's average-weight duration will be between
three and seven years. Unless indicated otherwise, the investment policies
of the Fund may be changed by the Trustees without approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include:

* obligations issued by or on behalf of the state of Michigan, its political
subdivisions, or agencies;

* debt obligations of any state, territory, or possession of the United
States, or any political subdivision of any of these; and

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

CHARACTERISTICS. The Michigan municipal securities which the Fund buys are
investment grade bonds rated Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's"), AAA, AA or A by Standard & Poor's Ratings Group ("S&P"), and
AAA, AA or A by Fitch Investors Service, Inc. ("Fitch"). In certain cases
the Fund's adviser may choose bonds which are unrated if it judges the bonds
to have the same characteristics as the investment grade bonds described
above. A description of the ratings categories is contained in the Appendix
to the Statement of Additional Information.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Michigan municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Board of
Trustees (the "Trustees") of the Trust will determine that participation
interests meet the prescribed quality standards for the Fund.

VARIABLE RATE MUNICIPAL SECURITIES. Some of the Michigan municipal
securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily based on a published interest rate,
interest rate index, or a similar standard, such as the 91-day U.S. Treasury
bill rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Fund in not more than seven days. All variable
rate municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund on the basis of published
financial information and reports of the rating agencies and other
analytical services.

restriction upon resale under federal securities laws. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Trustees to be liquid, to 15% of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay more/less than
the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.

TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
state of Michigan and Michigan municipalities personal income taxes.
However, from time to time when the investment adviser determines that
market conditions call for a temporary defensive posture, the Fund may
invest in short-term non-Michigan municipal tax-exempt obligations or
taxable temporary investments. These temporary investments include: notes

issued by or on behalf of municipal or corporate issuers; obligations issued
or guaranteed by the U.S. government, its agencies, or instrumentalities;
other debt securities; commercial paper; certificates of deposit of banks;
and repurchase agreements (arrangements in which the organization selling
the Fund, a bond, or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).

MICHIGAN MUNICIPAL SECURITIES

Michigan municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.

Michigan municipal securities include industrial development bonds issued by

or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. However, interest on and principal of
revenue bonds, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.

INVESTMENT RISKS

Yields on Michigan municipal securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of
the issue. Further, any adverse economic conditions or developments
affecting the state of Michigan or its municipalities could impact the
Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of Michigan
municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal
when due. Investing in Michigan municipal securities which meet the Fund's

quality standards may not be possible if the state of Michigan or its
municipalities do not maintain their current credit ratings. In addition,
any Michigan constitutional amendments, legislative measures, executive
orders, administrative regulations, and voter initiatives could result in
adverse consequences affecting Michigan municipal securities.

A further discussion of the risks of a portfolio which invests largely in
Michigan municipal securities is contained in the Statement of Additional
Information.

NON-DIVERSIFICATION

total assets are invested in the securities of a single issuer.

INVESTMENT LIMITATIONS

NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets,
less liabilities, by the number of shares outstanding.

INVESTING IN THE FUND

SHARE PURCHASES

Fund shares are sold on days on which the New York Stock Exchange is open
for business. Shares of the Fund may be purchased through a financial
institution which has a sales agreement with the distributor, or directly
from the distributor, Federated Securities Corp., once an account has been
established. The Fund reserves the right to reject any purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or broker/dealer) to place an order to purchase
shares of the Fund. Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a financial institution must be received by the financial
institution before 4:00 p.m. (Eastern time) and must be transmitted by the
financial institution to the Fund before 5:00 p.m. (Eastern time) in order
for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.

DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
shares directly from the distributor, once an account has been established.
To do so: complete and sign the new account form available from the Fund;
enclose a check made payable to Federated Michigan Intermediate Municipal
Trust; and mail both to Federated Michigan Intermediate Municipal Trust,
P.O. Box 8600, Boston, MA 02266-8600.

The order is considered received after the check is converted by the

transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank") into federal funds. This is generally the next business day after
State Street Bank receives the check.

To purchase Shares directly from Federated Securities Corp. by Federal
Reserve wire once an account has been established, call the Fund. All
information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: Federated Shareholder Services Company,
c/o State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Michigan Intermediate Municipal Trust;
(Fund Number -- this number can be found on the account statement or by
contacting the Fund); Account Number; Trade Date and Order Number; Group
Number or Dealer Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.

SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single
master accounts. However, certain financial institutions may wish to use the
transfer agent's subaccounting system to minimize their internal
recordkeeping requirements. The transfer agent may charge a fee based on the
level of subaccounting services rendered. Financial institutions holding
Fund shares in a fiduciary, agency, custodial, or similar capacity may
charge or pass through subaccounting fees as part of or in addition to
normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This

prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations
imposed. State securities laws may require certain financial institutions
such as depository institutions to register as dealers.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Fund shares are sold at their net asset value, less any applicable sales
charge, next determined after an order is received:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $50,000 3.00% 3.09%
$50,000 but less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%
</TABLE>

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

No sales charge is imposed for shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or to shareholders designated as Liberty Life
Members. However, investors who purchase shares through a trust department
or investment adviser may be charged an additional service fee by the
institution. Additionally, no sales charge is imposed for shares purchased
through "wrap accounts" or similar programs, under which clients pay a fee
or fees for services.

DEALER CONCESSION. For sales of shares, the distributor will normally offer
to pay dealers up to 100% of the sales charge retained by it. On purchases
of $1 million or more, the investor pays no sales charge; however, the
distributor will make twelve monthly payments to the dealer totaling 0.25%
of the public offering price over the first year following the purchase.
Such payments are based on the original purchase price of shares outstanding
at each month end. No sales charge is imposed for fund shares purchased
through bank trust departments or investment advisers registered under the

Investment Advisers Act of 1940, as amended. However, investors who purchase
shares through a trust department or investment adviser may be charged an
additional service fee by that institution.

ELIMINATING/REDUCING THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Fund shares
through:

* quantity discounts and accumulated purchases;

* signing a 13-month letter of intent;

* using the reinvestment privilege;

* concurrent purchases; or

* purchases with proceeds from redemptions of unaffiliated mutual fund
shares.

If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of

$40,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 2.50%, not 3.00%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Fund shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge
effective as of the date on which the Fund confirms the previous purchases
(which, under normal circumstances, would be the date on which the Fund
received the notice from the shareholder that Fund shares are already
owned).

LETTER OF INTENT. If a shareholder intends to purchase a specific dollar
amount of shares in the Fund over the next 13 months, the sales charge may
be reduced by signing a letter of intent to that effect. For example, if a
shareholder intends to purchase at least $50,000 in shares, the letter of
intent shall include a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for
the custodian to hold 3.00% of the total amount intended to be purchased in
escrow (in shares) until such purchase is completed.

The applicable portion of the 3.00% held in escrow will be applied to the
shareholder's account at the end of the 13-month period unless the amount
specified in the letter of intent is not purchased. In this event, an
appropriate number of escrowed shares may be redeemed in order to realize
the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase shares,
but if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90
days towards the dollar fulfillment of the letter of intent.

REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 120 days, to reinvest the
redemption proceeds at the next-determined net asset value without any sales
charge. Federated Securities Corp. must be notified by the shareholder in
writing or by his financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems his shares in the Fund,
there may be tax consequences.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
elimination, a shareholder has the privilege of combining concurrent
purchases of Fund shares or Class A Shares of two or more funds for which
affiliates of Federated Investors serve as investment advisers or principal
underwriter (the "Federated Funds"), the purchase prices of which include a
sales charge. For example, if a shareholder concurrently invested $400,000
in one of the other Class A Shares of the Federated Funds and $600,000 in
shares of the Fund, the sales charge would be eliminated.

PURCHASES WITH PROCEEDS FROM REDEMPTION OF UNAFFILIATED MUTUAL FUND SHARES.
Investors may purchase shares of the fund at net asset value, without a
sales charge, with the proceeds from the redemption of shares of a mutual
fund which was sold with a sales charge or commission and was not
distributed by Federated Securities Corp. The purchase must be made within
60 days of the redemption, and Federated Securities Corp. must be notified
by the investor in writing or by his financial institution at the time the
purchase is made. From time to time, the Fund may offer dealers a payment of
.50 of 1% for shares purchased under this program. If shares are purchased
in this manner, Fund purchases will be subject to a contingent deferred
sales charge for one year from the date of purchase.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in shares at the net asset value
next determined after an order is received by Federated Shareholder Services
Company, plus the applicable sales charge. A shareholder may apply for
participation in this program through his financial institution.

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared daily and paid monthly to all shareholders invested
in the Fund on the record date. Distributions of any net realized long-term
capital gains will be made at least once every twelve months. Dividends and
distributions are automatically reinvested in additional shares on payment
dates at the ex-dividend date net asset value without a sales charge, unless
shareholders request cash payments on the new account form or by writing to
Federated Shareholder Services Company. All shareholders on the record date
are entitled to the dividend.

EXCHANGE PRIVILEGE

Shareholders may exchange all or some of their Fund shares for Class A
Shares of other Federated Funds at net asset value. Neither the Fund nor any
of the Federated Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange all or some of
their shares for Fund shares or Class A Shares.

Please contact your financial institution directly or Federated Securities
Corp. at 1-800-341-7400 for more information on and prospectuses for the
Federated Funds into which your Fund shares may be exchanged free of charge.
Instructions for exchanging Shares must be given in writing by the
shareholder. Written instructions may require a signature guarantee.

Shareholders of Fund shares or Class A Shares who have been designated as
Liberty Life Members are exempt from sales charges on future purchases in
and exchanges between the Class A Shares of any Federated Funds, as long as
they maintain a $500 balance in one of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive the prospectus of the fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other fund.
The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon circumstances, a capital gain or loss
may be realized.

MAKING AN EXCHANGE

Shareholders who desire to automatically exchange Fund shares of a
predetermined amount on a monthly, quarterly, annual or other periodic basis
may take advantage of a systematic exchange privilege. Further information
on these exchange privileges is available by calling Federated Securities
Corp. or the shareholder's financial institution.

instructions will be processed as of 4:00 p.m. (Eastern time) and must be
received by the Fund before that time for shares to be exchanged the same
day. Shareholders exchanging into a fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.

REDEEMING SHARES

The Fund redeems shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Redemptions will be made on days on which the Fund computes its net asset
value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem shares of the Fund by calling his financial
institution (such as a bank or a broker/dealer) to request the redemption.
Shares will be redeemed at the net asset value next determined after the
Fund receives the redemption request from the financial institution. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the Fund.
The financial institution may charge customary fees and commissions for this

service.

DIRECTLY FROM THE FUND

BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their shares of a Fund by telephoning the Fund. The
proceeds will be mailed to the shareholder's address of record or wire
transferred to the shareholder's account at a domestic commercial bank that
is a member of the Federal Reserve System, normally within one business day,
but in no event longer than seven days after the request. The minimum amount
for a wire transfer is $1,000. Proceeds from redemption requests received on
holidays when wire transfers are restricted will be wired the following
business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If
at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.

BY MAIL. Any shareholder may redeem Fund shares by sending a written request
to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent

unendorsed with the written request by registered or certified mail to the
address noted above.

CONTINGENT DEFERRED SALES CHARGE

Shares purchased under a periodic special offering with the proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Federated Securities
Corp. may be charged a contingent deferred sales charge .50 of 1% for
redemptions made within one full year of purchase. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value
of the redeemed shares at the time of purchase or the net asset value of the
redeemed shares at the time of redemption.

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) shares held for more than
one full year from the date of purchase with respect to applicable shares.
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge.
In computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains;
(2) shares held for more than one full year from the date of purchase with
respect to applicable shares; and (3) shares held for less than one full
year from the date of purchase with respect to applicable shares on a
first-in, first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund shares for shares of
Federated Funds in the same class (see "Exchange Privilege"). Any contingent

deferred sales charge imposed at the time the exchanged-for shares are
redeemed is calculated as if the shareholder had held the shares from the
date on which he became a shareholder of the exchanged-from shares.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may
take advantage of the Systematic Withdrawal Program. Under this program,
Fund shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net
asset value of Fund shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund.
For this reason, payments under this program should not be considered as
yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have an account value of
at least $10,000. A shareholder may apply for participation in this program
through his financial institution. Due to the fact that shares are sold with
a sales charge, it is not advisable for shareholders to be purchasing shares
while participating in this program.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000

because of changes in the Fund's net asset value. Before shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional shares to meet the minimum requirement.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violation of the codes are subject
to review by the Trustees, and could result in severe penalties.

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver or
reimbursement of expenses at any time in its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is wholly-owned by Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

Jonathan C. Conley has been the Fund's portfolio manager since its
inception. Mr. Conley joined Federated Investors in 1979 and has been a
Senior Vice President of the Fund's investment adviser since 1995. Mr.
Conley was a Vice President of the Fund's investment adviser from 1982 to
1995. Mr. Conley is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Virginia.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.

ADMINISTRATION OF THE FUND

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of the shares, computed at an annual rate, to obtain
certain personal services for shareholders and provide the maintenance of
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily under the
Shareholder Services Agreement. Federated Shareholder Services will either
perform shareholder services directly or will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the
basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic
payments to financial institutions under the Services Plan, the distributor
may offer to pay a fee from its own assets to financial institutions as
financial assistance for providing substantial marketing and sales support.
The support may include participating in sales, educational and training
seminars at recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the

financial institution sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that only shares of
the Fund are entitled to vote on matters affecting only the Fund. As of
October 7, 1996, Enbanco, Traverse City, Michigan, owned 38.64% of the
voting securities of the Fund, and, therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain
matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. The Fund will be treated as a single, separate
entity for federal income tax purposes so that income (including capital
gains) and losses realized by the Trust's other portfolios will not be
combined for tax purposes with those realized by the Fund.

In addition, in the case of a corporate shareholder, dividends of the Fund
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of the taxpayer's "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax preference
item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
includes the full amount of any Fund dividend, and alternative minimum
taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, the
difference will be included in the calculation of the corporation's
alternative minimum tax.

Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

These tax consequences apply whether dividends are received in cash or as

additional shares. Information on the tax status of dividends and
distributions is provided annually.

MICHIGAN TAXES

Under existing Michigan laws, distributions made by the Fund will not be
subject to Michigan personal income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Internal
Revenue Code of 1986, as amended, and represent (i) interest income and
dividends from obligations of Michigan, which obligations are excluded from
federal adjusted gross income; or (ii) income from obligations of the United
States government which Michigan is prohibited by law from subjecting to a
net income tax.

That portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of
the United States, and dividends paid by the Fund representing interest
payments on such securities, will be exempt from Michigan intangibles tax.
1995 Public Act 5 repeals the intangibles tax effective January 1, 1998.

Distributions by the Fund are not subject to the Michigan Single Business
Tax to the extent that such distributions are derived from interest on
obligations that would be exempt if owned directly by the shareholder, such
as obligations of Michigan and the United States government.

Certain municipalities in Michigan also impose an income tax on individuals
and corporations. However, to the extent that the dividends from the Funds

are exempt from federal regular income taxes, such dividends also will be
exempt from Michigan municipal income taxes.

STATE AND LOCAL TAXES

Income from the Fund is not necessarily free from taxes in states other than
Michigan. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return, yield, and
tax-equivalent yield.

Total return represents the change, over a specific period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
the Fund would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and the tax-equivalent yield do not necessarily

reflect income actually earned by the Fund and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales charge
and other similar non-recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield,
and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- 98.70%
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 $ 103,660
230,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2000 AA 241,350
215,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2001 AA 226,988
100,000 Auburn Hills, MI, LT GO Bonds, 6.50%, 5/1/1997 A+ 101,710
600,000 Avondale, MI School District, UT GO Refunding Bonds,
5.40% (Michigan State GTD)/(Original Issue Yield:
5.45%), 5/1/2003 AA- 613,086
500,000 Avondale, MI School District, UT GO Refunding Bonds,
6.75% (Michigan State GTD)/(Original Issue Yield:
6.95%), 5/1/2014 AA 533,830
500,000 Battle Creek, MI Building Authority, Revenue Bonds,
6.00%, 4/1/2002 A+ 527,370
500,000 Battle Creek, MI Building Authority, Revenue Bonds,
6.10%, 4/1/2003 A+ 527,300
100,000 Battle Creek, MI Water Supply System, Revenue Bonds
(Series B), 6.90% (United States Treasury PRF), 9/1/1998
(@102) NR 106,750
335,000 Calhoun County, MI, UT GO (Series II), 6.60% (AMBAC
INS), 7/1/2002 AAA 346,326

100,000 Detroit, MI City School District, UT GO Refunding
Bonds (Series A), 7.15% (MBIA INS), 5/1/1998 AAA 104,478
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 531,325
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- continued
MICHIGAN -- continued
$ 3,000,000 Detroit, MI Water Supply System, Revenue Refunding
Bonds, 6.00% (FGIC INS)/(Original Issue Yield: 6.10%),
7/1/2002 AAA $ 3,167,070
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10%
(AMBAC INS)/(Original Issue Yield: 6.15%), 6/1/2004 AAA 1,062,610
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 212,722
425,000 Forest Hills, MI Public School, UT GO Bonds, 7.375%
(United States Treasury PRF)/(Original Issue Yield:
7.397%), 5/1/2015 (@101) AA- 467,436
285,000 Garden City, MI School District, UT GO Refunding
Bonds, 5.80% (FSA INS), 5/1/2004 AAA 300,151
250,000 Garden City, MI School District, UT GO Refunding
Bonds, 5.90% (FSA INS), 5/1/2005 AAA 264,553
565,000 Garden City, MI School District, UT GO Refunding
Bonds, 6.00% (FSA INS), 5/1/2006 AAA 597,996
515,000 Garden City, MI School District, UT GO Refunding
Bonds, 6.10% (FSA INS), 5/1/2007 AAA 545,684
1,200,000 Grand Rapids, MI Public Schools, UT GO Bonds, 5.00%
(Original Issue Yield: 5.40%), 5/1/2002 AA- 1,217,364

300,000 Grand Rapids, MI Sanitation Sewer System, Revenue
Bonds, 5.50% (Original Issue Yield: 5.55%), 1/1/2003 AA 309,270
250,000 Grand Rapids, MI Sanitation Sewer System, Revenue
Bonds, 5.60% (Original Issue Yield: 5.65%), 1/1/2004 AA 258,710
130,000 Grand Valley, MI State College, Housing Revenue
Bonds, 6.60% (United States Treasury COL), 10/1/1996 AAA 130,277
150,000 Huron Valley, MI School District, UT GO Bonds, 6.50%
(Michigan State GTD)/(United States Treasury PRF),
5/1/2002 (@102) AA 163,176
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 270,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.70%, 11/1/2003 AA- $ 282,155
360,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.80%, 11/1/2004 AA- 376,121
465,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.90%, 11/1/2005 AA- 485,674
1,850,000 Jenison Public Schools, UT GO School Building and Site
Refunding Bonds, Series 1996, 5.30% (FGIC INS)/
(Original Issue Yield: 5.40%), 5/1/2007 AAA 1,849,112
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 286,057
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 446,001
500,000 Lake Orion, MI School District, UT GO Refunding
Bonds, 5.90% (Michigan State GTD)/(AMBAC INS),
5/1/2001 AAA 525,260
2,000,000 Lake Orion, MI School District, UT GO Refunding
Bonds, 6.05% (AMBAC INS)/(Michigan State LOC),
5/1/2002 AAA 2,124,180

900,000 Lansing, MI Sewer Disposal System, Revenue
Refunding Bonds, 5.30% (FGIC INS)/(Original Issue
Yield: 5.35%), 5/1/2005 AAA 913,995
500,000 Lansing, MI Sewer Disposal System, Revenue
Refunding Bonds, 5.50% (FGIC INS)/(Original Issue
Yield: 5.60%), 5/1/2007 AAA 507,260
750,000 Livonia, MI Public School District, UT GO Bonds
(Series I), 6.00%, 5/1/2001 AA 790,875
1,710,000 Marquette, MI Hospital Finance Authority, Hospital
Revenue Refunding Bonds (1996 Series D), 5.30%
(Marquette General Hospital, MI)/(FSA INS), 4/1/2005 AAA 1,725,168
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,290,000 Marquette, MI Hospital Finance Authority, Hospital
Revenue Refunding Bonds (1996 Series D), 5.40%
(Marquette General Hospital, MI)/(FSA INS), 4/1/2006 AAA $ 1,302,436
100,000 Michigan Higher Education Student Loan Authority,
Revenue Refunding Bonds (Series X1), 7.10% (AMBAC
INS), 10/1/1997 AAA 103,010
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 1,585,635
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- 3,128,310
100,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series 1988-I), 6.55%
(Michigan State), 9/1/1997 AA- 102,480
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- 1,037,290
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- 1,037,650
100,000 Michigan State Comprehensive Transportation Board,
Revenue Refunding Bonds (Series B-II), 6.55% (Michigan
State), 11/1/1997 AA- 102,801
415,000 Michigan State Hospital Finance Authority, Revenue
Bonds (Series A), 6.15% (Crittenton Hospital, MI),
3/1/2001 A 433,658
440,000 Michigan State Hospital Finance Authority, Revenue
Bonds (Series A), 6.25% (Crittenton Hospital, MI),
3/1/2002 A 463,302
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 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 $ 907,380
500,000 Michigan State Hospital Finance Authority, Revenue
Bonds, Providence Hospital, 7.00% (Daughters of
Charity)/(Original Issue Yield: 7.04%), 11/1/2021 NR 536,760
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+ 1,529,490
100,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series A), 7.20% (Mercy Memorial
Hospital, MI)/(MBIA INS), 6/1/1997 AAA 102,448
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 102,943
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 515,625
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 841,648
575,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.30% (Sparrow Obligated Group,
MI)/(MBIA INS), 11/15/2003 AAA 618,016
375,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.85% (Oakland General Hospital,
MI)/(AMBAC INS), 7/1/2000 AAA 403,163
1,000,000 Michigan State Housing Development Authority,
(Series A) Rental Housing Revenue Bonds, 5.55%
(MBIA INS), 4/1/2004 AAA 1,001,850
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 500,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 5.90%, 12/1/2005 AA $ 506,130
500,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 5.90%, 6/1/2005 AA 505,870
430,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 6.25%, 6/1/2002 AA 442,582
200,000 Michigan State Housing Development Authority,
Revenue Bonds (Series A), 7.00%, 12/1/2005 AA 210,858
280,000 Michigan State Housing Development Authority,
Revenue Bonds (Series B), 6.30%, 12/1/2003 AA 289,232
200,000 Michigan State Housing Development Authority,
Revenue Bonds (Series B), 6.95%, 12/1/2020 AA 210,752
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 1,746,585
1,000,000 Michigan State, UT GO Recreation Program Bonds,
5.75% (Original Issue Yield: 5.80%), 11/1/2001 AA- 1,052,070
250,000 Michigan Strategic Fund, LT Obligation Revenue
Refunding Bonds (Series A), 7.10% (Ford Motor Co.)/
(Original Issue Yield: 7.127%), 2/1/2006 A 282,028
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 4,606,788
1,750,000 Novi, MI Community School District, UT GO Bonds,
Q-SBLF, 5.45% (Original Issue Yield: 5.50%), 5/1/2003 AA 1,797,058
950,000 Novi, MI, UT GO Bonds (Series A & B), 4.80% (Original
Issue Yield: 4.90%), 10/1/2005 A+ 929,775
300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds,
6.65% (Oakland Community College District, MI)/
(Original Issue Yield: 6.743%), 5/1/2011 AA- 322,437
250,000 Oakland County, MI, LT GO Bonds, Evergreen-Farmington
Sewer Disposal, 6.30%, 5/1/2005 AA- 263,453
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 610,000 Okemos, MI Public School District, UT GO Refunding
Bonds, Q-SBLF, 6.00% (Michigan State GTD), 5/1/2002 AA- $ 645,752
140,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa
Water Supply System, 6.50% (Original Issue Yield:
6.55%), 10/1/2002 AA- 147,630
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa
Water System, 6.85%, 5/1/2000 AA- 103,635
220,000 Ottawa County, MI, LT GO Bonds,Northwest Ottawa
Water Supply System, 6.50%, 10/1/2001 AA- 231,990
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- 818,262
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- 424,160
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%), 5/1/2017 (@101) AA- 546,775
570,000 Riverview, MI Community School District, UT GO
Bonds, 6.20% (FGIC INS)/(United States Treasury

PRF), 5/1/2003 (@101.5) AAA 617,196
615,000 Riverview, MI Community School District, UT GO
Bonds, 6.20% (FGIC INS)/(United States Treasury PRF),
5/1/2003 (@101.5) AAA 665,922
350,000 Rochester, MI Community School District, UT GO
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.60%), 5/1/2007
(@100) AA- 379,649
250,000 Rochester, MI Community School District, UT GO
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.75%),
5/1/2011 (@100) AA- 271,178
</TABLE>

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, 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 $ 288,031
230,000 Shelby Charter Townships, MI Building Authority,
Revenue Bonds, 6.25% (AMBAC INS)/(Original
Issue Yield: 6.50%), 11/1/2007 AAA 244,495
250,000 University of Michigan, Hospital Revenue Bonds,
7.00% (United States Treasury PRF)/(Original Issue
Yield: 7.25%), 12/1/2000 (@102) AA- 276,675
1,500,000 University of Michigan, Hospital Revenue
Refunding Bonds (Series A), 5.70% (Original Issue
Yield: 5.80%), 12/1/2004 AA 1,572,750
1,000,000 Western Michigan University, Revenue Bonds,
5.50% (FGIC INS)/(Original Issue Yield: 5.55%),
11/15/2002 AAA 1,038,480
885,000 Wyandotte, MI Electric Authority, Revenue
Refunding Bonds, 6.10% (MBIA INS), 10/1/2002 AAA 945,782
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $58,798,323) 61,212,925
SHORT-TERM MUNICIPAL NOTES -- 1.2%
PUERTO RICO -- 1.2%

750,000 Puerto Rico Government Development Bank
Weekly VRDNs (Credit Suisse, Zurich LOC) AA+ 750,000
TOTAL INVESTMENTS (IDENTIFIED COST $59,548,323)(A) $ 61,962,925
</TABLE>

Securities that are subject to alternative minimum tax represent 3.3% of the
Fund's portfolio as calculated based upon total portfolio market value.

* 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
($62,785,103) at August 31, 1996.

(a) The cost of investments for federal tax purposes amounts to $59,548,323.
The unrealized appreciation of investments on a federal tax basis amounts to
$2,414,602, which is comprised of $2,569,133 appreciation and $154,531
depreciation at August 31, 1996.

The following acronym(s) 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
AUGUST 31, 1996

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $59,548,323) $61,962,925
Cash 15,961
Income receivable 1,041,446
Receivable for shares sold 59,544
Total assets 63,079,876
LIABILITIES:
Payable for shares redeemed $ 56,740
Income distribution payable 215,769
Accrued expenses 22,264
Total liabilities 294,773
NET ASSETS for 5,869,678 shares outstanding $62,785,103
NET ASSETS CONSIST OF:
Paid in capital $61,646,888
Net unrealized appreciation of investments 2,414,602
Accumulated net realized loss on investments (1,276,387)
Total Net Assets $62,785,103
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($62,785,103 O 5,869,678 shares outstanding) $10.70
Offering Price Per Share (100/97.00 of $10.70)* $11.03
Redemption Proceeds Per Share $10.70
</TABLE>

* See "What Shares Cost".

(See Notes which are an integral part of the Financial Statements)

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $3,413,621
EXPENSES:
Investment advisory fee $ 248,517
Administrative personnel and services fee 125,000
Custodian fees 19,519
Transfer and dividend disbursing agent fees and expenses 32,716
Directors'/Trustees' fees 3,209
Auditing fees 13,731
Legal fees 3,578
Portfolio accounting fees 57,397
Shareholder services fee 155,329
Share registration costs 19,359
Printing and postage 12,043
Insurance premiums 4,162
Miscellaneous 11,484
Total expenses 706,044
Waivers and reimbursements --
Waiver of investment advisory fee $(248,517)
Waiver of shareholder services fee (111,838)
Reimbursement of other operating expenses (32,292)
Total waivers and reimbursements (392,647)
Net expenses 313,397
Net investment income 3,100,224
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (15,933)

Net change in unrealized appreciation of investments (645,967)
Net realized and unrealized loss on investments (661,900)
Change in net assets resulting from operations $2,438,324
</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>
YEAR ENDED
AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,100,224 $ 3,027,122
Net realized gain (loss) on investments ($934,269 net loss and $310,181
net gain, respectively, as computed for federal tax purposes) (15,933) (994,664)
Net change in unrealized appreciation (depreciation) (645,967) 2,337,762
Change in net assets resulting from operations 2,438,324 4,370,220
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (3,100,224) (3,027,122)
SHARE TRANSACTIONS--
Proceeds from sale of shares 12,656,505 15,838,005
Net asset value of shares issued to shareholders in payment of
distributions declared 531,641 423,109
Cost of shares redeemed (10,361,950) (15,463,625)
Change in net assets resulting from share transactions 2,826,196 797,489
Change in net assets 2,164,296 2,140,587
NET ASSETS:
Beginning of period 60,620,807 58,480,220
End of period $ 62,785,103 $ 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)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996

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. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax (federal regular income tax does not include the federal alternative
minimum tax) and personal income taxes imposed by the state of Michigan and
Michigan municipalities.

The Board of Trustees approved a change in the name of the Fund as follows:

<TABLE>
<CAPTION>
EFFECTIVE DATE NEW NAME
<S> <S>
March 31, 1996 Federated Michigan Intermediate Municipal Trust
</TABLE>

2. SIGNIFICANT ACCOUNTING POLICIES

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

At August 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,260,455, 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
<C> <C>
2001 $ 12,267
2002 $ 3,738
2003 $310,181
2004 $934,269
</TABLE>

Additionally, net capital losses of $15,933, attributable to security
transactions incurred after October 31, 1995, are treated as arising on the
first day of each Fund's next taxable year (September 1, 1996).

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.

OTHER -- Investment transactions are accounted for on the trade date.

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, 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>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 1,168,371 1,533,015
Shares issued to shareholders in payment of distributions declared 49,167 40,304
Shares redeemed (959,378) (1,484,327)
Net change resulting from share transactions 258,160 (83,992)
</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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.

SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, the Fund will pay Federated
Shareholder Services ("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 -- Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)

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 August 31, 1996, were as follows:

<TABLE>
<S> <C>
PURCHASES $6,755,469
SALES $4,234,179
</TABLE>

6. 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 August 31, 1996, 61% 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 16.5% of total investments.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(formerly, Michigan Intermediate Municipal Trust):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Michigan Intermediate
Municipal Trust as of August 31, 1996, the related statement of operations
for the year then ended, the statements of changes in net assets for the
years ended August 31, 1996, and 1995, and the financial highlights for the
periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to

express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of August 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Michigan Intermediate Municipal Trust as of August 31, 1996, the results of
its operations, the changes in its net assets and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 11, 1996

ADDRESSES

Federated Michigan Intermediate

Municipal Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent

Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED MICHIGAN
INTERMEDIATE MUNICIPAL TRUST

(FORMERLY, MICHIGAN INTERMEDIATE
MUNICIPAL TRUST)

(A PORTFOLIO OF MUNICIPAL
SECURITIES INCOME TRUST)

PROSPECTUS

A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company

October 31, 1996

[Graphic]

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.

[Graphic]

Cusip 625922703
G01389-01 (10/96)

FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(FORMERLY, MICHIGAN INTERMEDIATE MUNICIPAL TRUST)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Michigan Intermediate Municipal Trust (the
`Fund''), a portfolio of Municipal Securities Income Trust (the
`Trust'') dated October 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1996

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 625922703
1041202B (10/96)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 4
Temporay Investments 4
Portfolio Turnover 6
Investment Limitations 6
Michigan Investment Risks 10
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 11

Fund Ownership 20
Trustees Compensation 20
Trustee Liability 22
INVESTMENT ADVISORY SERVICES 23

Adviser to the Fund 23
Advisory Fees 23
OTHER SERVICES 24

Fund Administration 24
Custodian and Portfolio Accountant 25
Transfer Agent 25
Independent Auditors 25
SHAREHOLDER SERVICES AGREEMENT 25

BROKERAGE TRANSACTIONS 26

PURCHASING SHARES 27

Conversion to Federal Funds 27

Purchases by Sales Representatives, Fund Trustees, and
Employees 28
DETERMINING NET ASSET VALUE 28

Valuing Municipal Bonds 28
Use of Amortized Cost 28
REDEEMING SHARES 29

Redemption in Kind 29
Massachusetts Partnership Law 30
TAX STATUS 30

The Fund's Tax Status 30
Shareholders' Tax Status 31
TOTAL RETURN 31

YIELD 32

TAX-EQUIVALENT YIELD 33

Tax-Equivalency Table 33
PERFORMANCE COMPARISONS 35

Economic and Market Information 37
ABOUT FEDERATED INVESTORS 37

Mutual Fund Market 38
Institutional Clients 38
Trust Organizations 38
Broker/Dealers and Bank Broker/Dealer Subsidiaries 39
APPENDIX 39

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in Municipal Securities Income Trust. The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 6, 1990. On September 16, 1992 (effective date October 31,
1992) the Board of Trustees (the `Trustees'') approved changing the name
of the Trust from Federated Municipal Income Trust to Municipal Securities
Income Trust. On June 1, 1994, Michigan Municipal Income Fund changed its
name to Michigan Intermediate Municipal Trust. On February 26, 1996
(effective date March 31, 1996), the Trustees approved changing the name of
the Fund from Michigan Intermediate Municipal Trust to Federated Michigan
Intermediate Municipal Trust.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the
state of Michigan and Michigan municipalities. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities, which
are exempt from federal regular income tax and Michigan state and local tax
(`Michigan Municipal Securities''). These securities include those issued
by or on behalf of the State of Michigan and Michigan municipalities, and
those issued by states, territories, and possessions of the United States
which are exempt from federal regular income tax and the personal income
tax imposed by the State of Michigan and Michigan municipalities.
CHARACTERISTICS
The Michigan Municipal Securities in which the Fund invests have the
characteristics set forth in the prospectus. If a rated bond loses its

rating or has its rating reduced after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will
consider doing so. If ratings made by Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group or Fitch's Investors Service, Inc.
change because of changes in those organizations or in their rating
systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's
prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Michigan Municipal Securities are:
omunicipal notes and municipal commercial paper;
oserial bonds sold with differing maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities;
obond anticipation notes sold prior to the issuance of longer-term
bonds;
opre-refunded municipal bonds; and
ogeneral obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value

of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. The terms of
these variable rate demand instruments require payment of principal
and accrued interest from the issuer of the municipal obligations, the
issuer of the participation interests, or a guarantor of either
issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be compelled
to make such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they became due. In
the event of default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery, if any, from a sale of the leased property
upon termination of the lease;

o the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
o the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
``event of non-appropriation'');
o any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
TEMPORAY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year
from the date of acquisition. The Fund or its custodian will take

possession of the securities subject to repurchase agreements. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund may only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Michigan municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
Michigan municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse

repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%. For the fiscal years ended August 31,
1996 and 1995, the Fund's portfolio turnover rates were 7% and 23%,
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or

disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. During
the period any reverse repurchase agreements are outstanding, but only
to the extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
municipal bonds secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under the Securities
Act of 1933.

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together
own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds where the principal and interest are
the responsibility of companies (or guarantors, where applicable) with
less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase or sell, oil, gas, or other mineral
exploration or development programs, or leases, although it may invest
in the securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violationof such restriction.
The Fund does not expect to borrow money or pledge securities or invest in
repurchase agreements in excess of 5% of the value of its net assets during
the coming fiscal year.

For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
MICHIGAN INVESTMENT RISKS
The Michigan economy has diversified away from durable goods manufacturing
with service sector employment currently at 25.7% of total employment.
However, manufacturing and the automobile sector in particular, still have
significant influence over the State's economy. Michigan's economy tends to
fluctuate with the cyclical trends of the manufacturing sector, which still
accounts for nearly 23% of total State employment. The states unemployment
rate is currently below the national unemployment rate for the first time
reflecting both the diversification of the regional economy and significant
improvement in the automobile sector and related industries.
In March of 1994 voters approved a tax restructuring plan which replaced
property taxes with a $.02 increase in the sales tax and a $.50 increase in
cigarette taxes. This tax restructuring was in response to discontent over
high property taxes and inequality in State funding for education. The
success of these tax initiatives will not be clear for some time and may
constrain the state and its local governments ability to operate.
Additional fiscal constraints on Michigan's state and local governments
ability to raise taxes include a 5% or rate of inflation cap on property
tax increases and a limit on the amount of sales tax revenue which can be
raised by the state to a percentage of personal income.
Michigan's finances were hard hit during the 1990 and 1991 fiscal periods.
Spending cuts and an improving state economy resulted in surplus revenues
of $254 million in fiscal 1992. As a result of continuing surplus funds,

Michigan increased the budget stabilization fund to a record level of
$1.003 billion at the end of fiscal 1995. Projected fiscal 1996 results
show the fund to be maintained at about the same level.. The state of
Michigan maintains a conservative debt position with per capita debt
remaining below the national average. Michigan also uses its general
obligation borrowing capacity to lower the borrowing cost of local school
districts through the School Bond Loan Program.

MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated California Municipal Income Fund, and principal
occupations.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee

Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Peter E. Madden
Seacliff

562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 7, 1996, the following shareholders of record owned 5% or
more of the outstanding Shares of the Fund: Charles Schwab & Co. Inc., San
Francisco, California, owned approximately 419,610 Shares (7.11%);
Shoreline Co., South Haven, Michigan, owned approximately 465,165 Shares
(7.88%); First Mar & Co., Marquette, Michigan, owned approximately 940,513
Shares (15.94%); and Enbanco, Traverse City, Michigan, owned approximately
2,279,743 Shares (38.64%).
TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

Trustee 54other investment companies in the
Fund Complex
William J. Copeland $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
J. Christopher Donahue $ -0-
$ -0- for the Trust and
Trustee and Exec. Vice Pres.
16 other investment companies in the Fund
Complex
James E. Dowd $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Peter E. Madden $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

Gregor F. Meyer $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John E. Murray, Jr. $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Wesley W. Posvar $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Marjorie P. Smuts $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the `Adviser''). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
August 31, 1996, 1995 and 1994, the Adviser earned advisory fees of
$248,517, $233,527, and $229,413, respectively, all of which were
voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary

This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided which
are necessary for the maintenance of shareholder accounts and to encourage
personal services to shareholders by a representative who has knowledge of
the shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in

changing dividend options, account designations, and addresses. By adopting
the Shareholder Services Agreement, the Trustees expect that the Fund will
benefit by: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder record-keeping systems; and (4) responding promptly
to shareholder's requests and inquiries concerning their accounts. For the
fiscal year ended August 31, 1996, the Fund paid shareholder service fees
in the amount of $155,329, of which $111,838 were voluntarily waived.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Trustees. The Adviser
may select brokers and dealers who offer brokerage and research services.
These services may be furnished directly to the Fund or to the Adviser and
may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt
of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or by
its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to

execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal
years ended August 31, 1996, 1995 and 1994, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Fund.
PURCHASING SHARES

Except under certain circumstances described in the prospectus, shares are
sold at their net asset value plus a sales charge on days the New York
Stock Exchange is open for business. The procedure for purchasing shares is
explained in the prospectus under `Investing in the Fund.''

CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders

begin to earn dividends. State Street Bank acts as the shareholder's agent
in depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.
and their spouses and children under 21, may buy shares at net asset value
without a sales charge. Shares may also be sold without a sales charge to
trusts or pension or profit-sharing plans for these persons. These sales
are made with the purchaser's written assurance that the purchase is for
investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE

particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING SHARES

The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under `Redeeming Shares.'' Although the Fund does not charge
for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the respective class's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Fund will pay all or a portion
of the remainder of the redemption in portfolio instruments, valued in the
same way that net asset value is determined. The portfolio instruments will
be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.

MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on
behalf of the Fund. To protect shareholders of the Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Fund for such acts or obligations of the
Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to
use the property of the Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against
a shareholder of the Fund for any act or obligation of the Trust on behalf
of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS

o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares. Any loss by a shareholder
on Fund shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN

The Fund's average annual total returns for the one-year period ended
August 31, 1996, and for the period from September 18, 1991 (date of

initial public investment) to August 31, 1996, were 1.04% and 6.08%,
respectively.
The average annual total return of the Fund is the average compounded rate
of return for a given period of time that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at
the end of the period by the offering price per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000 less
any applicable sales charge, adjusted over the period by any additional
shares, assuming a monthly reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the offering price of shares redeemed.
YIELD

The Fund's yield for the thirty-day period ended August 31, 1996 was 4.38%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial

institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the thirty-day period ended August 31,
1996 was 7.82%.
The tax-equivalent yield for the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 28% tax rate and assuming
that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax* and the
income taxes imposed by the State of Michigan. As the table below
indicates, a `tax-free'' investment is an attractive choice for investors,
particularly in times of narrow spreads between `tax-free'' and taxable
yields.

TAXABLE YIELD EQUIVALENT FOR 1996

STATE OF MICHIGAN

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40% 44.00%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%

The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund Shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:

LEHMAN BROTHERS SEVEN YEAR STATE GENERAL OBLIGATION BOND INDEX is an
index of general obligation bonds rated A or better with 6-8 years to
maturity.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the `general municipal bond funds'' category in
advertising and sales literature.
MORNINGSTAR, INC. an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES..
MUTUAL FUND VALUES rates more than 1,000 NASDAQ listed mutual funds
of all types, according to their risk-adjusted returns. The maximum
rating is five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment
in the Fund based on monthly reinvestment of dividends over a specific
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through it subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to theses institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'

portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high rankings in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.

*source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP ("S&P") MUNICIPAL BOND RATINGS

AAA--Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from `AA'' to ``CCC'' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality. The
obligor has an exceptionally strong ability to pay interest and repay

principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the `AAA'' category.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization

structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well established access to a range of financial
markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Federated California Municipal Income Fund
(Class F Shares)

(formerly, Fortress Shares)

ANNUAL REPORT FOR FISCAL YEAR ENDED AUGUST 31, 1996

MANAGEMENT DISCUSSION AND ANALYSIS

During the twelve-month period ended August 31, 1996, the municipal bond
market continued to exhibit the attributes which had been predominant since

the beginning of the fiscal year. Tight credit spreads, interest rate
volatility, a steep yield curve and a limited supply of bonds are all
characteristics of the municipal bond market during this period. The Bond
Buyer Municipal Index* reflected the volatility which existed over this
period. Interest rates began September of 1995 at 6.03% and subsequently
rallied to a low for the twelve-month period of 5.47% on February 13, 1996.
A trading range for the market then developed of between 6.00% and 6.20%
from March through August of 1996 as market expectations vacillated between
stronger growth, which would typically require the Federal Reserve Board
("the Fed") tightening and slower economic growth, which would likely leave
the Fed on hold. The municipal yield curve remains considerably steeper than
the Treasury yield curve, due mainly to supply and demand imbalances which
exist along different segments of the maturity spectrum. Currently, the
spread between bonds of ten and thirty years in maturity is in excess of 70
basis points while the spread in the same maturity range of the Treasury
yield curve is approximately 21 basis points. The ratio of "AAA" rated
general obligation municipal bond yields to Treasury bond yields narrowed
considerably over the fiscal year in the ten to thirty year portion of the
municipal yield curve. This ratio can provide some indication as to the
richness or cheapness of municipal bonds versus comparable maturity Treasury
securities. This ratio has narrowed, or municipal bonds have become more
expensive relative to Treasury securities, as a result of improved retail
participation in the market and the erosion of the market premium for tax
reform.

California's economy seems to be recovering steadily and may even outpace
the national economy going forward. The decline in the aerospace industry
appears to have bottomed out and could have less significance for the

regional economy while the entertainment industry is booming and has led
California's economy out of its crisis. We believe that while California is
on the road to recovery, a return to its explosive growth of previous
decades is not yet on the horizon. In general, California paper has been
trading at spreads on top of its one year rolling average. California paper
has outperformed over the last twelve months as spreads narrowed
considerably from their widest point which was reached shortly after the
default of Orange County. Municipal bond insurance has become a significant
factor in the California municipal bond market with approximately 49% of the
state's issuance coming to the market insured in calendar year 1995. The
supply of municipal bond issuance in the market is a very important
technical factor which can have a considerable impact on relative
performance.

* The Bond Buyer Municipal Index is a standard against which municipal bonds
are measured. This index is unmanaged.

Federated California Municipal Income Fund's performance over the past
fiscal year reflects the fund's neutral duration position relative to the
fund's peer group. The fund's total return was 5.13%** for the period
September 1, 1995 to August 31, 1996. The concentration of high coupon
premium bonds in the portfolio helped to dampen net asset value volatility
over the period. The fund posted a 30-day distribution rate of 5.53%,**
based on net asset value, as of August 31, 1996, which is comparable to a
yield of 9.16% on a taxable equivalent basis, assuming a top marginal tax
rate of 39.6%. The fund's yield for the 30-day period ended August 31, 1996,
was 5.53%.** As interest rates rose over the fiscal year, management took
the opportunity to improve the fund's yield by "couponing up," or swapping
into bonds with better yield characteristics, while also recognizing tax
losses which can be used to offset future realized capital gains.

** Performance quoted reflects 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. The fund's 30-day
distribution rate based on offering price was 5.47%.

Federated California Municipal Income Fund
(Class F Shares)

(formerly, Fortress Shares)

GROWTH OF $10,000 INVESTED IN FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(CLASS F SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the

Federated California Municipal Income Fund (Class F Shares) (the "Fund")
from December 2, 1992 (start of performance) to August 31, 1996, compared to
the Lehman Brothers Revenue Bond Index (LBRBI)<.

["Graphic representation A4 omitted. See Appendix."]

THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
OCTOBER 31, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.

* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus $100
sales charge = $9,900). The Fund's performance assumes the reinvestment of
all dividends and distributions. The LBRBI has been adjusted to reflect
reinvestment of dividends on securities in the index.

** The ending value of the Fund reflects a contingent deferred sales charge
of 1.00% on any redemption less than four years from the purchase date.

*** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

< The LBRBI is not adjusted to reflect sales charges, expenses, or other

fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.

[Graphic]
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.

[Graphic]

Cusip 625922109
G00574-05 (10/96)

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND

(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)

CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

PROSPECTUS

The Class F Shares of Federated California Municipal Income Fund (the
"Fund") offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Municipal Securities Income Trust (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund is
to provide current income which is exempt from federal regular income tax
and the personal income taxes imposed by the state of California and
California municipalities. The Fund invests primarily in a portfolio of
California municipal securities.

This prospectus contains the information you should read and know before you
invest in Class F Shares. Keep this prospectus for future reference.

inquiries about the Fund, contact your financial institution. The Statement
of Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

Prospectus dated October 31, 1996

TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
California Municipal Securities 5
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
NET ASSET VALUE 7
INVESTING IN CLASS F SHARES 7
Share Purchases 7
Minimum Investment Required 8

What Shares Cost 8
Eliminating/Reducing the
Sales Charge 9
Systematic Investment Program 11
Exchange Privilege 11
Certificates and Confirmations 11
Dividends and Distributions 12
REDEEMING CLASS F SHARES 12
Through a Financial Institution 12
Directly by Mail 13
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
TRUST INFORMATION 15
Management of the Trust 15
Distribution of Class F Shares 16
Administration of the Fund 17
SHAREHOLDER INFORMATION 17
Voting Rights 17
TAX INFORMATION 18
Federal Income Tax 18
California Income Taxes 19
State and Local Taxes 19
PERFORMANCE INFORMATION 19
FINANCIAL STATEMENTS 20
INDEPENDENT AUDITORS' REPORT 30
ADDRESSES 31

SUMMARY OF FUND EXPENSES

CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(2) 0.00%
12b-1 Fee (after waiver)(3) 0.02%
Total Other Expenses (after expense reimbursement) 0.88%
Shareholder Services Fee (after waiver)(4) 0.23%
Total Operating Expenses(5) 0.90%
</TABLE>

(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The 12b-1 provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.50%.

(4) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.

(5) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending August 31, 1997. The total operating
expenses were 0.60% for the fiscal year ended August 31, 1996, and would
have been 2.98% absent the voluntary waivers of the management fee, the
12b-1 fee and the shareholder services fee and the voluntary reimbursement
of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the

various costs and expenses that a shareholder of Class F Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in Class F Shares" and "Trust
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

Long-term shareholders may pay more than the economic equivalant of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; (2) redemption at the
end of each time period and (3) payment of the maximum
sales charge $29 $50 $59 $120

You would pay the following expenses on the same
investment, assuming no redemption $19 $38 $59 $120
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 30.

<TABLE>
<CAPTION>
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 0.58 0.59 0.59 0.44
Net realized and unrealized gain (loss) on investments 0.14 0.12 (0.91) 0.92
Total from investment operations 0.72 0.71 (0.32) 1.36
LESS DISTRIBUTIONS
Distributions from net investment income (0.58) (0.59) (0.59) (0.44)
NET ASSET VALUE, END OF PERIOD $10.27 $10.13 $10.01 $10.92
TOTAL RETURN(B) 7.21% 7.48% (3.04%) 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60% 0.55% 0.25% 0.25%*
Net investment income 5.61% 6.04% 5.61% 5.58%*
Expense waiver/reimbursement(c) 2.38% 2.41% 2.86% 1.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,148 $14,400 $15,059 $11,513
Portfolio turnover 21% 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.

(See Notes which are an integral part of the Financial Statements)

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. With respect to this
Fund, as of the date of this prospectus, the Board of Trustees (the
"Trustees") has established one class of shares, known as Class F Shares

("Shares").

Shares of the Fund are designed for customers of financial institutions such
as broker/dealers, banks, fiduciaries, and investment advisers as a
convenient means of accumulating an interest in a professionally managed,
non-diversified portfolio investing primarily in California municipal
securities. A minimum initial investment of $1,500 is required. Subsequent
investments must be in amounts of at least $100. The Fund is not likely to
be a suitable investment for non-California taxpayers or retirement plans
since California municipal securities are not likely to produce competitive
after-tax yields for such persons and entities when compared to other
investments.

The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income exempt
from federal regular income tax (federal regular income tax does not include
the federal alternative minimum tax) and the personal income taxes imposed
by the state of California and California municipalities. The investment
objective cannot be changed without approval of shareholders. While there is
no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

Under normal circumstances, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from federal regular income tax and
the personal income taxes imposed by the state of California and California
municipalities. Interest income of the Fund that is exempt from the income
taxes described above retains its exempt status when distributed to the
Fund's shareholders. Income distributed by the Fund may not necessarily be
exempt from state or municipal taxes in states other than California.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing primarily in
securities which are exempt from federal regular income tax and personal
income taxes imposed by the state of California and California
municipalities. At least 65% of the value of the Fund's total assets will be
invested in obligations issued by or on behalf of the state of California,
its political subdivisions, or agencies. Unless indicated otherwise,
investment policies of the Fund may be changed by the Trustees without
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include:

* obligations issued by or on behalf of the state of California, its
political subdivisions, or agencies;

* debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and

* participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Fund and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of California and California
municipalities.

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

CHARACTERISTICS. The California municipal securities which the Fund buys are
investment grade bonds rated Aaa, Aa, A, or Baa by Moody's Investors
Service, Inc. ("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"). In certain
cases the Fund's adviser may choose bonds which are unrated if it judges the
bonds to have the same characteristics as the investment grade bonds
described above. If a bond is rated below investment grade according to the
characteristics set forth here after the Fund has purchased it, the Fund is

not required to drop the bond from the portfolio, but will consider
appropriate action. Bonds rated "BBB" by S&P or Fitch or "Baa" by Moody's
have speculative characteristics. Changes in economic or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in California municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Trustees of
the Trust will determine that participation interests meet the prescribed
quality standards for the Fund.

VARIABLE-RATE MUNICIPAL SECURITIES. Some of the California municipal
securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily based on a published interest rate,
interest rate index, or a similar standard, such as the 91-day U.S. Treasury
bill rate. Many variable-rate municipal securities are subject to payment of
principal on demand by the Fund in not more than seven days. All
variable-rate municipal securities will meet the quality standards for the
Fund. The Fund's investment adviser has been instructed by the Trustees to
monitor the pricing, quality, and liquidity of the variable-rate municipal
securities, including participation interests held by the Fund on the basis
of published financial information and reports of the rating agencies and

other analytical services.

RESTRICTED SECURITIES. The Fund may invest up to 10% of its total assets in
restricted securities. Restricted securities are any securities in which the
Fund may otherwise invest pursuant to its investment objective and policies
but which are subject to restriction upon resale under federal securities
laws. To the extent these securities are deemed to be illiquid, the Fund
will limit its purchases, together with other securities considered to be
illiquid, to 15% of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may

vary from the purchase prices. Accordingly, the Fund may pay more/less than
the market value of the securities on the settlement date.

TEMPORARY INVESTMENTS. Under normal circumstances, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income tax and the personal income taxes imposed by the
state of California and California municipalities. This policy cannot be
changed without shareholder approval. However, from time to time, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-California
municipal tax-exempt obligations or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government,
its agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment
agrees at the time of sale to repurchase it at a mutually agreed upon time
and price).

There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to those

rated within the investment grade categories described under "Acceptable
Investments -- Characteristics" (if rated) or (if unrated) those which the
investment adviser judges to have the same characteristics as such
investment grade securities.

CALIFORNIA MUNICIPAL SECURITIES

California municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.

California municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the

issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.

INVESTMENT RISKS

Yields on California municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. The ability of the
Fund to achieve its investment objective also depends on the continuing
ability of the issuers of California municipal securities and demand
features, or the credit enhancers of either, to meet their obligations for
the payment of interest and principal when due. Investing in California
municipal securities meeting the Fund's quality standards may not be
possible if the state of California or its municipalities do not maintain
their current credit ratings. In addition, certain California constitutional
amendments, legislative measures, executive orders, administrative
regulations, and voter initiatives could result in adverse consequences
affecting California municipal securities. Further, any adverse economic
conditions or developments affecting the state of California or its
municipalities could have an impact on the Fund's portfolio.

A further discussion of the risks of a portfolio which invests largely in

California municipal securities is contained in the Statement of Additional
Information.

NON-DIVERSIFICATION

INVESTMENT LIMITATIONS

The Fund will not borrow money directly through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for

NET ASSET VALUE

The Fund's net asset value per Share fluctuates. It is determined by
dividing the sum of the market value of all securities and all other assets,
less liabilities, by the number of Shares outstanding.

INVESTING IN CLASS F SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares
may be purchased through an investment dealer who has a sales agreement with

the distributor, Federated Securities Corp., or directly from Federated
Securities Corp. (once an account has been established), either by mail or
by wire. The Fund reserves the right to reject any purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or an investment dealer) to place an order to
purchase Shares. Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before
4:00 p.m. (Eastern time) in order for Shares to be purchased at that day's
price. It is the financial institution's responsibility to transmit orders
promptly.

DIRECTLY BY MAIL. To purchase Shares by mail directly from Federated
Securities Corp. once an account has been established:

* complete and sign the new account form available from the Fund;

* enclose a check made payable to Federated California Municipal Income Fund
-- Class F Shares; and

* send both to the Fund's transfer agent, Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600.

DIRECTLY BY WIRE. To purchase Shares directly from Federated Securities
Corp. by Federal Reserve wire once an account has been established, call the
Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: Federated California Municipal Income Fund -- Class
F Shares; (Fund Number -- this number can be found on the account statement
or by contacting the Fund); Account Number; Trade Date and Order Number;
Group Number or Dealer Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of
the net amount invested). Further, there is no sales charge for purchases of
$1 million or more. In addition, no sales charge is imposed for Shares
purchased through bank trust departments or investment advisers registered
under the Investment Advisers Act of 1940 purchasing on behalf of their
clients, or by sales representatives, Trustees, and employees of the Fund,
Federated Advisers, and Federated Securities Corp., or their affiliates, or
any investment dealer who has a sales agreement with Federated Securities
Corp., their spouses and children under age 21, or any trusts or pension or
profit-sharing plans for these persons. Investors who purchase Shares
through a financial intermediary may be charged a service fee by that
financial intermediary. This prospectus should, therefore, be read together
with any agreement between the customer and the institution with regard to
services provided, the fees charged for these services, and any restrictions
and limitations imposed.

Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION. For sales of Shares, the distributor will normally offer
to pay broker/dealers up to 100% of the sales charge retained by it. Any
portion of the sales charge which is not paid to a broker/dealer will be
retained by the distributor. However, from time to time, and at the sole
discretion of the distributor, all or part of that portion may be paid to a
dealer.

ELIMINATING/REDUCING THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Shares
through:

* quantity discounts and accumulated purchases;

* signing a 13-month letter of intent;

* using the reinvestment privilege;

* purchases with proceeds from redemptions of unaffiliated investment
companies; or

* concurrent purchases.

levels of contingent deferred sales charges and holding periods, see the
section entitled "Contingent Deferred Sales Charge."

To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the
shareholder in writing or by the shareholder's financial institution at the
time the purchase is made that Shares are already owned or that purchases
are being combined. The Fund will eliminate the sales charge and/or reduce
the contingent deferred sales charge after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $1 million
of Shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge elimination depending on the amount actually
purchased within the 13-month period and a provision for the Fund's
custodian to hold 1.00% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

the section entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares.
The letter may be dated as of a prior date to include any purchases made
within the past 90 days. Purchases within the prior 90 days may be used to
fulfill the requirements of the letter of intent; however, the sales charge
on prior purchases will not be adjusted to reflect a lower sales charge.

REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to receive this
elimination of the sales charge. If the shareholder redeems his Shares,
there may be tax consequences.

Federated Investors serve as investment advisers or principal underwriter
(the "Federated Funds"), the purchase prices of which include a sales
charge. For example, if a shareholder concurrently invested $400,000 in
Class F Shares of one of the other Federated Funds and $600,000 in Shares,
the sales charge would be eliminated. (Not all Federated Funds currently
offer Class F Shares. Contact your financial institution regarding the
availability of other Federated Class F Shares.)

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum of $100. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in Shares at the net asset value next
determined after an order is received by Federated Shareholder Services
Company, plus the 1% sales charge for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp. or his financial institution.

EXCHANGE PRIVILEGE

Class F shareholders may exchange all or some of their Shares, for shares of
California Municipal Cash Trust or Class F Shares of other Federated Funds.

Exchanges are made at net asset value without being assessed a contingent
deferred sales charge. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class F
Shares received through an exchange will include the period for which your
original Class F Shares were held.

Before a financial institution may request exchange by telephone on behalf
of a shareholder, an authorization form permitting the Fund to accept
exchange by telephone must first be completed. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.

The exchange privilege is available to shareholders residing in any state in
which the Shares being acquired may be legally sold.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

An exercise of the exchange privilege is treated as sale for federal income
tax purposes. Depending on the circumstances, a capital gain or loss may be
realized.

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during
that month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared daily and paid monthly. Distributions of any net
realized long-term capital gains will be made at least once every twelve
months. Dividends and distributions are automatically reinvested on payment
dates in additional Shares at net asset value without a sales charge, unless
shareholders request cash payments on the application or by writing to
Federated Shareholder Services Company.

Shares purchased through a financial institution, for which payment by wire
is received by State Street Bank on the business day following the order,

begin to earn dividends on the day the wire payment is received. Otherwise,
Shares purchased by wire begin to earn dividends on the business day after
wire payment is received by State Street Bank. Shares purchased by mail, or
through a financial institution, if the financial institution's payment is
by check, begin to earn dividends on the second business day after the check
is received by Federated Shareholder Services Company.

Shares earn dividends through the business day that proper written
redemption instructions are received by Federated Shareholder Services
Company.

REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value, less any applicable
contingent deferred sales charge, next determined after Federated
Shareholder Services Company receives the redemption request. Investors who
redeem Shares through a financial intermediary may be charged a service fee
by that financial intermediary. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests must be received
in proper form and can be made through a financial institution or directly
from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial
institutions must be received by the financial institution and transmitted
to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
redeemed at that day's net asset value. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf
of a shareholder, an authorization form permitting the Fund to accept
redemption requests by telephone must first be completed. In the event of
drastic economic or market changes, a shareholder may experience difficulty
in redeeming by telephone. If such a case should occur, another method of
redemption, such as "Directly by Mail," should be considered. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

DIRECTLY BY MAIL

Shareholders may also redeem Shares by sending a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Shares will be redeemed at their net asset value, less any

applicable contingent deferred sales charge, next determined after the
transfer agent receives the redemption request. If share certificates have
been issued, they should be sent unendorsed with the written request by
registered or certified mail to the address noted above.

reserve the right to amend these standards at any time without notice.

CONTINGENT DEFERRED SALES CHARGE

CONTINGENT DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
Up to $1,999,999 4 years or less 1.00%
$2,000,000 to $4,999,999 2 years or less 0.50%
$5,000,000 or more 1 year or less 0.25%

In instances in which Shares have been acquired in exchange for Class F
Shares in other Federated Funds, (i) the purchase price is the price of the
shares when originally purchased and (ii) the time period during which the
shares are held will run from the date of the original purchase. The
contingent deferred sales charge will not be imposed on Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In computing the amount of contingent deferred sales charge for
accounts with shares subject to a single holding period, if any, redemptions
are deemed to have occurred in the following order: (1) Shares acquired
through the reinvestment of dividends and long-term capital gains, (2)
purchases of Shares occurring prior to the number of years necessary to
satisfy the applicable holding period, and (3) purchases of Shares occurring
within the current holding period. For accounts with Shares subject to

multiple Share holding periods, the redemption sequence will be determined
first, with reinvested dividends and long-term capital gains, and second, on
a first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a
total or partial distribution from a qualified plan, other than an IRA,
Keogh Plan, or a custodial account, following retirement; (ii) a total or
partial distribution from an IRA, Keogh Plan, or a custodial account, after
the beneficial owner attains age 591U2; or (iii) from the death or permanent
and total disability of the beneficial owner. The exemption from the
contingent deferred sales charge for qualified plans, an IRA, Keogh Plan, or
a custodial account does not extend to account transfers, rollovers, and
other redemptions made for purposes of reinvestment. Contingent deferred
sales charges are not charged in connection with exchanges of Shares for
shares in California Municipal Cash Trust or Shares in other Federated
Funds, or in connection with redemptions by the Fund of accounts with low
balances. Shares of the Fund originally purchased through a bank trust
department or investment adviser registered under the Investment Advisers
Act of 1940, as amended, are not subject to the contingent deferred sales
charge to the extent that no payment was advanced for purchases made by or
through such entities. A different contingent deferred sales charge will be
charged when Shares purchased with the proceeds of a redemption of an
unaffiliated mutual fund as described below are redeemed within one year of
purchase.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal
Program. Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder; the minimum
withdrawal amount is $100. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed under this program, redemptions may reduce, and eventually deplete,
the shareholder's investment in the Fund. For this reason, payments under
this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge,
it is not advisable for shareholders to be purchasing Shares while
participating in this program.

Contingent deferred sales charges are charged for Shares redeemed through
this program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

because of changes in the Fund's net asset value. Before Shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional Shares to meet the minimum requirement.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver or
reimbursement of expenses at any time in its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of Federated
Investors. All of the Class A (voting) shares of Federated Investors are
owned by a trust, the Trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son,
J. Christopher Donahue, who is President and Trustee of Federated Investors.

J. Scott Albrecht has been the Fund's portfolio manager since March 1995.
Mr. Albrecht joined Federated Investors in 1989 and has been a Vice
President of the Fund's investment adviser since October 1994. From 1992 to
1994, Mr. Albrecht served as an Assistant Vice President of the Fund's
investment adviser. In 1991, Mr. Albrecht acted as an investment analyst.
Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in
Public Management from Carnegie Mellon University.

Jonathan C. Conley has been the Fund's portfolio manager since its
inception. Mr. Conley joined Federated Investors in 1979 and has been a
Senior Vice President of the Fund's investment adviser since 1995. Mr.
Conley was a Vice President of the Fund's investment adviser from 1982 to
1995. Mr. Conley is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Virginia.

DISTRIBUTION OF CLASS F SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Investment Company Act Rule 12b-1 (the
"Distribution Plan"), the Fund may pay to the distributor an amount,
computed at an annual rate of 0.50% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in
the sale of Shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution related support services as agents for their
clients or customers.

services for shareholders and for the maintenance of shareholder accounts.
Under the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Fund and Federated Shareholder
Services.

payments made by the distributor may be reimbursed by the Fund's Adviser or
its affiliates.

ADMINISTRATION OF THE FUND

MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular fund or class, only shares of that
fund or class are entitled to vote. As of October 7, 1996, Merrill Lynch
Pierce Fenner & Smith, Jacksonville, Florida, owned 46.05% of the voting
securities of the Fund, and, therefore, may, for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting of the
shareholders for this purpose shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding
shares of all series in the Trust entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will
be treated as a single, separate entity for federal income tax purposes so
that income (including capital gains) and losses realized by the Trust's

other portfolios will not be combined for tax purposes with those realized
by the Fund.

Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and
distributions is provided annually.

CALIFORNIA INCOME TAXES

Under existing California laws, distributions made by the Fund will not be
subject to California individual income taxes provided that such
distributions qualify as "exempt-interest dividends" under the California

Revenue and Taxation Code, and provided further that at the close of each
quarter, at least 50 percent of the value of the total assets of the Fund
consists of obligations the interest on which is exempt from California
taxation under either the Constitution or laws of California or the
Constitution or laws of the United States. The Fund will furnish its
shareholders with a written note designating exempt-interest dividends
within 60 days after the close of its taxable year. Conversely, to the
extent that distributions made by the Fund are derived from other types of
obligations, such distributions will be subject to California individual
income taxes.

Dividends of the Fund are not exempt from the California taxes payable by
corporations.

STATE AND LOCAL TAXES

Income from the Fund is not necessarily free from taxes in states other than
California. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return, yield, and
tax-equivalent yield for Shares.

investment and is expressed as a percentage.

The performance information reflects the effect of the maximum sales charge
and other similar non-recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield,
and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- 98.6%
CALIFORNIA -- 90.6%
$ 700,000 ABAG Finance Authority for Non-Profit Corporations,
(Series 1995A1) Local Agency Revenue Bonds, 5.50%
(FSA INS)/(Original Issue Yield: 6.10%), 9/3/2012 AAA $ 678,993
625,000 California Educational Facilities Authority, Revenue
Bonds (Series B), 6.60% (Loyola Marymount
University), 10/1/2022 A1 655,431
600,000 California Educational Facilities Authority, Revenue
Bonds, 6.70% (Southwestern University)/(Original
Issue Yield: 6.838%), 11/1/2024 A 628,536
1,495,000 California HFA, SFM Revenue Bonds (Series C),
6.75%, 2/1/2025 AA- 1,535,096
1,290,000 California HFA, SFM Revenue Bonds (Series F-1),
7.00%, 8/1/2026 AA- 1,358,138
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 413,512
700,000 California Health Facilities Financing Authority,
Revenue Refunding Bonds (1996 Series A), 6.00%
(Catholic Health Care West)/(MBIA INS)/(Original
Issue Yield: 6.15%), 7/1/2017 AAA 701,400

500,000 California PCFA, PCR Bonds (Series B), 6.40% (Southern
California Edison Co.)/(Original Issue Yield: 6.55%),
12/1/2024 A+ 511,015
700,000 California PCFA, Solid Waste Disposal Revenue Bonds,
6.875% (Browning-Ferris Industries, Inc.)/(Original
Issue Yield: 6.95%), 11/1/2027 A 736,946
600,000 California Statewide Communities Development
Authority, Revenue Certificates of Participation, 6.50%
(Good Samaritan Health System)/(Cap MAC INS)/
(Original Issue Yield: 6.53%), 5/1/2024 AAA 670,422
</TABLE>

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
CALIFORNIA -- CONTINUED
$ 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 $ 631,824
500,000 Chula Vista, CA IDA, Revenue Bonds (Series A),
6.40% (San Diego Gas & Electric)/(Original Issue
Yield: 6.473%), 12/1/2027 A+ 506,965
1,500,000 Eden Township, CA Hospital District, Hospital
Revenue Bonds, 7.40% (Original Issue Yield:
7.483%), 11/1/2019 BBB- 1,505,700
500,000 El Dorado County, CA Public Agency Financing
Authority, Revenue Bonds, 5.50% (FGIC INS)/
(Original Issue Yield: 5.85%), 2/15/2021 AAA 477,685
700,000 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- 702,268
500,000 Inland Empire Solid Waste Financing Authority,
CA, Revenue Bonds (Series B), 6.25% (FSA INS),
8/1/2011 AAA 515,670
600,000 Los Angeles, CA, Community Redevelopment

Agency, Housing Revenue Refunding Bonds
(Series A), 6.55% (AMBAC INS), 1/1/2027 AAA 620,136
800,000 Sacramento, CA, Airport System Revenue Bonds
(Series 1996A), 5.90% (MBIA INS)/(Original Issue
Yield: 6.27%), 7/1/2024 AAA 783,336
675,000 Santa Cruz, CA, Sewer System, Secondary
Wastewater Treatment Revenue Bonds (Series C),
6.25%, 11/1/2023 A 674,966
700,000 University of California, Research Facilities
Revenue Bonds (1995 Series B), 6.55%, 9/1/2024 A- 706,860
</TABLE>

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
CALIFORNIA -- CONTINUED
$ 500,000 Watsonville, CA, Insured Hospital Revenue Refunding
Bonds (Series 1996A), 6.20% (Watsonville Community
Hospital)/(California State INS)/(Original Issue
Yield: 6.225%), 7/1/2012 A $ 513,175
TOTAL LONG-TERM MUNICIPALS
(AT IDENTIFIED COST $15,043,051) 15,528,074
SHORT-TERM MUNICIPALS -- 8.0%
PUERTO RICO -- 8.0%
700,000 Puerto Rico Electric Power Authority, Revenue Bonds
(Series T), 6.375% (Original Issue Yield: 6.58%), VRDNs A- 729,512
650,000 Puerto Rico Government Development Bank
Weekly VRDNs (Credit Suisse, Zurich LOC) AA+ 650,000
TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 1,379,512
TOTAL INVESTMENTS (AT AMORTIZED AND
IDENTIFIED COST $16,422,563) $16,907,586
</TABLE>

(a) The cost of investments for federal tax purposes amounts to $16,422,563.
The net unrealized appreciation of investments on a federal tax basis
amounts to $485,023 which is comprised of $493,543 appreciation and $8,520
depreciation at August 31, 1996.

* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.

Securities that are subject to alternative minimum tax represent 35% of the
portfolio as calculated based upon total portfolio market value.

Note: The categories of investments are shown as a percentage of net assets
($17,147,639) at August 31, 1996.

The following acronym(s) are used throughout this portfolio:

AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue

PCFA -- Pollution Control Finance Authority
SFM -- Single Family Mortgage
VRDNs -- Variable Rate Demand Notes

(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
AUGUST 31, 1996

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified and tax cost $16,422,563) $16,907,586
Cash 40,642
Income receivable 259,169
Receivable for shares sold 16,370
Deferred expenses 596
Total assets 17,224,363
LIABILITIES:
Payable for shares redeemed $ 1,000
Income distribution payable 60,064
Accrued expenses 15,660
Total liabilities 76,724
NET ASSETS for 1,669,535 shares outstanding $17,147,639
NET ASSETS CONSIST OF:
Paid in capital $17,659,512
Net unrealized appreciation of investments 485,023
Accumulated net realized loss on investments
(996,896)
Total Net Assets $ 17,147,639
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($17,147,639 O 1,669,535 shares outstanding) $10.27
Offering Price Per Share (100/99.00 of $10.27)* $10.37
Redemption Proceeds Per Share (99.00/100 of $10.27)** $10.17
</TABLE>

* See "What Shares Cost."

** See "Contingent Deferred Sales Charge."

(See Notes which are an integral part of the Financial Statements)

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1996

<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 973,607
EXPENSES:
Investment advisory fee $ 62,691
Administrative personnel and services fee 125,000
Custodian fees 19,098
Transfer and dividend disbursing agent fees and expenses 27,296
Directors'/Trustees' fees 778
Auditing fees 13,699
Legal fees 3,457
Portfolio accounting fees 50,183
Distribution services fee 78,364
Shareholder services fee 39,182
Share registration costs 14,937
Printing and postage 13,370
Insurance premiums 3,589
Miscellaneous 19,000
Total expenses 470,644
Waivers and reimbursements --
Waiver of investment advisory fee $ (62,691)
Waiver of distribution services fee (75,229)
Waiver of shareholder services fee (3,135)
Reimbursement of other operating expenses by Adviser (234,880)
Total waivers and reimbursements (375,935)
Net expenses 94,709

Net investment income 878,898
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (91)
Net change in unrealized appreciation (depreciation) of investments 210,389
Net realized and unrealized gain on investments 210,298
Change in net assets resulting from operations $1,089,196
</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>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 878,898 $ 858,928
Net realized gain (loss) on investments ($218,330 and $778,475, net losses
respectively, as computed for federal tax purposes) (91)
(450,962)
Net change in unrealized appreciation (depreciation) 210,389 565,250
Change in net assets resulting from operations 1,089,196 973,216
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (878,898) (858,928)
SHARE TRANSACTIONS --
Proceeds from sale of shares 4,529,060 3,113,093
Net asset value of shares issued to shareholders in payment of
distributions declared 353,502 282,851
Cost of shares redeemed (2,345,310) (4,168,669)
Change in net assets resulting from share transactions 2,537,252 (772,725)
Change in net assets 2,747,550 (658,437)
NET ASSETS:
Beginning of period 14,400,089 15,058,526
End of period $17,147,639 $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)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996

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 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. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax (federal regular income tax does not include the federal alternative
minimum tax) and personal income taxes imposed by the state of California
and California municipalities.

The Board of Trustees approved a change in the name of the Fund as follows:

EFFECTIVE DATE NEW NAME
March 31, 1996 Federated California Municipal Income Fund

The Board of Trustees approved a change in the name of the Fortress Shares
as follows:

<TABLE>
EFFECTIVE DATE NEW NAME
<S> <S>
March 31, 1996 Class F Shares
</TABLE>

2. SIGNIFICANT ACCOUNTING POLICIES

FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At August 31, 1996, the Fund, for
federal tax purposes, had a capital loss carryforward of $996,805, which
will reduce the Fund's taxable income arising from future net realized gain

on investments, if any, to the extent permitted bythe 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 carryforwards will expire as follows:

EXPIRATION YEAR EXPIRATION AMOUNT
2003 $778,475
2004 $218,330

Additionally, net capital losses of $91 attributable to security
transactions incurred after October 31, 1995, are treated as arising on the
first day of the Fund's next taxable year (September, 1, 1996).

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 over a period not to exceed five years from the Fund's
commencement date.

USE OF ESTIMATES -- The preparation of financial statements in conformity

with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.

OTHER -- Investment transactions are accounted for on the trade date.

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 ENDED
AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 440,835 320,931
Shares issued to shareholders in payment of distributions declared 34,378 29,021
Shares redeemed (227,108) (432,976)
Net change resulting from share transactions 248,105 (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.

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's Class F Shares to finance
activities intended to result in the sale of the Fund's Class F Shares. The
Plan provides that the Fund may incur distribution expenses up to 0.50% of
the average daily net assets of the Fund's Class F Shares, 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.

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 the average daily net assets of the Fund's Class F Shares for
the period. The fee paid to FSS is used to obtain 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.

ORGANIZATIONAL EXPENSES -- Organizational expenses of $26,245 and start-up
administrative service expenses of $54,398 were borne initially by the
Fund's Adviser. The Fund has agreed to reimburse the Adviser for the
organizational and start-up administrative expenses during the five-year
period following the Fund's effective date. For the year ended August 31,
1996, the Fund paid $5,249 and $10,880 respectively, pursuant to this
agreement.

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
year ended August 31, 1996, were as follows:

PURCHASES $ 5,163,927
SALES $ 3,125,995

6. 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 August 31, 1996, 33% 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 9% of total
investments.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(formerly, CALIFORNIA MUNICIPAL INCOME FUND):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of California Municipal Income Fund
as of August 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended August
31, 1996, and 1995, and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on

these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of August 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
California Municipal Income Fund as of August 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 11, 1996

ADDRESSES

<S> <C>
Federated California Municipal Income Fund Federated Investors Tower
Class F Shares Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Services P.O. Box 8600

Shareholder Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennslyvania 15222-5401

</TABLE>

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND

(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)

CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

PROSPECTUS

A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company

October 31, 1996

[Graphic]
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.

[Graphic]

Cusip 625922109
2092918A (10/96)

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
(FORMERLY, CALIFORNIA MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated California Municipal Income Fund (the
`Fund''), a portfolio of Municipal Securities Income Trust (the
`Trust'') dated October 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1996

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 625922109
2092918B (10/96)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 4
Temporary Investments 4
Portfolio Turnover 6
Investment Limitations 6
California Investment Risks 10
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 14

Fund Ownership 23
Trustees Compensation 23
Trustee Liability 26
INVESTMENT ADVISORY SERVICES 26

Adviser to the Fund 26
Advisory Fees 26
OTHER SERVICES 27

Fund Administration 27
Custodian and Portfolio Accountant 28
Transfer Agent 28
Independent Auditors 28
BROKERAGE TRANSACTIONS 28

PURCHASING CLASS F SHARES 30

Distribution Plan and Shareholder Services Agreement 30
Conversion to Federal Funds 31

Purchases by Sales Representatives, Fund Trustees, and
Employees 31
DETERMINING NET ASSET VALUE 32

Valuing Municipal Bonds 32
Use of Amortized Cost 32
REDEEMING CLASS F SHARES 32

Redemption in Kind 33
Massachusetts Partnership Law 33
TAX STATUS 34

The Fund's Tax Status 34
TOTAL RETURN 35

YIELD 36

TAX-EQUIVALENT YIELD 36

Tax-Equivalency Table 37
PERFORMANCE COMPARISONS 38

Economic and Market Information 40
ABOUT FEDERATED INVESTORS 40

Mutual Fund Market 41
Institutional Clients 42
Trust Organizations 42
Broker/Dealers and Bank Broker/Dealer Subsidiaries 42
APPENDIX 43

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Municipal Securities Income Trust. The Trust
was established as a Massachusetts business trust under a Declaration of
Trust dated August 6, 1990. On September 16, 1992 (effective date October
31, 1992), the Board of Trustees (the `Trustees'') approved changing the
name of the Trust from Federated Municipal Income Trust to Municipal
Securities Income Trust. On February 26, 1996 (effective date March 31,
1996), the Trustees approved changing the name of the Fund from California
Municipal Income Fund to Federated California Municipal Income Fund and
also approved changing the name of the Fund's presently offered shares
from Fortress Shares to Class F Shares (`Shares'').
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income exempt from
federal regular income tax (federal regular income tax does not include
the federal alternative minimum tax) and the personal income taxes imposed
by the state of California and California municipalities. The investment
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in California municipal securities.
CHARACTERISTICS
The California municipal securities in which the Fund invests have
the characteristics set forth in the prospectus. If ratings made by
Moody's Investors Service, Inc. (`Moody's''), Standard & Poor's
Ratings Group (`S&P'') or Fitch's Investors Service Inc. (``Fitch'')
change because of changes in those organizations or in their rating
systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's

prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of California municipal securities include:
ogovernmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment
payments for equipment, buildings, or other facilities being leased
by the state or municipality;
omunicipal notes and tax-exempt commercial paper;
oserial bonds;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
obond anticipation notes sold in anticipation of the issuance of
long-term bonds;
opre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
and
ogeneral obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from another
financial institution irrevocable letters of credit or guarantees and
give the Fund the right to demand payment of the principal amounts of
the participation interests plus accrued interest on short notice
(usually within seven days).
VARIABLE-RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential

for capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many
municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven
days) on the Fund's demand. The terms of these variable-rate demand
instruments require payment of principal and accrued interest from
the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee
would only be able to enforce lease payments as they became due. In
the event of a default or failure of appropriation, it is unlikely
that the trustee would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the
investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
owhether the lease can be terminated by the lessee;

othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
``event of nonappropriation''); and
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S.
government securities or certificates of deposit to the Fund and

agree at the time of sale to repurchase them at a mutually agreed
upon time and price within one year from the date of acquisition. The
Fund or its custodian will take possession of the securities subject
to repurchase agreements. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities. In the
event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may only enter
into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are found by the Fund's
investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
From time to time, such as when suitable California municipal bonds are
not available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of
assets in California municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer,
in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will

repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at
the trade date. These assets are marked to market daily and are
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. For the fiscal years ended
August 31, 1996 and 1995, the Fund's portfolio turnover rates were 21% and
63%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the
amounts borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a

temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to, for example,
meet redemption requests when the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous. The Fund will not
purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate although it may invest
in municipal bonds secured by real estate, including limited
partnership interests, or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with
its investment objective, policies, and limitations or its

Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.

INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total
assets in securities subject to restrictions on resale under the
Securities Act of 1933.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total
assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''

CALIFORNIA INVESTMENT RISKS
LIMITS ON TAXING AND SPENDING AUTHORITY
Developments in California which constrain the taxing and spending
authority of California governmental entities could adversely affect
the ability of such entities to meet their interest and/or principal
payment obligations on securities they have issued or will issue. The
following information constitutes only a brief summary and is not
intended as a complete description.
In 1978, a statewide referendum approved Proposition 13, an amendment
to the California Constitution limiting both the valuation of real
property for property tax purposes and the power of local taxing
authorities to increase real property tax revenues. To provide
revenue to local governments, legislation was enacted shortly
thereafter providing for the redistribution to local governments of
the state's then existing surplus in its General Fund, reallocation
of revenues to local governments, and assumption by the state of
certain local government obligations. More recent California
legislation has, however, reduced state assistance payments to local
governments and reallocated a portion of such payments to the state's
General Fund. There can be no assurance that any particular level of
state aid to local governments will be maintained in future years.
The U.S. Supreme Court has accepted for review a case challenging the
constitutionality of certain provisions of Proposition 13. The
outcome of such litigation could substantially impact local property
tax collections and the ability of state agencies, local governments
and districts to make future payments on outstanding debt
obligations.
In 1979, California voters again amended the California Constitution,

this time imposing an appropriations limit on the spending authority
of certain state and local government entities. The state's
appropriations limit is based on its 1978-1979 fiscal year
authorizations to expend proceeds of taxes and is adjusted annually
to reflect changes in cost of living and population and transfer of
financial responsibility from one governmental unit to another. If a
California governmental entity raises revenues beyond its
appropriations limit, the excess must be returned to the entity's
taxpayers within the two subsequent fiscal years, generally by a tax
credit, refund, or temporary suspension of tax rates or fee
schedules. These spending limitations do not, however, apply to the
debt service on obligations existing or legally authorized as of
January 1, 1979, or on bonded indebtedness thereafter approved by the
voters.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by
resolution or ordinance adopted by a two-thirds vote of the
governmental entity's legislative body and by a majority vote of the
electorate of the governmental entity, (ii) requires that any special
tax (defined as taxes levied for other than general governmental
purposes) imposed by a local governmental entity be approved by a
twothirds vote of the voters within that jurisdiction, (iii)
restricts the use of revenues from a special tax to the purposes or
for the service for which the special tax was imposed, (iv) prohibits
the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by the Proposition 13
amendment, (v) prohibits the imposition of transaction taxes and

sales taxes on the sale of real property by local governments, (vi)
requires that any tax imposed by a local government on or after
August 1, 1985, be ratified by a majority vote of the electorate
within two years of the adoption of the initiative or be terminated
by November 15, 1988, (vii) requires that, in the event a local
government fails to comply with the provisions of this measure, a
reduction in the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received
by such entity attributable to the tax levied in violation of the
initiative, and (viii) permits these provisions to be amended
exclusively by the voters of the state of California.
In September 1988, the California Court of Appeals in City of
Westminster v. County of Orange held that Proposition 62 is
unconstitutional to the extent that it requires a general tax by a
general law city, enacted on or after August 1, 1985, and prior to
the effective date of Proposition 62, to be subject to approval by a
majority of voters. The Court held that the California Constitution
prohibits the imposition of a requirement that local tax measures be
submitted to the electorate by either referendum or initiative. It is
not possible to predict the

impact of this decision on charter cities, on special taxes or on new
taxes imposed after the effective date of Proposition 62.
In November 1988, California voters approved Proposition 98. This
initiative requires that (i) revenues in excess of amounts permitted
to be spent and which would otherwise be returned by revision of tax
rates or fee schedules, be transferred and allocated (up to a maximum
of 4%) to the State School Fund and be expended solely for purposes

of instructional improvement and accountability. No such transfer or
allocation of funds will be required if certain designated state
officials determine that annual student expenditures and class size
meet certain criteria as set forth in Proposition 98. Any funds
allocated to the State School Fund shall cause the appropriation
limits to be annually increased for any such allocation made in the
prior year.
Proposition 98 also requires the state of California to provide a
minimum level of funding for public schools and community colleges.
The initiative permits the enactment of legislation, by a two-thirds
vote, to suspend the minimum funding requirement for one year.
On September 28, 1995, the California Supreme Court upheld the
constitutionality of Proposition 62. this referendum was approved by
the State's voters in 1986, but not enforced due to previous judicial
decisions. Proposition 62 requires two-thirds voter approval for
special taxes and a new simple majority approval for general taxes.
Prior to the State Supreme Court's decision upholding Proposition 62
(the Santa Clara decision) various court cases interpreting
Proposition 13 reaffirmed the power of cities to impose taxes other
than property taxes as long as those taxes were used for general
municipal purposes. the future effect of Proposition 62 on the
financial performance of California local governments and on note and
debt security is unclear. It is possible that court challenges, based
on Proposition 62, to taxes raised or imposed after 1986 may reduce
general municipal revenues available for financing municipal
operations and services, including the repayment of debt.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay

interest and principal on their obligations remains unclear.
Furthermore, other measures affecting the taxing or spending
authority of California or its political subdivisions may be approved
or enacted in the future.
RECENT ECONOMIC DEVELOPMENTS
The California economy is in recovery. Statewide unemployment in
August, 1996 was 7.1%, compared to 7.8% in August, 1995. Major
sectors of employment growth have been high tech industries and
motion picture production. Gains in these and other sectors have more
than offset continued job losses in the aerospace and financial
services industries. Other positive economic developments include
greatly increased exports, new home construction and retail sales.
As a result of the improvement in the economy, tax revenues have been
higher than budgeted. In the first quarter of fiscal year 1997, the
State's general (operating) fund revenues were $91 million (1.5%)
above the budget forecast and disbursements were $385 million (5.5%)
less than the budget forecast.
In view of the improved economic climate and resulting stronger
financial results, Fitch Investors Service, Inc. raised their rating
of the State's general obligation bonds to A+ from A in July, 1996.

MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated California Municipal Income Fund, and principal
occupations.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee

President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director
or Trustee of the Funds.

Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba

205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee

Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University of
Pittsburgh; Founding Chairman, National Advisory Council for Environmental
Policy and Technology, Federal Emergency Management Advisory Board and
Czech Management Center; Director or Trustee of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport
Research, Ltd.; Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee
or Director of some of the Funds; President, Executive Vice President and
Treasurer of some of the Funds.

As used in the table above, `The Funds'' and ``Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.
; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-
10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO

Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 7, 1996, the following shareholder of record owned 5% or
more of the outstanding Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, Florida, owned approximately 774,300 Shares (46.05%).
TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John T. Conroy $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
William J. Copeland $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
J. Christopher Donahue $ -0-
$ -0- for the Trust and
Trustee and Exec. Vice Pres.
16 other investment companies in the Fund
Complex
James E. Dowd $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $1,363.10
$115,760 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Peter E. Madden $1,243.22
$104,898 for the Trust and

Trustee 54other investment companies in the
Fund Complex
Gregor F. Meyer $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John E. Murray, Jr. $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Wesley W. Posvar $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Marjorie P. Smuts $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

*Information is furnished for the fiscal year ended August 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised
of five portfolios.
+The information is provided for the last calendar year.
++Mr Bigley served on 39 investment companies in the Federated funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated funds.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the `Adviser''). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
August 31, 1996, 1995 and 1994, the Adviser earned advisory fees of
$62,691, $56,899 and $60,519, respectively, all of which were voluntarily
waived.

STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2.5% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net
assets, and 1.5% per year of the remaining average net assets, the
Adviser will reimburse the Trust for its expenses over the
limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be reduced
by the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount of
the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES

Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended August 31,
1996, 1995 and 1994, the Administrators collectively earned $125,000,
$125,000 and $176,127, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
Federated Services Company, Pittsburgh, Pennsylvania, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent,
Federated Shareholder Services Company, Boston, Massachusetts, maintains
all necessary shareholder records. For its services, the transfer agent
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS

elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Trustees. The Adviser
may select brokers and dealers who offer brokerage and research services.
These services may be furnished directly to the Fund or to the Adviser and
may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt
of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or by
its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal
years ended August 31, 1996, 1995 and 1994, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the

ability to participate in volume transactions will be to the benefit of
the Fund.
PURCHASING CLASS F SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value plus a sales charge on days the New York
Stock Exchange is open for business. The procedure for purchasing Shares
is explained in the prospectus under `Investing in Class F Shares.''
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.

Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly
to shareholders' requests and inquiries concerning their accounts.
For the fiscal years ended August 31, 1996, 1995 and 1994, payments in the
amount of $78,364, $71,122 and $75,651, respectively, were made pursuant
to the Distribution Plan, of which $75,229, $68,277 and $55,812,
respectively, were waived. In addition, for the fiscal year ended August
31, 1996, the Fund paid shareholder service fees in the amount of $39,182,
of which $3,135 were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp. and their spouses and children under 21, may buy Shares at net asset
value without a sales charge. Shares may also be sold without a sales
charge to trusts or pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.

DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated for Shares are described in the prospectus.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the market
value of municipal bonds. The independent pricing service takes into
consideration yield, stability, risk, quality, coupon rate, maturity, type
of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers relevant
in determining valuations for normal institutional size trading units of
debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60
days or less at the time of purchase, shall be their amortized cost value,
unless the particular circumstances of the security indicate otherwise.
Under this method, portfolio instruments and assets are valued at the
acquisition cost as adjusted for amortization of premium or accumulation
of discount rather than at current market value. The Executive Committee
continually assesses this method of valuation and recommends changes where
necessary to assure that the Fund's portfolio instruments are valued at
their fair value as determined in good faith by the Trustees.
REDEEMING CLASS F SHARES

The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Redemption procedures and contingent
deferred sales charges are explained in the prospectus under `Redeeming
Class F Shares.''Although the Fund does not charge for telephone

redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or
1% of the respective class's net asset value, whichever is less, for any
one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect
on remaining shareholders. In such a case, the Fund will pay all or a
portion of the remainder of the redemption in portfolio instruments,
valued in the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of
their securities and could incur certain transactions costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on
behalf of the Fund. To protect shareholders of the Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Fund for such acts or obligations of the
Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required

to use the property of the Fund to protect or compensate the shareholder.
On request, the Trust will defend any claim made and pay any judgment
against a shareholder of the Fund for any act or obligation of the Trust
on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because
of:
othe availability of higher relative yields;

odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned Shares. Any loss by a shareholder on Shares held for
less than six months and sold after a capital gains distribution will be
treated as a long-term capital loss to the extent of the capital gains
distribution.
TOTAL RETURN

The Fund's average annual total returns for the one-year period ended
August 31, 1996, and for the period from December 2, 1992 (date of initial
public investment) to August 31, 1996, were 5.13% and 6.07%, respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the offering price per Share at the end of the
period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional Shares, assuming the monthly
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment
based on the lesser of the original purchase price per Share or the
offering price per Share of Shares redeemed.

YIELD

The Fund's yield for the thirty-day period ended August 31, 1996 was
5.53%.
The yield for the Fund is determined by dividing the net investment income
per Share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per Share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will
be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the thirty-day period ended August 31,
1996 was 8.82%.
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 28% tax rate and assuming
that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax*, and the
income taxes imposed by the State of California. As the table below
indicates, a `tax-free'' investment is an attractive choice for
investors, particularly in times of narrow spreads between tax-free and
taxable yields.

TAXABLE YIELD EQUIVALENT FOR 1996

STATE OF CALIFORNIA

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
21.00% 37.30% 40.30% 45.30% 48.90% 48.90%

JOINT $1 - $40,101 - $96,901 - $147,701 - $263,751 OVER
RETURN 40,100 96,900 147,700 263,750 439,744 $439,744

TAX-EXEMPT
YIELD TAXABLE YIELD
EQUIVALENT
----------------------------

1.50% 1.90% 2.39% 2.51% 2.74% 2.94% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91% 3.91%

2.50% 3.16% 3.99% 4.19% 4.57% 4.89% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78% 9.78%
5.50% 6.96% 8.77% 9.21% 10.05% 10.76% 10.76%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions. If you itemize deductions, your
taxable yield equivalent will be lower.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS

and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attributes for the index are calculated semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the `general municipal
bond funds''category in advertising and sales literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total
returns represent the historic change in the value of an investment in the

Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does not reflect
the effect of the sales charge.
Advertising and other promotional literature may include charts, graphs
and other illustrations using the Fund's returns, or returns in general,
that demonstrate basic investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment. In addition,
the Fund can compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, such as
bank savings accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.

MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their
clients' portfolios. The marketing effort to trust clients is headed by
Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high rankings in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.
Federated Investors, through it subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:

*source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND RATINGS
AAA--Debt rated `AAA'' has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay

interest and repay principal for debt in this category than in higher
rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from `AA'' to ``CCC'' may be modified
by the addition of a plus or minus sign to show relative standing within
the major rating categories.
MOODY'S INVESTORS SERVICE, INC., (`MOODY'S'') MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.

BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its generic rating category; the
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
FITCH INVESTORS SERVICE, INC. (`FITCH'') LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated
in the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be

strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the `AAA'' category.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated `A-1.''
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: Leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection;
broad margins in earning coverage of fixed financial charges and high
internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will

be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Federated New York Municipal Income Fund
(Class F Shares)
(formerly, Fortress Shares)

ANNUAL REPORT FOR FISCAL YEAR ENDED AUGUST 31, 1996

MANAGEMENT DISCUSSION AND ANALYSIS

Fed on hold. The municipal yield curve remains considerably steeper than the
Treasury yield curve, due mainly to supply and demand imbalances which exist
along different segments of the maturity spectrum. Currently, the spread
between bonds of ten and thirty years in maturity is in excess of 70 basis
points while the spread in the same maturity range of the Treasury yield
curve is approximately 21 basis points. The ratio of "AAA" rated general
obligation municipal bond yields to Treasury bond yields narrowed
considerably over the fiscal year in the ten to thirty year portion of the
municipal yield curve. This ratio can provide some indication as to the
richness or cheapness of municipal bonds versus comparable maturity Treasury
securities. This ratio has narrowed, or municipal bonds have become more
expensive relative to Treasury securities, as a result of improved retail
participation in the market and the erosion of the market premium for tax
reform.

Governor Pataki's goals of shrinking government, reducing taxes, and
limiting expenditures on social services has helped to stabilize the State's
budget after difficult negotiations with the State's legislature. The
regional economy, although appearing to have stabilized, has not yet given
any clear indications of a recovery. New York paper has been trading at
yield spreads near the twelve-month moving average, which reflects the
constrained supply situation that has existed in New York for most of this
year. The supply of municipal bond issuance in the market is a very
important technical factor which can have a considerable impact on relative
performance.

* The Bond Buyer Market Index is a standard against which municipal bonds
are measured. This index is unmanaged.

Federated New York Municipal Income Fund's performance over the past fiscal
year reflects the fund's neutral duration position relative to the fund's
peer group. The fund's total return was 4.11%** for the period September 1,
1995 to August 31, 1996. The concentration of high coupon premium bonds in
the portfolio helped to dampen net asset value volatility over the period.
The fund posted a 30-day distribution rate of 5.55%,** based on net asset
value, as of August 31, 1996, which is comparable to a yield of 9.19% on a
taxable equivalent basis, assuming a top marginal tax rate of 39.6%. The
fund's yield for the 30-day period ended August 31, 1996, was 5.55%.** As
interest rates rose over the fiscal year, management took the opportunity to
improve the fund's yield by "couponing up," or swapping into bonds with
better yield characteristics, while also recognizing tax losses which can be
used to offset future realized capital gains.

** Performance quoted reflects 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. The fund's 30-day
distribution rate based on offering price was 5.49%.

Federated New York Municipal Income Fund
(Class F Shares)

(formerly, Fortress Shares)

GROWTH OF $10,000 INVESTED IN FEDERATED NEW YORK MUNICIPAL INCOME FUND
(CLASS F SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated New York Municipal Income Fund (Class F Shares) from December 2,
1992 (start of performance) to August 31, 1996, compared to the Lehman
Brothers Revenue Bond Index (LBRBI)+.

["Graphic representation A5 omitted. See Appendix."]

THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
OCTOBER 31, 1996, AND TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.

* Represents a hypothetical investment of $10,000 in the Fund after

** The ending value of the Fund reflects a contingent deferred sales charge
of 1.00% on any redemption less than four years from the purchase date.

*** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

+ The LBRBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.

[Graphic]

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.

[Graphic]

Cusip 625922208
G01057-03 (10/96)

FEDERATED NEW YORK MUNICIPAL INCOME FUND

(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

PROSPECTUS

The Class F Shares of Federated New York Municipal Income Fund (the "Fund")
offered by this prospectus represent interests in a non-diversified
portfolio of securities which is one of a series of investment portfolios in
Municipal Securities Income Trust (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund is
to provide current income which is exempt from federal regular income tax
and the personal income taxes imposed by the State of New York and New York
municipalities. The Fund invests primarily in a portfolio of New York
municipal securities.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE

FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class F Shares. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class F
Shares dated October 31, 1996, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free
of charge by calling 1-800-341-7400. To obtain other information or to make
inquiries about the Fund, contact your financial institution. The Statement
of Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

Prospectus dated October 31, 1996

TABLE OF CONTENTS

SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
New York Municipal Securities 5
Investment Risks 6
Non-Diversification 6
Investment Limitations 6
NET ASSET VALUE 7
INVESTING IN CLASS F SHARES 7
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Eliminating/Reducing the
Sales Charge 9
Systematic Investment Program 10
Exchange Privilege 10
Certificates and Confirmations 11
Dividends and Distributions 11
REDEEMING CLASS F SHARES 11
Through a Financial Institution 12
Directly by Mail 12
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 13
Accounts with Low Balances 14

TRUST INFORMATION 14
Management of the Trust 14
Distribution of Class F Shares 15
Administration of the Fund 16
SHAREHOLDER INFORMATION 17
Voting Rights 17
TAX INFORMATION 17
Federal Income Tax 17
New York Taxes 18
State and Local Taxes 18
PERFORMANCE INFORMATION 19
FINANCIAL STATEMENTS 20
INDEPENDENT AUDITORS' REPORT 30
ADDRESSES 31

SUMMARY OF FUND EXPENSES

CLASS F SHARES (FORMERLY, FORTRESS SHARES)
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of 1.00%
offering price)
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage None
of offering price)
Contingent Deferred Sales Charge (as a percentage of original
purchase
price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(2) 0.00%
12b-1 Fee (after waiver)(3) 0.02%
Total Other Expenses (after expense reimbursement) 0.88%
Shareholder Services Fee (after waiver)(4) 0.23%
Total Operating Expenses(5) 0.90%
</TABLE>

(5) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending August 31, 1997. The total operating
expenses were 0.60% for the fiscal year ended August 31, 1996 and would
have been 2.53% absent the voluntary waivers of the management fee, the
12b-1 fee and the shareholder services fee and the voluntary reimbursement
of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return;
(2) redemption at the end of each time
period; and
(3) payment of the maximum sales charge $29 $50 $59 $120
You would pay the following expenses on the same
investment, assuming no redemption $19 $38 $59 $120
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 30.

<TABLE>
<CAPTION>
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 0.58 0.57 0.57 0.44
Net realized and unrealized gain (loss) on investments 0.04 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 (0.58) (0.57) (0.57) (0.44)
NET ASSET VALUE, END OF PERIOD $10.17 $10.13 $10.10 $10.92
TOTAL RETURN(B) 6.18% 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) 1.93% 1.74% 2.07% 1.91%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $21,932 $21,600 $23,152 $14,495
Portfolio turnover 11% 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.

(See Notes which are an integral part of the Financial Statements)

Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended August 31, 1996, which can be
obtained free of charge.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. With respect to this
Fund, as of the date of this prospectus, the Board of Trustees ("Trustees")

has established one class of shares, known as Class F Shares ("Shares").

Shares of the Fund are designed for customers of financial institutions such
as broker/dealers, banks, fiduciaries, and investment advisers as a
convenient means of accumulating an interest in a professionally managed,
non-diversified portfolio investing primarily in New York municipal
securities. A minimum initial investment of $1,500 is required. Subsequent
investments must be in amounts of at least $100. The Fund is not likely to
be a suitable investment for non-New York taxpayers or retirement plans
since New York municipal securities are not likely to produce competitive
after-tax yields for such persons and entities when compared to other
investments.

The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under "Federated" and the
appropriate class designation listing.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income exempt
from federal regular income tax (federal regular income tax does not include
the federal alternative minimum tax) and the personal income taxes imposed
by the State of New York and New York municipalities. The investment
objective cannot be changed without approval of shareholders. While there is
no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

Under normal circumstances, the Fund invests its assets so that at least 80%
of its annual interest income is exempt from federal regular income tax and
the personal income taxes imposed by the state of New York and New York
municipalities. Interest income of the Fund that is exempt from the income
taxes described above retains its exempt status when distributed to the
Fund's shareholders. Income distributed by the Fund may not necessarily be
exempt from state or municipal taxes in states other than New York.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing primarily in
securities which are exempt from federal regular income tax and personal
income taxes imposed by the state of New York and New York municipalities.
At least 65% of the value of the Fund's total assets will be invested in
obligations issued by or on behalf of the state of New York, its political
subdivisions, or agencies. Unless indicated otherwise, investment policies
of the Fund may be changed by the Trustees without approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include:

* obligations issued by or on behalf of the state of New York, its political
subdivisions, or agencies;

* debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision of
any of these; and

* participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel for
the issuers or in the opinion of officers of the Fund and/or the investment
adviser to the Fund, exempt from both federal regular income tax and the
personal income tax imposed by the state of New York and New York
municipalities.

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

CHARACTERISTICS. The New York municipal securities which the Fund buys are
investment grade bonds rated Aaa, Aa, A, or Baa by Moody's Investors Service
Inc., ("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's Ratings Group
("S&P") or by Fitch Investors Service, Inc. ("Fitch") Bonds rated "BBB" by
S&P or Fitch or "Baa" by Moody's have speculative characteristics. Changes
in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. In certain cases the Fund's adviser may choose bonds which are

unrated if it judges the bonds to have the same characteristics as the
investment grade bonds described above. If a bond is rated below investment
grade according to the characteristics set forth here after the Fund has
purchased it, the Fund is not required to drop the bond from the portfolio,
but will consider appropriate action. A description of the rating categories
is contained in the Appendix to the Statement of Additional Information.

PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in New York municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Trustees of
the Trust will determine that participation interests meet the prescribed
quality standards for the Fund.

VARIABLE RATE MUNICIPAL SECURITIES. Some of the New York municipal
securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily based on a published interest rate,
interest rate index, or a similar standard, such as the 91-day U.S. Treasury
bill rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Fund in not more than seven days. All variable
rate municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to monitor the
pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by the Fund on the basis of published
financial information and reports of the rating agencies and other

analytical services.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may

vary from the purchase prices. Accordingly, the Fund may pay more/less than
the market value of the securities on the settlement date.

TEMPORARY INVESTMENTS. Under normal circumstances, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income tax and the personal income taxes imposed by the
state of New York and New York municipalities. This policy cannot change
without shareholder approval. However, from time to time, when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-New York municipal
tax-exempt obligations or taxable temporary investments. These temporary
investments include: notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment
agrees at the time of sale to repurchase it at a mutually agreed upon time
and price).

There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to those

NEW YORK MUNICIPAL SECURITIES

New York municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.

New York municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.

payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds do
not represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.

INVESTMENT RISKS

Yields on New York municipal securities depend on a variety of factors,
including, but not limited to: the general conditions of the short-term
municipal note market and the municipal bond market; the size of the
particular offering; the maturity of the obligations; and the rating of the
issue. Further, any adverse economic conditions or developments affecting
the state or city of New York could impact the Fund's portfolio. The ability
of the Fund to achieve its investment objective also depends on the
continuing ability of the issuers of New York municipal securities and
participation interests, or the guarantors of either, to meet their
obligations for the payment of interest and principal when due. Investing in
New York municipal securities which meet the Fund's quality standards may
not be possible if the state and city of New York do not maintain their
current credit ratings.

A further discussion of the risks of a portfolio which invests largely in
New York municipal securities is contained in the Statement of Additional
Information.

NON-DIVERSIFICATION

INVESTMENT LIMITATIONS

The Fund will not borrow money directly through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio instrument for
a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of those assets to secure such borrowings.

NET ASSET VALUE

INVESTING IN CLASS F SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares
may be purchased through an investment dealer who has a sales agreement with
the distributor, Federated Securities Corp. or directly from the
distributor, Federated Securities Corp., either by mail or by wire, once an
account has been established. The Fund reserves the right to reject any
purchase request.

THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or an investment dealer) to place an order to
purchase Shares. Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before
4:00 p.m. (Eastern time) in order for Shares to be purchased at that day's
price. It is the financial institution's responsibility to transmit orders
promptly.

DIRECTLY BY MAIL. To purchase Shares by mail directly from Federated
Securities Corp. once an account has been established:

* complete and sign the new account form available from the Fund;

* enclose a check made payable to New York Municipal Income Fund--Fortress
Shares; and

* send both to the Fund's transfer agent, Federated Services, P.O. Box 8600,
Boston, MA 02266-8600.

Purchases by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank") into federal funds. This is generally the next
business day after State Street Bank receives the check.

DIRECTLY BY WIRE. To purchase Shares directly from Federated Securities
Corp. by Federal Reserve Wire once an account has been established, call the
Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: Federated New York Municipal Income Fund -- Class F
Shares; (Fund Number -- this number can be found on the account statement or
by contacting the Fund); Account Number; Trade Date and Order Number; Group
Number or Dealer Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500. Subsequent investments
must be in amounts of at least $100.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of
the net amount invested). Further, there is no sales charge for purchases of
$1 million or more. In addition, no sales charge is imposed for Shares
purchased through bank trust departments or investment advisers registered
under the Investment Advisers Act of 1940 purchasing on behalf of their
clients, or by sales representatives, Trustees, and employees of the Fund,
Federated Advisers, and Federated Securities Corp., or their affiliates, or
any investment dealer who has a sales agreement with Federated Securities
Corp., their spouses and children under age 21, or any trusts or pension or
profit-sharing plans for these persons. Investors who purchase Shares
through a financial intermediary may be charged a service fee by that
financial intermediary. This prospectus should, therefore, be read together
with any agreement between customer and institution with regard to services
provided, the fees charged for these services, and any restrictions and
limitations imposed.

following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

ELIMINATING/REDUCING THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Shares
through:

* quantity discounts and accumulated purchases;

* signing a 13-month letter of intent;

* using the reinvestment privilege; or

* concurrent purchases.

combined. The Fund will eliminate the sales charge and/or reduce the
contingent deferred sales charge after it confirms the purchases.

This letter of intent also includes a provision for reductions in the
contingent deferred sales charge and holding period depending on the amount
actually purchased within the 13 month period. For more information on the
various levels of contingent deferred sales charges and holding periods, see
the section entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares.
This letter may be dated as of a prior date to include any purchases made
within the past 90 days purchases within the prior 90 days may be used to
fulfill the requirements of the letter of intent; however, the sales charge
on prior purchases will not be adjusted to reflect a lower sales charge.

REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to receive this
elimination of the sales charge. If the shareholder redeems his Shares,
there may be tax consequences.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their

investment on a regular basis in a minimum of $100. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in Shares at the net asset value next
determined after an order is received by Federated Shareholder Services
Company, plus the 1% sales charge for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp. or his financial institution.

EXCHANGE PRIVILEGE

Class F shareholders may exchange all or some of their Shares for shares of
New York Municipal Cash Trust or Class F Shares of other Federated Funds.
Exchanges are made at net asset value without being assessed a contingent
deferred sales charge. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class F
Shares received through an exchange will include the period for which your
original Class F Shares were held.

the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.

The exchange privilege is available to shareholders residing in any state in
which the Shares being acquired may be legally sold.

Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.

An exercise of the exchange privilege is treated as sale for federal income
tax purposes. Depending on the circumstances, a capital gain or loss may be
realized.

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.

DIVIDENDS AND DISTRIBUTIONS

Shares earn dividends through the business day that proper written
redemption instructions are received by Federated Shareholder Services
Company.

REDEEMING CLASS F SHARES

redeem Shares through a financial intermediary may be charged a service fee
by that financial intermediary. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests must be received
in proper form and can be made through a financial institution or directly
from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares by calling his financial institution (such
as a bank or an investment dealer) to request the redemption. Shares will be
redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption requests
through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial
institutions must be received by the financial institution and transmitted
to the Fund before 4:00 p.m. (Eastern time) in order for Shares to be
redeemed at that day's net asset value. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.

drastic economic or market changes, a shareholder may experience difficulty
in redeeming by telephone. If such a case should occur, another method of
redemption, such as "Directly By Mail," should be considered. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

DIRECTLY BY MAIL

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than

to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, Trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.

CONTINGENT DEFERRED SALES CHARGE

In instances in which Shares have been acquired in exchange for Class F
Shares in other Federated Funds, (i) the purchase price is the price of the
Shares when originally purchased and (ii) the time period during which the
shares are held will run from the date of the original purchase. The
contingent deferred sales charge will not be imposed on Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In computing the amount of contingent deferred sales charge for
accounts with Shares subject to a single holding period, if any, redemptions
are deemed to have occurred in the following order: (1) Shares acquired
through the reinvestment of dividends and long-term capital gains, (2)
purchases of Shares occurring prior to the number of years necessary to
satisfy the applicable holding period, and (3) purchases of Shares occurring
within the current holding period. For accounts with Shares subject to
multiple Share holding periods, the redemption sequence will be determined
first, with reinvested dividends and long-term capital gains, and second, on
a first-in, first-out basis.

other redemptions made for purposes of reinvestment. Contingent deferred
sales charges are not charged in connection with exchanges of Shares for
shares in New York Municipal Cash Trust or Shares in other Federated Funds,
or in connection with redemptions by the Fund of accounts with low balances.
Shares of the Fund originally purchased through a bank trust department or
investment adviser registered under the Investment Advisers Act of 1940, as
amended, are not subject to the contingent deferred sales charge to the
extent that no payment was advanced for purchases made by or through such
entities.

SYSTEMATIC WITHDRAWAL PROGRAM

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge,

it is not advisable for shareholders to be purchasing Shares while
participating in this program.

Contingent deferred sales charges are charged for Shares redeemed through
this program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,500. This
requirement does not apply, however, if the balance falls below $1,500
because of changes in the Fund's net asset value. Before Shares are redeemed
to close an account, the shareholder is notified in writing and allowed 30
days to purchase additional Shares to meet the minimum requirement.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of
Trustees are responsible for managing the business affairs of Municipal
Securities Income Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the
Board of Trustees handles the Trustees' responsibilities between meetings of
the Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the

Trust, investment decisions for the Fund are made by Federated Advisers (the
"Adviser"), the Fund's investment adviser, subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase and sale of
portfolio instruments, for which it receives an annual fee from the Fund.

ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee
equal to .40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can modify or terminate this
voluntary waiver of expenses at any time at its sole discretion. The Adviser
can terminate this voluntary waiver or reimbursement of expenses at any time
at its sole discretion. The Adviser has also undertaken to reimburse the
Fund for operating expenses in excess of limitations established by certain
states.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

Jonathan C. Conley has been the Fund's portfolio manager since its
inception. Mr. Conley joined Federated Investors in 1979 and has been a
Senior Vice President of the Fund's investment adviser since 1995. Mr.
Conley was a Vice President of the Fund's investment adviser from 1982 to
1995. Mr. Conley is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Virginia.

DISTRIBUTION OF CLASS F SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Investment Company Act Rule 12b-1 (the
"Distribution Plan"), the Fund may pay to the distributor an amount,
computed at an annual rate of 0.50% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in
the sale of Shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution related support services as agents for their

clients or customers.

of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in
addition to the 1.00% sales charge on purchases of less than $1 million.)

ADMINISTRATION OF THE FUND

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund, only shares of that fund are entitled to
vote. As of October 7, 1996, Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, owned 46.57% of the voting securities of the Fund,
and, therefore, may, for certain purposes, be deemed to control the Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting of the
shareholders for this purpose shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding

shares of all series of the Trust entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

only a portion of the deductions allowed in the calculation of the regular
tax.

Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as

ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.

NEW YORK TAXES

Under existing New York laws, distributions made by the Fund will not be
subject to New York State or New York City personal income taxes to the
extent that such distributions qualify as "exempt-interest dividends" under
the Code, and represent interest income attributable to obligations of the
State of New York and its political subdivisions, as well as certain other
obligations, the interest on which is exempt from New York State and New
York City personal income taxes, such as, for example, certain obligations
of the Commonwealth of Puerto Rico. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations,
such distributions will be subject to New York State and New York City
personal income taxes.

The Fund cannot predict in advance the exact portion of its dividends that
will be exempt from New York State and New York City personal income taxes.
However, the Fund will report to shareholders at least annually what
percentage of the dividends it actually paid is exempt from such taxes.

Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the extent that they are exempt from the New York City
personal income tax.

Dividends paid by the Fund are not excluded from net income in determining
New York State or New York City franchise taxes on corporations or financial
institutions.

STATE AND LOCAL TAXES

Income from the Fund is not necessarily free from taxes in states other than
New York. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises the total return, yield, and
tax-equivalent yield for Shares.

The performance information reflects the effect of the maximum sales charge
and other similar non-recurring changes, such as the contingent deferred
sales charge, which, if excluded, would increase the total return, yield,
and tax-equivalent yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <C> <C>
LONG-TERM MUNICIPALS--94.7%
NEW YORK--90.7%
$ 305,000 Nassau County, NY IDA, Civic Facility Revenue
Bonds, 6.85% (Hofstra University), 1/1/2012 A $ 329,729
330,000 Nassau County, NY IDA, Civic Facility Revenue
Bonds, 6.85% (Hofstra University), 1/1/2013 A 355,423
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- 360,115
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 973,570
500,000 New York City, NY IDA, Civic Facility Revenue
Bonds, 7.00% (Mt. St. Vincent College, NY),
5/1/2008 NR 515,325
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 968,990
750,000 New York City, NY IDA, Special Facilities Revenue
Bonds, 6.90% (American Airlines), 8/1/2024 BB+ 785,865
2,000,000 New York City, NY UT GO Bonds (Series B), 7.25%
(Original Issue Yield: 7.55%), 8/15/2019 BBB+ 2,160,220

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+ 948,357
500,000 New York State Dormitory Authority, Revenue
Bonds, 6.25% (Nyack Hospital)/(Original Issue
Yield: 6.50%), 7/1/2013 NR 490,420
</TABLE>

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
NEW YORK--CONTINUED
$ 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 $ 952,750
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 922,275
1,000,000 New York State HFA, (Series 1995A) Service
Contract Obligation Revenue Bonds, 6.375%
(Original Issue Yield: 6.45%), 9/15/2015 BBB 1,010,220
1,000,000 New York State Medical Care Facilities Finance
Agency, FHA-Mortgage Revenue Bonds (Series A),
(Lockport Memorial Hospital, NY)/(FHA GTD),
2/15/2035 AA 1,031,730
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 1,039,520
1,200,000 New York State Mortgage Agency, Homeowner
Mortgage Revenue Bonds (Series 46), 6.65%,
10/1/2025 NR 1,234,800

3,850,000 New York State Mortgage Agency, Revenue Bonds
(Series 40A), 6.70%, 4/1/2025 NR 3,966,116
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 BBB 999,400
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- 311,397
</TABLE>

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <C> <C>
LONG-TERM MUNICIPALS--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 $ 532,475
Total 19,888,697
PUERTO RICO--4.0%
850,000 Puerto Rico Electric Power Authority, Revenue
Bonds (Series T), 6.375% (Original Issue Yield:
6.58%), 7/1/2024 BBB+ 885,836
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $20,022,985) 20,774,533
SHORT-TERM MUNICIPALS--3.2%
700,000 Puerto Rico Government Development Bank
Weekly VRDNs (Credit Suisse, Zurich LOC) AA+ 700,000
TOTAL SHORT-TERM MUNICIPALS
(AT AMORTIZED AND IDENTIFIED COST) 700,000
TOTAL INVESTMENTS ($20,722,985)(A) $ 21,474,533
</TABLE>

Securities that are subject to alternative minimum tax represents 39.3% of
the portfolio as calculated based upon total portfolio market value.

* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.

(a) The cost of investments for federal tax purposes amounts to $20,722,985.
The net unrealized appreciation of investments on a federal tax cost basis
amounts to $751,548, and is comprised of $792,683 appreciation and $41,135
depreciation at August 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($21,931,665) at August 31, 1996.

The following acronym(s) are used throughout this portfolio:

AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
LOC -- Letter of Credit

UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes

(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

AUGUST 31, 1996

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$20,722,985) $ 21,474,533

Cash 106,598
Income receivable 357,066
Receivable for shares sold 62,404
Deferred expenses 2,221
Total assets 22,002,822
LIABILITIES:
Payable for shares redeemed $ 35
Income distribution payable 51,725
Accrued expenses 19,397
Total liabilities 71,157
NET ASSETS for 2,155,908 shares outstanding $ 21,931,665
NET ASSETS CONSIST OF:
Paid in capital $ 22,880,605
Net unrealized appreciation of investments 751,548
Accumulated net realized loss on investments (1,700,488)
Total Net Assets $ 21,931,665
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($21,931,665 / 2,155,908 shares outstanding) $10.17
Offering Price Per Share (100/99.00 of $10.17)* $10.27
Redemption Proceeds Per Share (99.00/100 of $10.17)** $10.07

* See "What Shares Cost."

** See "Contingent Deferred Sales Charge."

(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
YEAR ENDED AUGUST 31, 1996

</TABLE>
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,351,917
EXPENSES:
Investment advisory fee $ 86,941
Administrative personnel and services fee 125,000
Custodian fees 17,311
Transfer and dividend disbursing agent fees and expenses 26,350
Directors'/Trustees' fees 2,594
Auditing fees 13,440
Legal fees 3,552
Portfolio accounting fees 48,774
Distribution services fee 108,676
Shareholder services fee 54,338
Share registration costs 16,626
Printing and postage 25,950
Insurance premiums 3,646
Miscellaneous 16,460

Total expenses 549,658
Waivers and reimbursements --
Waiver of investment advisory fee $(86,941)
Waiver of distribution services fee (104,329)
Waiver of shareholder services fee (4,347)
Reimbursement of other operating expenses by Adviser (222,673)
Total waivers and reimbursements (418,290)
Net expenses 131,368
Net investment income 1,220,549
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 56,947
Net change in unrealized appreciation of investments 69,892
Net realized and unrealized gain on investments 126,839
Change in net assets resulting from operations $ 1,347,388
</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>
YEAR ENDED AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,220,549 $ 1,296,245
Net realized gain (loss) on investments
($983,796 and $716,692 net losses, respectively, as computed
for federal tax purposes) 56,947 (1,275,390)
Net change in unrealized appreciation 69,892 1,320,408
Change in net assets resulting from operations 1,347,388 1,341,263
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (1,220,549) (1,296,245)
SHARE TRANSACTIONS --
Proceeds from sale of shares 3,274,016 4,339,252
Net asset value of shares issued to shareholders in payment of
distributions declared 522,759 335,077
Cost of shares redeemed (3,592,219) (6,271,295)
Change in net assets resulting from share transactions 204,556 (1,596,966)
Change in net assets 331,395 (1,551,948)
NET ASSETS:
Beginning of period 21,600,270 23,152,218
End of period $ 21,931,665 $ 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)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996

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 New York
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. The investment objective
of the Fund is to provide current income exempt from federal regular income
tax (federal regular income tax does not include the federal alternative
minimum tax) and the personal income taxes imposed by the state of New York
and New York municipalities.

The Board of Trustees approved a change in the name of the Fund as follows:

EFFECTIVE DATE NEW NAME

March 31, 1996 Federated New York Municipal Income Fund

The Board of Trustees approved a change in the name of the Fortress Shares
as follows:

EFFECTIVE DATE NEW NAME

March 31, 1996 Class F Shares

2. SIGNIFICANT ACCOUNTING POLICIES

At August 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $ 1,700,488 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:

EXPIRATION YEAR EXPIRATION AMOUNT
2003 $716,692
2004 $983,796

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 over a period not to exceed five years from the Fund's
commencement date.

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).

Transactions in Class F Shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
1996 1995
<S> <C> <C>
Shares sold 319,948 446,112
Shares issued to shareholders in payment of distributions declared 50,930 34,269
Shares redeemed (348,051) (639,821)
Net change resulting from Class F Share transactions 22,827 (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.

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's Class F Shares to finance
activities intended to result in the sale of the Fund's Class F Shares. The
Plan provides that the Fund may incur distribution expenses up to 0.50% of
the average daily net assets of the Fund's Class F Shares, annually, to

compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.

SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of daily average net assets of the Fund's Class F 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.

ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $79,004 were borne initially by the Adviser. The Fund
has agreed to reimburse the Adviser for the organizational and/or start-up
administrative expenses during the five year period following the Fund's
effective date. For the year ended August 31, 1996, the Fund paid $15,800
pursuant to this agreement.

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 August 31, 1996, were as follows:

PURCHASES $ 1,779,339
SALES $ 3,174,835

6. 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 August 31, 1996, 19.7% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.

The value of investments insured by or supported (backed) by a letter of
credit from any one institution or agency did not exceed 9.6% of total
investments.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of FEDERATED NEW YORK MUNICIPAL INCOME FUND
(formerly, NEW YORK MUNICIPAL INCOME FUND):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated New York Municipal
Income Fund as of August 31, 1996, the related statement of operations for
the year then ended, the statements of changes in net assets for the years
ended August 31, 1996 and 1995, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated New
York Municipal Income Fund as of August 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
October 11, 1996

ADDRESSES

Federated New York Municipal Income Fund
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

PROSPECTUS

A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company

October 31, 1996

[Graphic]

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
2092919A-FS (10/96)

FEDERATED NEW YORK MUNICIPAL INCOME FUND
(FORMERLY, NEW YORK MUNICIPAL INCOME FUND)
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
(FORMERLY, FORTRESS SHARES)

STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated New York Municipal Income Fund (the `Fund''),
a portfolio of Municipal Securities Income Trust (the `Trust'') dated

October 31, 1996. This Statement is not a prospectus. You may request
a copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1996

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 625922208
2092919B (10/96)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 4
Temporary Investments 4
Portfolio Turnover 6
Investment Limitations 6
New York Investment Risks 10
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 11

Fund Ownership 20
Trustees Compensation 20
Trustee Liability 23
INVESTMENT ADVISORY SERVICES 23

Adviser to the Fund 23
Advisory Fees 23
OTHER SERVICES 24

Fund Administration 24
Custodian and Portfolio Accountant 25
Transfer Agent 25
Independent Auditors 25
BROKERAGE TRANSACTIONS 25

PURCHASING CLASS F SHARES 27

Distribution Plan and Shareholder Services Agreement 27
Conversion to Federal Funds 28

Purchases by Sales Representatives, Fund Trustees, and Employees 28
DETERMINING NET ASSET VALUE 29

Valuing Municipal Bonds 29
Use of Amortized Cost 29
REDEEMING CLASS F SHARES 29

Redemption in Kind 30
Massachusetts Partnership Law 30
TAX STATUS 31

The Fund's Tax Status 31
TOTAL RETURN 32

YIELD 32

TAX-EQUIVALENT YIELD 33

Tax-Equivalency Table 33
PERFORMANCE COMPARISONS 35

Economic and Market Information 37
ABOUT FEDERATED INVESTORS 37

Mutual Fund Market 38
Institutional Clients 38
Trust Organizations 39
Broker/Dealers and Bank Broker/Dealer Subsidiaries 39
APPENDIX 40

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Municipal Securities Income Trust. The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 6, 1990. On September 16, 1992 (effective date October 31,
1992), the Board of Trustees (the `Trustees'') approved changing the name
of the Trust from Federated Municipal Income Trust to Municipal Securities
Income Trust. On February 26, 1996 (effective date March 31, 1996), the
Trustees approved changing the name of the Fund from New York Municipal
Income Fund to Federated New York Municipal Income Fund and also approved
changing the name of the Fund's presently offered shares from Fortress
Shares to Class F Shares (`Shares'').
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income exempt from
federal regular income tax (federal regular income tax does not include the
federal alternative minimum tax) and the personal income taxes imposed by
the state of New York and New York municipalities. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in New York municipal securities.
CHARACTERISTICS
The New York municipal securities in which the Fund invests have the
characteristics set forth in the prospectus. If ratings made by
Moody's Investors Service, Inc., Standard & Poor's Ratings Group or
Fitch's change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in the
Fund's prospectus.

TYPES OF ACCEPTABLE INVESTMENTS
Examples of New York municipal securities include:
ogovernmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment
payments for equipment, buildings, or other facilities being leased
by the state or municipality;
omunicipal notes and tax-exempt commercial paper;
oserial bonds;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
obond anticipation notes sold in anticipation of the issuance of
long-term bonds;
opre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
and
ogeneral obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate

municipal securities than for fixed-income obligations. Many municipal
securities with variable-interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the
Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests,
or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for
the lease. In particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the
investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;

othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
``event of non-appropriation''); and
oany credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. The Fund or its

custodian will take possession of the securities subject to repurchase
agreements. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund may only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable New York municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
New York municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio

instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated on the Fund's records at
the trade date. These assets are marked to market daily and are
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%. For the fiscal years ended August 31,
1996 and 1995, the Fund's portfolio turnover rates were 11% and 55%,
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate

management of the portfolio by enabling the Fund to, for example, meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not
purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests although it may invest in municipal bonds
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or its Declaration of
Trust.

DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total

assets in securities subject to restrictions on resale under the
Securities Act of 1933.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in industrial development bonds where the principal and interest are
the responsibility of companies (or guarantors, where applicable) with
less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be "cash items."

NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York issuers which results in the
Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a brief
summary of the recent prevailing economic conditions and a general summary
of the state's financial status. This information is based on official
statements relating to securities that have been offered by New York
issuers and from other sources believed to be accurate but should not be
relied upon as a complete description of all relevant information.
The State of New York has begun to see economic improvement after several
difficult years. At 9% annually, job growth in 1996 is projected to exceed
the 1995 growth rate , but remains below the rest of the country. Future
economic growth will be hampered by corporate downsizing and continued
defense cut backs. The State's economy remains highly developed with a
large emphasis in service, trade, financial services, and real estate. In
addition, per capita income remains high and continues to grow at a
relatively strong pace.
Year-end fiscal 1996 budget basis results indicate that the State ended the
year with a $445 million surplus. This is the result of better than
anticipated revenue performance and lower than anticipated social service
spending, mostly Medicaid and public assistance. However, the fiscal 1997
State budget was a record 104 days late and fails to contain significant
out-year gaps and reliance on one-shots. Chronic structural imbalance
reflects the State's weak credit position and indicates that the State will
continue to experience contentious debate over program eliminations and
spending reductions.
The importance of New York City to the State's economy is also an important
consideration since it represents a significant portion of the overall

economy of the State. The City has struggled to maintain fiscal stability
and has performed adequately in contrast to the difficult economic
conditions in the New York/New Jersey metropolitan area. Any major changes
to the financial condition of the City would ultimately have an effect on
the State.
The Fund's concentration in securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the State or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the State; and the underlying fiscal
condition of the State and its municipalities.

MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated California Municipal Income Fund, and principal
occupations.

Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street

Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.

DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government

Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 7, 1996, the following shareholders of record owned 5% or
more of the outstanding Shares of the Fund: North Fork Bank & Trust Co.,
Mattituck, New York, owned approximately 125,341 Shares (5.75%); and
Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, owned
approximately 1,014,901 Shares (46.57%).
TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

Trustee 54other investment companies in the
Fund Complex
Gregor F. Meyer $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
John E. Murray, Jr. $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Wesley W. Posvar $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex
Marjorie P. Smuts $1,243.22
$104,898 for the Trust and
Trustee 54other investment companies in the
Fund Complex

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the `Adviser''). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
August 31, 1996, 1995 and 1994, the Adviser earned advisory fees of
$86,941, $87,317 and $84,319, respectively, all of which were voluntarily
waived.

STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2.5% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1.5% per year of the remaining average net assets, the Adviser will
reimburse the Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER SERVICES

Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended August 31,
1996, 1995 and 1994, the Administrators collectively earned $125,000,
$125,000 and $177,907, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company (`State Street Bank''), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
Federated Services Company, Pittsburgh, Pennsylvania, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, Boston, Massachusetts, maintains all
necessary shareholder records. For its services, the transfer agent
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS

selects brokers and dealers subject to review by the Trustees. The Adviser
may select brokers and dealers who offer brokerage and research services.
These services may be furnished directly to the Fund or to the Adviser and
may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt
of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or by
its affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. During the fiscal
years ended August 31, 1996, 1995 and 1994, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the Adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In
some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Fund.

PURCHASING CLASS F SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value plus a sales charge on days the New York
Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the prospectus under `Investing in Class F Shares.''
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing

shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal years ended August 31, 1996, 1995 and 1994, payments in the
amount of $108,676, $109,146 and $105,399, respectively, were made pursuant
to the Distribution Plan, of which $104,329, $104,780 and $61,717,
respectively, were waived. In addition, for the fiscal year ended August
31, 1996, the Fund paid shareholder service fees in the amount of $54,338,
of which $4,347 were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. State Street Bank acts as the shareholder's agent
in depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp.
and their spouses and children under 21, may buy Shares at net asset value
without a sales charge. Shares may also be sold without a sales charge to
trusts or pension or profit-sharing plans for these persons. These sales
are made with the purchaser's written assurance that the purchase is for
investment purposes and that the securities will not be resold except
through redemption by the Fund.

DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated for Shares are described in the prospectus.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the market
value of municipal bonds. The independent pricing service takes into
consideration yield, stability, risk, quality, coupon rate, maturity, type
of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers relevant
in determining valuations for normal institutional size trading units of
debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized
to be purchased by the Fund with remaining maturities of 60 days or less at
the time of purchase, shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING CLASS F SHARES

redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the respective class's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion
of the remainder of the redemption in portfolio instruments, valued in the
same way that net asset value is determined. The portfolio instruments will
be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transactions costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on
behalf of the Fund. To protect shareholders of the Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Fund for such acts or obligations of the
Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to
use the property of the Fund to protect or compensate the shareholder. On

request, the Trust will defend any claim made and pay any judgment against
a shareholder of the Fund for any act or obligation of the Trust on behalf
of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from
the assets of the Fund.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;

ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned Shares. Any loss by a shareholder on Shares held for
less than six months and sold after a capital gains distribution will be
treated as a long-term capital loss to the extent of the capital gains
distribution.
TOTAL RETURN

The Fund's average annual total returns for the one-year period ended
August 31, 1996, and for the period from December 2, 1992 (date of initial
public investment) to August 31, 1996 were 4.11% and 5.72%, respectively.
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of Shares owned at the end of
the period by the offering price per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $1,000, adjusted over
the period by any additional Shares, assuming the monthly reinvestment of
all dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investment based on the
lesser of the original purchase price per Share of redeemed Shares at the
time of purchase or the offering price per Share of Shares redeemed.
YIELD

The Fund's yield for the thirty-day period ended August 31, 1996 was 5.55%.

The yield for the Fund is determined by dividing the net investment income
per Share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per Share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the thirty-day period ended August 31,
1996 was 7.71%.
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a tax rate of 28% and assuming
that income is 100% tax-exempt.

income taxes imposed by the State of New York. As the table below
indicates, a `tax-free'' investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF NEW YORK

TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%

COMBINED FEDERAL
AND STATE 22.125% 35.125% 38.125% 43.125% 46.725%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

1.50% 1.93% 2.31% 2.42% 2.64% 2.82%
2.00% 2.57% 3.08% 3.23% 3.52% 3.75%
2.50% 3.21% 3.85% 4.04% 4.40% 4.69%

3.00% 3.85% 4.62% 4.85% 5.27% 5.63%
3.50% 4.49% 5.39% 5.66% 6.15% 6.57%
4.00% 5.14% 6.17% 6.46% 7.03% 7.51%
4.50% 5.78% 6.94% 7.27% 7.91% 8.45%
5.00% 6.42% 7.71% 8.08% 8.79% 9.39%
5.50% 7.06% 8.48% 8.89% 9.67% 10.32%
6.00% 7.70% 9.25% 9.70% 10.55% 11.26%

PERFORMANCE COMPARISONS

The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
O LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond market.
Returns and attributes for the index are calculated semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the `New York Municipal
Bond Funds''category in advertising and sales literature.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total

returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.About Federated Investors
ABOUT FEDERATED INVESTORS

The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1995, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 20
money market funds with approximately $7.8 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through it subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for

a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to theses institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide -- including 200 New York Stock Exchange firms --
supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned
it high rankings in several DALBAR Surveys. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.

*source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP (`S&P'') MUNICIPAL BOND RATINGS
AAA--Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA--Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.

PLUS (+) OR MINUS (-): The ratings from `AA'' to ``CCC'' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC., (`MOODY'S'') MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding

investment characteristics and in fact have speculative characteristics as
well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its generic rating category; the
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
FITCH INVESTORS SERVICE, INC. (`FITCH'') LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these

bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the `AAA'' category.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS DEFINITIONS

A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated `A-1.''
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: Leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well established access to a range of financial
markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

APPENDIX

A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
A Shares of Federated Pennsylvania Municipal Income Fund are represented by
a solid line. The Lehman Brothers Revenue Bond Index (the `LBRBI") is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class A Shares of the fund and the LBRBI. The `x'' axis reflects
computation periods from 10/11/90 to 8/31/96. The `y'' axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares as compared to the
LBRBI, the ending values were $15,431 and $16,368, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's
Class A Shares Average Annual Total Returns for the period ended 8/31/96,
beginning with the inception date of the fund (10/11/90), and the one-year
and five-year periods thereafter, the Average Annual Total Returns were
7.64%, 3.75%, and 6.87%, respectively.

A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
F Shares of Federated Ohio Municipal Income Fund are represented by a solid
line. The Lehman Brothers Revenue Bond Index (the `LBRBI") is represented
by a dotted line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class F
Shares of the fund and the LBRBI. The `x'' axis reflects computation
periods from 10/12/90 to 8/31/96. The `y'' axis reflects the cost of the

investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class F Shares as compared to the LBRBI, the
ending values were $15,187 and $16,368, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class F
Shares Average Annual Total Returns for the period ended 8/31/96, beginning
with the inception date of the fund (10/12/90), and the one-year and five-
year periods thereafter, the Average Annual Total Returns were 7.52%,
3.29%, and 6.84%, respectively.

A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of Federated Michigan Intermediate Municipal Trust are represented
by a solid line. The Lehman Brothers 7 Year State General Obligation Bond
Index (the `LB7YRSGOBI") is represented by a dotted line. The line graph
is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the fund and the LB7YRSGOBI. The `x'' axis
reflects computation periods from 9/18/91 to 8/31/96. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund as compared to the
LB7YRSGOBI, the ending values were $13,399 and $13,781, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the
fund's Average Annual Total Returns for the period ended 8/31/96, beginning
with the inception date of the fund (9/18/91), and the one-year period
thereafter, the Average Annual Total Returns were 6.08% and 1.04%,
respectively.

A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class

F Shares of Federated California Municipal Income Fund are represented by a
solid line. The Lehman Brothers Revenue Bond Index (the `LBRBI") is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class F Shares of the fund and the LBRBI. The `x'' axis reflects
computation periods from 12/2/92 to 8/31/96. The `y'' axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class F Shares as compared to the
LBRBI, the ending values were $12,474 and $12,806, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's
Class F Shares Average Annual Total Returns for the period ended 8/31/96,
beginning with the inception date of the fund (12/2/92), and the one-year
period thereafter, the Average Annual Total Returns were 6.07% and 5.13%,
respectively.

A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
F Shares of Federated New York Municipal Income Fund are represented by a
solid line. The Lehman Brothers Revenue Bond Index (the `LBRBI") is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class F Shares of the fund and the LBRBI. The `x'' axis reflects
computation periods from 12/2/92 to 8/31/96. The `y'' axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class F Shares as compared to the
LBRBI, the ending values were $12,319 and $12,806, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's
Class F Shares Average Annual Total Returns for the period ended 8/31/96,
beginning with the inception date of the fund (12/2/92), and the one-year
period thereafter, the Average Annual Total Returns were 5.72% and 4.11%,
respectively.