PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated California
Municipal Income Fund, a portfolio of Municipal Securities Income Trust,
covering the six-month period from September 1, 1996, through February 28,
1997.
This report begins with an interview with the fund's portfolio manager,
which covers the economy, the municipal market, fund performance, and
strategy. Following the interview are the fund's portfolio holdings and
financial statements.
Designed for tax-sensitive California residents, Federated California
Municipal Income Fund continues to bring opportunities for monthly income
that is exempt from federal regular income tax and California personal
income tax.*
During the reporting period, the fund's quality portfolio achieved a total
return of 5.25% based on net asset value.** This return was the result of
dividends totaling $0.28 per share and a 2% increase in share price. On
February 28, 1997, the fund's total net assets stood at $19.4 million.
California municipal bonds can be one of the best ways to help protect your
investment income from federal and state taxes. We encourage you to increase
your holdings to take advantage of this opportunity.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1997
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 3.24%.
INVESTMENT REVIEW
Q. What is your analysis of the municipal market overall during the reporting
period?
A. The market's direction over the reporting period can best be
characterized as moving sideways, which means the trading range remained
between 6.25% and 7.25% for the Treasury bond market. This trading range will
likely remain in place until the economic data gives a better indication as
to the pace of real economic growth and inflation. Another important piece of
information for the bond market is whether the federal government will be
able to craft a budget which attempts to achieve fiscal balance at some
future date, preferably 2002. The municipal market is driven to a large
degree by specific market technicals such as the supply of municipal bonds
coming to market and the demand for that supply by the various potential
buyers, i.e. individuals, insurance companies and mutual funds. The
favorable technical position of the municipal market has allowed it to
outperform the Treasury market for most of the six-month reporting period.
The ratio of municipal bond yields to Treasury bond yields is a useful
measure of the relative performance of the municipal bond market. Currently,
this ratio is approximately 80%, which is close to the low for the previous
twelve months and reflects the municipal markets strong relative performance
versus Treasury bonds.
Q. What is the status of the California municipal bond market?
A. California's state government has seen sharp improvement in its financial
performance and position as a result of its growing economy. The credit
status of county and local governments, however, is mixed. School districts
have experienced improved financial positions as a result of increased
funding from the state. County governments, on the other hand, have seen
strained finances due to property tax shifts and expenditure pressure from
public health. Proposition 218, approved by voters in November 1996, adds a
great deal of uncertainty to the prospects for local government finances.
The uncertainty stems from the vagueness of the Proposition's language and
the almost certain need for court clarification to determine in what
instances voters need to approve new taxes, and increases in taxes and user
fees. Nevertheless, despite the legal and budgetary uncertainties, we
believe the outlook for the state's economy continues to be positive.
Q. In this environment, how did the Fund perform with respect to investment
return, income and yield over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1997, investors in
Federated California Municipal Income Fund received a total return of 5.25%
based on net asset value.* Tax-free dividends totaled $0.28 per share. The
30-day SEC yield on February 28, 1997 was 5.13% based on offering price.+
Q. What is your outlook for the municipal market through 1997?
A. The outlook for fixed-income investments in general and municipal bonds
in particular is favorable in 1997. The U.S. economy's real growth rate is
expected to slow in the second half of the year and inflation should
continue to remain submissive. This situation, combined with a federal
budget which is structured to potentially achieve balance in the year 2002
and a powerful market environment for potentially lower interest rates,
could result in higher bond prices. The municipal bond market should be
among the better performing fixed-income asset classes in 1997. The supply
of municipal bonds will continue to be somewhat constrained creating a
certain measure of scarcity value. At the same time, the demand for
municipal bonds is expected to improve as investors reach their desired
equity exposure and begin to realize that taxes do matter in making
investment decisions.
* Performance quoted reflects past performance and is not indicative of
future performance. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 3.24%.
+ 30-day SEC yield is calculated by dividing the net investment income per
share for the 30 days ended on the date specified by the maximum offering
price per share on that date. The figure is then compounded and annualized.
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- 92.7%
CALIFORNIA -- 92.7%
$ 500,000 Anaheim, CA Public Financing Authority, Lease Revenue Bonds
(Series 1997C), 6.00% (Anaheim Public Improvements Project)/
(FSA INS), 9/1/2016 AAA $ 531,225
625,000 California Educational Facilities Authority, Revenue Bonds
(Series B), 6.60% (Loyola Marymount University), 10/1/2022 NR 667,675
600,000 California Educational Facilities Authority, Revenue Bonds, 6.70%
(Southwestern University)/(Original Issue Yield: 6.838%),
11/1/2024 NR 644,316
1,000,000 California HFA, SFM Revenue Bonds (Series C), 6.75%, 2/1/2025 AA- 1,048,200
1,290,000 California HFA, SFM Revenue Bonds (Series F-1), 7.00%, 8/1/2026 AA- 1,372,444
400,000 California Health Facilities Financing Authority, Revenue Bonds
(Series A), 6.50% (Kaiser Permanent Medical Care Program)/
(Original Issue Yield: 7.097%), 12/1/2020 AA 427,144
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 718,186
900,000 California PCFA, Exempt Facilities Revenue Bonds (Series 1996),
5.50% (Mobil Corp.)/(Original Issue Yield: 5.72%), 12/1/2029 AA 861,147
500,000 California PCFA, PCR Revenue Bonds (Series B), 6.40% (Southern
California Edison Co.)/(Original Issue Yield: 6.55%), 12/1/2024 A+ 517,340
900,000 California PCFA, Sewer & Solid Waste Disposal Revenue Bonds,
5.75% (Anheuser-Busch Cos., Inc.)/(Original Issue Yield: 5.818%),
12/1/2030 AA- 888,543
700,000 California PCFA, Solid Waste Disposal Revenue Bonds, 6.875%
(Browning-Ferris Industries, Inc.)/(Original Issue Yield: 6.95%),
11/1/2027 A 755,314
600,000 California State, UT GO Bonds, 5.75% (Original Issue Yield: 6.25%),
3/1/2019 A+ 602,490
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 652,698
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
CALIFORNIA -- CONTINUED
$ 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+ $ 514,825
1,000,000 Eden Township, CA Hospital District, Hospital Revenue Bonds,
7.40% (Original Issue Yield: 7.483%), 11/1/2019 BBB+ 1,054,380
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 488,600
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- 732,277
500,000 Inland Empire Solid Waste Financing Authority, CA, Revenue
Bonds (Series B), 6.25% (FSA INS), 8/1/2011 AAA 535,950
600,000 Los Angeles, CA Community Redevelopment Agency, Housing
Revenue Refunding Bonds (Series A), 6.55% (AMBAC INS),
1/1/2027 AAA 625,890
900,000 Port of Oakland, CA, Revenue Bonds (Series 1997G), 5.50%
(MBIA INS)/(Original Issue Yield: 5.83%), 11/1/2017 AAA 868,167
600,000 Sacramento, CA Municipal Utility District, Electric Revenue
Bonds (Series J), 5.50% (AMBAC INS)/(Original Issue Yield:
5.80%), 8/15/2021 AAA 586,188
800,000 Sacramento, CA, Airport System Revenue Bonds (Series 1996A),
5.90% (MBIA INS)/(Original Issue Yield: 6.27%), 7/1/2024 AAA 800,912
800,000 San Francisco, CA City & County Airport Commission, Second
Series Revenue Bonds (Issue 12A), 5.90% (San Francisco
International Airport)/(Original Issue Yield: 5.97%), 5/1/2026 A+ 787,336
700,000 University of California, Research Facilities Revenue Bonds (1995
Series B), 6.55%, 9/1/2024 A- 722,771
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 527,920
TOTAL LONG-TERM MUNICIPALS (AT IDENTIFIED COST $17,222,328) $17,931,938
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS -- 5.4%
PUERTO RICO -- 5.4%
$ 700,000 Puerto Rico Electric Power Authority, Revenue Bonds (Series T),
6.375% (Original Issue Yield: 6.58%), Weekly VRDNs A- $ 740,285
300,000 Puerto Rico Government Development Bank Weekly VRDNs
(Credit Suisse, Zurich LOC) AA+ 300,000
TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST) 1,040,285
TOTAL INVESTMENTS (AT AMORTIZED AND IDENTIFIED COST $18,262,613)(A) $18,972,223
</TABLE>
Securities that are subject to alternative minimum tax represent 47.2% 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 $18,262,613.
The net unrealized appreciation of investments on a federal tax basis
amounts to $709,610 which is comprised of $724,712 appreciation and $15,102
depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($19,352,636) at February 28, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
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
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $18,262,613) $18,972,223
Cash 114,756
Income receivable 256,995
Receivable for shares sold 98,977
Deferred expenses 596
Total assets 19,443,547
LIABILITIES:
Income distribution payable $ 84,660
Accrued expenses 6,251
Total liabilities 90,911
NET ASSETS for 1,840,219 shares outstanding $19,352,636
NET ASSETS CONSIST OF:
Paid in capital $19,444,983
Net unrealized appreciation of investments 709,610
Accumulated net realized loss on investments (801,957)
Total Net Assets $19,352,636
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($19,352,636 / 1,840,219 shares outstanding) $10.52
Offering Price Per Share (100/99.00 of $10.52)* $10.63
Redemption Proceeds Per Share (99.00/100 of $10.52)** $10.41
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $551,237
EXPENSES:
Investment advisory fee $ 35,989
Administrative personnel and services fee 61,987
Custodian fees 8,422
Transfer and dividend disbursing agent fees and expenses 11,274
Directors'/Trustees' fees 543
Auditing fees 7,240
Legal fees 1,810
Portfolio accounting fees 23,330
Distribution services fee 44,986
Shareholder services fee 22,493
Share registration costs 6,697
Printing and postage 7,421
Insurance premiums 1,810
Miscellaneous 10,860
Total expenses 244,862
Waivers and reimbursements --
Waiver of investment advisory fee $ (35,989)
Waiver of distribution services fee (43,187)
Waiver of shareholder services fee (1,799)
Reimbursement of other operating expenses (108,300)
Total waivers and reimbursements (189,275)
Net expenses 55,587
Net investment income 495,650
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 194,939
Net change in unrealized appreciation of investments 224,587
Net realized and unrealized gain on investments 419,526
Change in net assets resulting from operations $915,176
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 495,650 $ 878,898
Net realized gain (loss) on investments ($194,939 net gain and $218,330
net loss, respectively, as computed for federal tax purposes) 194,939 (91)
Net change in unrealized appreciation 224,587 210,389
Change in net assets resulting from operations 915,176 1,089,196
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (495,650) (878,898)
SHARE TRANSACTIONS --
Proceeds from sale of shares 2,391,121 4,529,060
Net asset value of shares issued to shareholders in payment of
distributions declared 203,329 353,502
Cost of shares redeemed (808,979) (2,345,310)
Change in net assets resulting from share transactions 1,785,471 2,537,252
Change in net assets 2,204,997 2,747,550
NET ASSETS:
Beginning of period 17,147,639 14,400,089
End of period $19,352,636 $ 17,147,639
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.27 $10.13 $10.01 $10.92 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.58 0.59 0.59 0.44
Net realized and unrealized gain (loss)
on investments 0.25 0.14 0.12 (0.91) 0.92
Total from investment operations 0.53 0.72 0.71 (0.32) 1.36
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.58) (0.59) (0.59) (0.44)
NET ASSET VALUE, END OF PERIOD $10.52 $10.27 $10.13 $10.01 $10.92
TOTAL RETURN(B) 5.25% 7.21% 7.48% (3.04%) 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.62%* 0.60% 0.55% 0.25% 0.25%*
Net investment income 5.50%* 5.61% 6.04% 5.61% 5.58%*
Expense waiver/reimbursement(c) 2.10%* 2.38% 2.41% 2.86% 1.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $19,353 $17,148 $14,400 $15,059 $11,513
Portfolio turnover 16% 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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
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 by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $778,475
2004 $218,330
</TABLE>
Additionally, net capital losses of $91 attributable to security
transactions incurred after October 31, 1996, were treated as arising on the
first day of the Fund's next taxable year (September 1, 1996).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized 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 Board of Trustees (the "Trustees") to
issue an unlimited number of full and fractional shares of beneficial
interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
Shares sold 228,352 440,835
Shares issued to shareholders in payment of distributions declared 19,428 34,378
Shares redeemed (77,096) (227,108)
Net change resulting from share transactions 170,684 248,105
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.50% of the average daily net assets
of the Fund, annually, to compensate FSC. 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.
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.
ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $80,643 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 effective
date. For the period ended February 28, 1997, the Fund paid $21,068 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended February 28, 1997, 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 $2,600,000 and $2,950,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $5,116,457
SALES $3,121,994
</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 February 28, 1997, 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 percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 13% of total
investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED CALIFORNIA
MUNICIPAL INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[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
4031005 (4/97)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Michigan
Intermediate Municipal Trust, a portfolio of Municipal Securities Income
Trust, covering the six-month reporting period from September 1, 1996,
through February 28, 1997.
This report begins with an interview with the fund's portfolio manager,
which covers the economy, the municipal market, fund performance, and
strategy. Following the interview are the fund's portfolio holdings and
financial statements.
Designed for tax-sensitive Michigan residents, Federated Michigan
Intermediate Municipal Trust continues to bring opportunities for monthly
income that is exempt from federal regular income tax and Michigan personal
income tax.*
During the reporting period, the fund's quality portfolio achieved a total
return of 3.78% based on net asset value.** This return was the result of
dividends totaling $0.27 per share and a 1% increase in share price. On
February 28, 1997, the fund's total net assets stood at $62.7 million.
Michigan municipal bonds can be one of the best ways to help protect your
investment income from federal and state taxes. We encourage you to increase
your holdings to take advantage of this opportunity.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1997
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 0.68%.
INVESTMENT REVIEW
Q.What are your comments on the municipal market overall during the reporting
period?
A. The market's direction over the reporting period can best be
characterized as moving sideways, which means the trading range remained
between 6.25% and 7.25% for the Treasury bond market. This trading range will
likely remain in place until the economic data gives a better indication as
to the pace of real economic growth and inflation. Another important piece
of information for the bond market is whether the federal government will be
able to craft a budget which attempts to achieve fiscal balance at some
future date, preferably 2002. The municipal market is driven to a large
degree by specific market technicals such as the supply of municipal bonds
coming to market and the demand for that supply by the various potential
buyers, i.e. individuals, insurance companies and mutual funds. The
favorable technical position of the municipal market has allowed it to
outperform the Treasury market for most of the six-month reporting period.
The ratio of municipal bond yields to Treasury bond yields is a useful
measure of the relative performance of the municipal bond market. Currently,
this ratio is approximately 80%, which is close to the low for the previous
twelve months, and reflects the municipal markets strong relative
performance versus Treasury bonds.
Q.What is the situation of the Michigan municipal bond market?
A. Michigan's economy continues to perform well, reflecting the overall
strong economic performance of the region. This performance is the
continuation of a steady trend that has been sustained since the early
1990s, when the effects of the national recession, combined with budgetary
imbalances at the state level, weakened the state's position. Total
employment in Michigan has reached an historically high level, unemployment
is currently below national levels, and per capita personal income has
exceeded national levels for the first time since 1986. Michigan has used
its recent financial health to replenish budget reserves. The "Rainy Day
Fund" stands at $1.1 billion. This level is the highest in the state's
history and is equal to 6% of the state budget. However, Michigan's
manufacturing based economy is subject to volatility. It is uncertain
whether these reserves will be enough to offset any downturn of the state's
economy during a national slowdown.
Q. In this environment, how did the trust perform with respect to investment
return, income and yield over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1997, investors in
Federated Michigan Intermediate Municipal Trust received a total return of
3.78% based on net asset value.* Tax-free dividends totaled $0.27 per share.
The 30-day SEC yield on February 28, 1997 was 4.22% based on offering
price.+
In pursuit of its goal of pursuing maximum tax-free income, the fund has
acquired, over time, relatively high coupon bonds purchased at near par.
These securities have provided a favorable income stream to shareholders
which would be difficult to replicate in today's interest rate environment.
Q. What is your outlook for the municipal market through 1997?
A. The outlook for fixed-income investments in general and municipal bonds
in particular is favorable in 1997. The U.S. economy's real growth rate is
expected to slow in the second half of the year and inflation should
continue to remain submissive. This situation, combined with a federal
budget which is structured to potentially achieve balance in the year 2002
and a powerful market environment for potentially lower interest rates could
result in higher bond prices. The municipal bond market should be among the
better performing fixed-income asset classes in 1997. The supply of
municipal bonds will continue to be somewhat constrained creating a certain
measure of scarcity value. At the same time, the demand for municipal bonds
is expected to improve as investors reach their desired equity exposure and
begin to realize that taxes do matter in making investment decisions.
* Performance quoted reflects past performance and is not indicative of future
performance. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for the six-month reporting period based on
offering price was 0.68%.
+ 30-day SEC yield is calculated by dividing the net investment income per
share for the 30 days ended on the date specified by the maximum offering
price per share on that date. The figure is then compounded and annualized.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- 98.0%
MICHIGAN -- 98.0%
$ 1,000,000 Anchor Bay, MI School District, UT GO Bonds, 5.30%
(MBIA INS)/(Original Issue Yield: 5.35%), 5/1/2008 AAA $ 1,012,870
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 102,496
230,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2000 AA 243,105
215,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2001 AA 229,063
100,000 Auburn Hills, MI, LT GO Bonds, 6.50%, 5/1/1997 A+ 100,496
500,000 Avondale, MI School District, UT GO Refunding Bonds, 6.75%
(Michigan State GTD)/(Original Issue Yield: 6.95%), 5/1/2014 AA 538,485
500,000 Battle Creek, MI Building Authority, Revenue Bonds, 6.00%,
4/1/2002 A+ 530,440
500,000 Battle Creek, MI Building Authority, Revenue Bonds, 6.10%,
4/1/2003 A+ 529,825
100,000 Battle Creek, MI Water Supply System, Revenue Bonds
(Series B), 6.90% (United States Treasury PRF), 9/1/1998 (@102) A+ 106,308
335,000 Calhoun County, MI, UT GO (Series II), 6.60% (AMBAC INS),
7/1/2002 AAA 343,991
100,000 Detroit, MI City School District, UT GO Refunding Bonds
(Series A), 7.15% (MBIA INS), 5/1/1998 AAA 103,808
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 539,190
3,000,000 Detroit, MI Water Supply System, Revenue Refunding Bonds,
6.00% (FGIC INS)/(Original Issue Yield: 6.10%), 7/1/2002 AAA 3,204,030
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10%
(AMBAC INS)/(Original Issue Yield: 6.15%), 6/1/2004 AAA 1,073,030
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 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 $ 213,306
425,000 Forest Hills, MI Public School, UT GO Bonds, 7.375% (United
States Treasury PRF)/(Original Issue Yield: 7.397%), 5/1/2000
(@101) AA- 467,143
285,000 Garden City, MI School District, UT GO Refunding Bonds,
5.80% (FSA INS), 5/1/2004 AAA 304,118
250,000 Garden City, MI School District, UT GO Refunding Bonds,
5.90% (FSA INS), 5/1/2005 AAA 268,428
565,000 Garden City, MI School District, UT GO Refunding Bonds,
6.00% (FSA INS), 5/1/2006 AAA 606,341
515,000 Garden City, MI School District, UT GO Refunding Bonds,
6.10% (FSA INS), 5/1/2007 AAA 553,501
1,200,000 Grand Rapids, MI Public Schools, UT GO Bonds, 5.00%
(Original Issue Yield: 5.40%), 5/1/2002 AA- 1,233,036
150,000 Huron Valley, MI School District, UT GO Bonds, 6.50%
(Michigan State GTD)/(United States Treasury PRF), 5/1/2001
(@102) AA 163,993
270,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.70%, 11/1/2003 AA- 285,101
360,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.80%, 11/1/2004 AA- 379,674
465,000 Ingham County MI Sewer Authority, Revenue Bonds,
Project #4, Delhi Charter Township, 5.90%, 11/1/2005 AA- 489,863
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 1,897,416
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 288,431
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 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 $ 449,499
500,000 Lake Orion, MI School District, UT GO Refunding Bonds,
5.90% (Michigan State GTD)/(AMBAC INS), 5/1/2001 AAA 529,555
2,000,000 Lake Orion, MI School District, UT GO Refunding Bonds,
6.05% (AMBAC INS)/(Michigan State LOC), 5/1/2002 AAA 2,148,320
500,000 Lansing, MI Sewer Disposal System, Revenue Refunding Bonds,
5.50% (FGIC INS)/(Original Issue Yield: 5.60%), 5/1/2007 AAA 519,110
750,000 Livonia, MI Public School District, UT GO Bonds (Series I),
6.00%, 5/1/2001 AA 797,167
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 1,759,761
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 1,331,074
100,000 Michigan Higher Education Student Loan Authority, Revenue
Refunding Bonds (Series X1), 7.10% (AMBAC INS), 10/1/1997 AAA 101,957
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 1,604,235
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- 3,170,160
100,000 Michigan State Comprehensive Transportation Board, Revenue
Refunding Bonds (Series 1988-I), 6.55% (Michigan State),
9/1/1997 AA- 101,500
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- 1,048,830
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,000,000 Michigan State Comprehensive Transportation Board, Revenue
Refunding Bonds (Series B), 6.00% (Michigan State)/(Original
Issue Yield: 6.05%), 5/15/2007 AA- $ 1,053,970
100,000 Michigan State Comprehensive Transportation Board, Revenue
Refunding Bonds (Series B-II), 6.55% (Michigan State),
11/1/1997 AA- 101,957
415,000 Michigan State Hospital Finance Authority, Revenue Bonds
(Series A), 6.15% (Crittenton Hospital, MI), 3/1/2001 A 436,132
440,000 Michigan State Hospital Finance Authority, Revenue Bonds
(Series A), 6.25% (Crittenton Hospital, MI), 3/1/2002 A 466,497
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 935,570
500,000 Michigan State Hospital Finance Authority, Revenue Bonds,
Providence Hospital, 7.00% (Daughters of Charity)/(Original
Issue Yield: 7.04%), 11/1/2021 Aa 543,115
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+ 1,543,020
100,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series A), 7.20% (Mercy Memorial
Hospital, MI)/(MBIA INS), 6/1/1997 AAA 100,936
100,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Series I), 7.10% (Sisters of Mercy Health
Corporation (Michigan & Iowa))/(MBIA INS)/(Original Issue
Yield: 7.15%), 8/15/1997 AAA 101,646
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 851,064
575,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.30% (Sparrow Obligated Group, MI)/
(MBIA INS), 11/15/2003 AAA 623,450
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 375,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds, 6.85% (Oakland General Hospital, MI)/
(AMBAC INS), 7/1/2000 AAA $ 403,290
1,000,000 Michigan State Housing Development Authority, (Series A)
Rental Housing Revenue Bonds, 5.55% (MBIA INS), 4/1/2004 AAA 1,016,040
500,000 Michigan State Housing Development Authority, Revenue
Bonds (Series A), 5.90%, 12/1/2005 AA 511,195
500,000 Michigan State Housing Development Authority, Revenue
Bonds (Series A), 5.90%, 6/1/2005 AA 510,685
430,000 Michigan State Housing Development Authority, Revenue
Bonds (Series A), 6.25%, 6/1/2002 AA 446,396
200,000 Michigan State Housing Development Authority, Revenue
Bonds (Series A), 7.00%, 12/1/2005 AA 211,580
280,000 Michigan State Housing Development Authority, Revenue
Bonds (Series B), 6.30%, 12/1/2003 AA 291,735
1,000,000 Michigan State Housing Development Authority, Revenue
Bonds (Series E), 5.55%, 12/1/2007 AA+ 1,008,050
185,000 Michigan State Housing Development Authority, Single
Family Mortgage Revenue Bonds (Series B), 6.95%, 12/1/2020 AA+ 194,666
1,850,000 Michigan State South Central Power Agency, Power Supply
System Revenue Refunding Bonds, 5.00% (AMBAC INS)/
(Original Issue Yield: 7.20%), 11/1/2009 AAA 1,813,315
1,000,000 Michigan State, UT GO Recreation Program Bonds, 5.75%
(Original Issue Yield: 5.80%), 11/1/2001 AA- 1,060,530
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 287,065
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 4,649,118
1,750,000 Novi, MI Community School District, UT GO Bonds, Q-SBLF,
5.45% (Original Issue Yield: 5.50%), 5/1/2003 AA 1,824,270
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
MICHIGAN -- CONTINUED
$ 300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds, 6.65%
(Oakland Community College District, MI)/(Original Issue
Yield: 6.743%), 5/1/2011 AA- $ 326,874
250,000 Oakland County, MI, LT GO Bonds, Evergreen-Farmington
Sewer Disposal, 6.30%, 5/1/2005 AA- 264,993
610,000 Okemos, MI Public School District, UT GO Refunding Bonds,
Q-SBLF, 6.00% (Michigan State GTD), 5/1/2002 AA- 653,261
140,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water
Supply System, 6.50% (Original Issue Yield: 6.55%), 10/1/2002 AA- 147,522
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water
System, 6.85%, 5/1/2000 AA- 102,499
220,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water
Supply System, 6.50%, 10/1/2001 AA- 231,821
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- 429,664
500,000 Plymouth-Canton, MI Community School District, UT GO
Refunding Bonds (Series B), Q-SBLF, 6.80% (Michigan State
GTD)/(United States Treasury PRF)/(Original Issue Yield:
6.90%), 5/1/2001 (@101) AA- 549,140
615,000 Riverview, MI Community School District, UT GO Bonds,
6.20% (FGIC INS)/(United States Treasury PRF), 5/1/2002
(@101.5) AAA 671,352
570,000 Riverview, MI Community School District, UT GO Bonds,
6.20% (FGIC INS)/(United States Treasury PRF), 5/1/2002
(@101.5) AAA 622,229
350,000 Rochester, MI Community School District, UT GO Bonds, 6.50%
(Michigan State GTD)/(United States Treasury PRF)/(Original
Issue Yield: 6.60%), 5/1/2002 (@100) AA- 382,053
250,000 Rochester, MI Community School District, UT GO Bonds, 6.50%
(Michigan State GTD)/(United States Treasury PRF)/(Original
Issue Yield: 6.75%), 5/1/2002 (@100) AA- 272,895
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <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 $ 289,996
230,000 Shelby Charter Townships, MI Building Authority, Revenue
Bonds, 6.25% (AMBAC INS)/(Original Issue Yield: 6.50%),
11/1/2007 AAA 246,332
250,000 University of Michigan, Hospital Revenue Bonds, 7.00%
(United States Treasury PRF)/(Original Issue Yield: 7.25%),
12/1/2000 (@102) AA- 277,573
1,500,000 University of Michigan, Hospital Revenue Refunding Bonds
(Series A), 5.70% (Original Issue Yield: 5.80%), 12/1/2004 AA 1,599,375
1,000,000 Walled Lake, MI Consolidated School District, UT GO
Refunding Bonds, 5.30% (MBIA INS)/(Original Issue Yield:
5.35%), 5/1/2008 AAA 1,008,930
1,000,000 Wayne County, MI Building Authority, LT GO Capital
Improvement Bonds, 5.35% (MBIA INS)/(Original Issue Yield:
5.40%), 6/1/2009 AAA 1,009,600
1,000,000 Western Michigan University, Revenue Bonds, 5.50%
(FGIC INS)/(Original Issue Yield: 5.55%), 11/15/2002 AAA 1,053,220
885,000 Wyandotte, MI Electric Authority, Revenue Refunding Bonds,
6.10% (MBIA INS), 10/1/2002 AAA 957,313
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $58,362,760) 61,450,590
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C>
SHORT-TERM MUNICIPAL NOTES -- 0.6%
PUERTO RICO -- 0.6%
$ 400,000 Puerto Rico Government Development Bank Weekly VRDNs
(Credit Suisse, Zurich LOC) (AT AMORTIZED COST) AA+ $ 400,000
TOTAL INVESTMENTS (IDENTIFIED COST $58,762,760)(A) $ 61,850,590
</TABLE>
Securities that are subject to alternative minimum tax represent 5.0% 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.
(a) The cost of investments for federal tax purposes amounts to $58,762,760.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,087,830 which is comprised of $3,136,874 appreciation and
$49,044 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($62,729,936) at February 28, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
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
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $58,762,760) $ 61,850,590
Income receivable 1,059,197
Receivable for shares sold 108,663
Total assets 63,018,450
LIABILITIES:
Income distribution payable $ 256,814
Payable to Bank 30,035
Accrued expenses 1,665
Total liabilities 288,514
NET ASSETS for 5,790,571 shares outstanding $ 62,729,936
NET ASSETS CONSIST OF:
Paid in capital $ 60,785,897
Net unrealized appreciation of investments 3,087,830
Accumulated net realized loss on investments (1,143,791)
Total Net Assets $ 62,729,936
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($62,729,936 / 5,790,571 shares outstanding) $10.83
Offering Price Per Share (100/97 of $10.83)* $11.16
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,754,054
EXPENSES:
Investment advisory fee $ 126,219
Administrative personnel and services fee 61,987
Custodian fees 9,305
Transfer and dividend disbursing agent fees and expenses 16,310
Directors'/Trustees' fees 1,794
Auditing fees 6,713
Legal fees 1,991
Portfolio accounting fees 28,557
Shareholder services fee 78,887
Share registration costs 6,484
Printing and postage 6,500
Insurance premiums 2,076
Miscellaneous 1,219
Total expenses 348,042
Waivers and reimbursements --
Waiver of investment advisory fee $ (126,219)
Waiver of shareholder services fee (56,798)
Reimbursement of other operating expenses (5,859)
Total waivers and reimbursements (188,876)
Net expenses 159,166
Net investment income 1,594,888
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 132,596
Net change in unrealized appreciation of investments 673,228
Net realized and unrealized gain on investments 805,824
Change in net assets resulting from operations $ 2,400,712
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,594,888 $ 3,100,224
Net realized gain (loss) on investments ($132,596 net gain and
$934,269 net loss, respectively, as computed for federal tax purposes) 132,596 (15,933)
Net change in unrealized appreciation (depreciation) 673,228 (645,967)
Change in net assets resulting from operations 2,400,712 2,438,324
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (1,594,888) (3,100,224)
SHARE TRANSACTIONS --
Proceeds from sale of shares 6,601,346 12,656,505
Net asset value of shares issued to shareholders in payment of
distributions declared 241,103 531,641
Cost of shares redeemed (7,703,440) (10,361,950)
Change in net assets resulting from share transactions (860,991) 2,826,196
Change in net assets (55,167) 2,164,296
NET ASSETS:
Beginning of period 62,785,103 60,620,807
End of period $ 62,729,936 $ 62,785,103
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.70 $10.80 $10.59 $11.02 $10.38 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.36 0.54 0.53 0.55 0.56
Net realized and unrealized
gain (loss) on investments 0.13 (0.10) 0.21 (0.43) 0.64 0.38
Total from investment operations 0.40 0.26 0.75 0.10 1.19 0.94
LESS DISTRIBUTIONS
Distributions from net
investment income (0.27) (0.36) (0.54) (0.53) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $10.83 $10.70 $10.80 $10.59 $11.02 $10.38
TOTAL RETURN(B) 3.78% 4.13% 7.39% 0.88% 11.73% 9.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.51%* 0.50% 0.50% 0.50% 0.37% 0.07%*
Net investment income 5.07%* 4.99% 5.19% 4.87% 5.11% 5.66%*
Expense waiver/reimbursement(c) 0.60%* 0.63% 0.65% 0.57% 1.06% 1.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,730 $62,785 $60,621 $58,480 $50,625 $29,998
Portfolio turnover 6% 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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated Michigan
Intermediate Municipal Trust (the "Fund"). 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 state of Michigan and Michigan municipalities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
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:
EXPIRATION YEAR EXPIRATION AMOUNT
2001 $ 12,267
2002 $ 3,738
2003 $ 310,181
2004 $ 934,269
Additionally, net capital losses of $15,933 attributable to security
transactions incurred after October 31, 1996 are treated as arising on the
first day of the Fund's next taxable year (September 1, 1996).
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 Board of Trustees ("Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
Shares sold 611,153 1,168,371
Shares issued to shareholders in payment of distributions declared 22,294 49,167
Shares redeemed (712,554) (959,378)
Net change resulting from share transactions (79,107) 258,160
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its 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 February 28, 1997, 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 $6,200,000 and $6,550,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
PURCHASES $3,896,935
SALES $4,554,262
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 February 28, 1997, 62.6% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 20.3% of total
investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including
possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[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 625922703
3032602 (4/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated New York
Municipal Income Fund, a portfolio of Municipal Income Trust, covering the
six-month reporting period from September 1, 1996 through February 28, 1997.
This report begins with an interview with the fund's portfolio manager,
which covers the economy, the municipal market, fund performance, and
strategy. Following the interview are the fund's portfolio holdings and
financial statements.
Designed for tax-sensitive New York residents, Federated New York Municipal
Income Fund continues to bring opportunities for monthly income that is
exempt from federal regular income tax and New York state and municipality
personal income tax.*
During the reporting period, the fund's quality portfolio achieved a total
return of 5.29% based on net asset value.** This return was the result of
dividends totaling $0.28 per share and a 2% increase in share price. On
February 28, 1997, the fund's total net assets stood at $22.8 million.
New York municipal bonds can be one of the best ways to help protect your
investment income from federal, state and municipal taxes. We encourage you
to increase your holdings to take advantage of this opportunity.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1997
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 3.27%.
INVESTMENT REVIEW
Q.
What is your summary of the municipal market overall during the reporting
period?
A. The market's direction over the reporting period can best be
characterized as moving sideways, which means the trading range remained
between 6.25% and 7.25% for the Treasury bond market. This trading range
will likely remain in place until the economic data gives a better
indication as to the pace of real economic growth and inflation. Another
important piece of information for the bond market is whether the federal
government will be able to craft a budget which attempts to achieve fiscal
balance at some future date, preferably 2002. The municipal market is driven
to a large degree by specific market technicals such as the supply of
municipal bonds coming to market and the demand for that supply by the
various potential buyers, i.e. individuals, insurance companies and mutual
funds. The favorable technical position of the municipal market has allowed
it to outperform the Treasury market for most of the six-month reporting
period. The ratio of municipal bond yields to Treasury bond yields is a
useful measure of the relative performance of the municipal bond market.
Currently, this ratio is approximately 80%, which is close to the low for
the previous twelve months, and reflects the municipal markets strong
relative performance versus Treasury bonds.
Q.
What is the situation of the New York municipal bond market?
A. The New York State credit market continues to endure chronic budget
imbalances, a sizable debt burden and a weak economy that has underperformed
the nation through the recent business cycle. However, these factors are
offset by sophisticated debt and financial management and a broad and
diverse economy with substantial wealth. High wages and bonus payments in
the financial services sector have boosted both the economies and income tax
revenues of the State and local governments of New York. Given current
economic conditions, New York state appears to be stable.
Q. In this environment, how did Federated New York Municipal Income Fund
perform with respect to investment return, income and yield over the
six-month reporting period?
A. For the six-month reporting period that ended on February 28, 1997,
investors in Federated New York Municipal Income Fund received a total
return of 5.29% based on net asset value.* Tax-free dividends totaled $0.28
per share. The 30-day SEC yield on February 28, 1997 was 5.21% based on
offering price.+ The fund's performance over the reporting period was
primarily due to core positions in certain higher yielding sectors, such as
single family housing and industrial development bonds. The fund's favorable
call protection was also a significant factor in the relative total return
performance.
Q.
What is your outlook for the municipal market through 1997?
A. The outlook for fixed income investments in general and municipal bonds
in particular is favorable in 1997. The U.S. economy's real growth rate is
expected to slow in the second half of the year and inflation should
continue to remain submissive. This situation, combined with a federal
budget which is structured to potentially achieve balance in the year 2002
and a powerful market environment for potentially lower interest rates,
could result in higher bond prices. The municipal bond market should be
among the better performing fixed-income asset classes in 1997. The supply
of municipal bonds will continue to be somewhat constrained creating a
certain measure of scarcity value. At the same time, the demand for
municipal bonds is expected to improve as investors reach their desired
equity exposure and begin to realize that taxes do matter in making
investment decisions.
* Performance quoted reflects past performance and is not indicative of
future performance. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 3.27%.
+ 30-day SEC yield is calculated by dividing the net investment income per
share for the 30 days ended on the date specified by the maximum offering
price per share on that date. The figure is then compounded and annualized.
FEDERATED NEW YORK MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- 99.2%
NEW YORK -- 99.2%
$ 500,000 Albany County Airport Authority, NY, Airport Revenue
Bonds
(Series 1997), 5.375% (FSA INS)/(Original Issue Yield:
5.72%),
12/15/2017 AAA $ 474,185
500,000 Essex County, NY IDA, Solid Waste Disposal Revenue
Bonds
(Series A), 5.80% (International Paper Co.), 12/1/2019 A- 491,700
305,000 Nassau County, NY IDA, Civic Facility Revenue Bonds,
6.85%
(Hofstra University), 1/1/2012 A 336,235
330,000 Nassau County, NY IDA, Civic Facility Revenue Bonds,
6.85%
(Hofstra University), 1/1/2013 A 362,683
1,000,000 New York City Municipal Water Finance Authority,
Revenue
Bonds (Series A), 5.50% (Original Issue Yield: 6.25%),
6/15/2020 A- 951,420
1,000,000 New York City, NY IDA, (Series 1995) Civic Facility
Revenue
Bonds, 6.30% (College of New Rochelle)/(Original Issue
Yield:
6.45%), 9/1/2015 NR 1,004,180
500,000 New York City, NY IDA, Civic Facility Revenue Bonds,
7.00%
(Mt. St. Vincent College, NY), 5/1/2008 NR 525,645
400,000 New York City, NY IDA, Civil Facilities Revenue Bonds,
5.80%
(YMCA of Greater NY)/(Original Issue Yield: 6.10%),
8/1/2016 NR 391,145
700,000 New York City, NY IDA, Revenue Bonds, 6.00% (Japan
Airlines Co.)/(FSA INS), 11/1/2015 AAA 717,962
1,000,000 New York City, NY IDA, Special Facilities Revenue
Bonds,
6.125% (Terminal One Group Association)/(Original
Issue
Yield: 6.50%), 1/1/2024 A 1,003,280
750,000 New York City, NY IDA, Special Facilities Revenue
Bonds,
6.90% (American Airlines), 8/1/2024 BB+ 809,535
1,500,000 New York City, NY, UT GO Bonds (Series B), 7.25%
(Original
Issue Yield: 7.55%), 8/15/2019 BBB+ 1,653,015
</TABLE>
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 725,000 New York State Dormitory Authority, College and
University
Revenue Bonds, 5.70% (St. John's University)/(MBIA
INS)/
(Original Issue Yield: 5.80%), 7/1/2026 AAA $ 724,427
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+ 973,440
1,000,000 New York State Dormitory Authority, Revenue Bonds,
5.50%
(Long Island University)/(Asset Guaranty
INS)/(Original
Issue Yield: 5.75%), 9/1/2020 AA 959,900
500,000 New York State Dormitory Authority, Revenue Bonds,
6.25%
(Nyack Hospital)/(Original Issue Yield: 6.50%), NR 510,045
7/1/2013
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 996,910
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 959,517
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 1,030,140
1,000,000 New York State Medical Care Facilities Finance Agency,
FHA-
Mortgage Revenue Bonds (Series A), 6.50% (Lockport
Memorial Hospital, NY)/(FHA GTD), 2/15/2035 AA 1,057,420
1,000,000 New York State Medical Care Facilities Finance Agency,
Revenue Bonds (Series B), 6.60% (FHA GTD)/(Original
Issue
Yield: 6.625%), 8/15/2034 AA 1,064,730
3,500,000 New York State Mortgage Agency, Revenue Bonds
(Series 40A), 6.70%, 4/1/2025 NR 3,669,155
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 1,036,650
</TABLE>
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 300,000 Port Authority of New York and New Jersey, Revenue
Bonds
(Series 76), 6.50% (Original Issue Yield: 6.782%), AA- $ 319,425
11/1/2026
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 544,995
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST 22,567,739
$21,462,379)
TOTAL INVESTMENTS (IDENTIFIED COST $21,462,379)(B) $ 22,567,739
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
(a) At February 28, 1997, 38.58% of the total investments at market value
were subject to alternative minimum tax.
(b) The cost of investments for federal tax purposes amounts to $21,462,379.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,105,360 which is comprised of $1,116,947 appreciation and
$11,587 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($22,754,836) at February 28, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
MBIA -- Municipal Bond Investors Assurance
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and $ 22,567,739
tax cost $21,462,379)
Cash 21,553
Income receivable 361,015
Deferred expenses 599
Total assets 22,950,906
LIABILITIES:
Payable for shares redeemed $ 78,150
Income distribution payable 101,973
Payable to Bank 9,592
Accrued expenses 6,355
Total liabilities 196,070
NET ASSETS for 2,184,566 shares outstanding $ 22,754,836
NET ASSETS CONSIST OF:
Paid in capital $ 23,169,937
Net unrealized appreciation of investments 1,105,360
Accumulated net realized loss on investments (1,520,461)
Total Net Assets $ 22,754,836
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($22,754,836 / 2,184,566 shares $10.42
outstanding)
Offering Price Per Share (100/99.00 of $10.42)* $10.53
Redemption Proceeds Per Share (99.00/100 of $10.42)** $10.32
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 694,656
EXPENSES:
Investment advisory fee $ 45,028
Administrative personnel and services fee 61,943
Custodian fees 9,032
Transfer and dividend disbursing agent fees and 12,467
expenses
Directors'/Trustees' fees 1,153
Auditing fees 6,810
Legal fees 2,082
Portfolio accounting fees 20,696
Distribution services fee 56,285
Shareholder services fee 28,143
Share registration costs 7,898
Printing and postage 15,914
Insurance premiums 1,471
Miscellaneous 10,520
Total expenses 279,442
Waivers and reimbursements --
Waiver of investment advisory fee $ (45,028)
Waiver of distribution services fee (54,034)
Waiver of shareholder services fee (2,251)
Reimbursement of other operating expenses by (108,645)
Adviser
Total waivers and reimbursements (209,958)
Net expenses 69,484
Net investment income 625,172
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 180,027
Net change in unrealized appreciation of investments 353,812
Net realized and unrealized gain on investments 533,839
Change in net assets resulting from $ 1,159,011
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 625,172 $ 1,220,549
Net realized gain on investments
($180,027 net gain and $983,796
net loss, respectively, as computed 180,027 56,947
for federal tax purposes)
Net change in unrealized appreciation 353,812 69,892
Change in net assets resulting from 1,159,011 1,347,388
operations
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment (625,172) (1,220,549)
income
SHARE TRANSACTIONS --
Proceeds from sale of shares 2,041,911 3,274,016
Net asset value of shares issued to
shareholders in payment of
distributions declared 238,654 522,759
Cost of shares redeemed (1,991,233) (3,592,219)
Change in net assets resulting from 289,332 204,556
share transactions
Change in net assets 823,171 331,395
NET ASSETS:
Beginning of period 21,931,665 21,600,270
End of period $ 22,754,836 $ 21,931,665
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.17 $10.13 $10.10 $10.92 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.58 0.57 0.57 0.44
Net realized and unrealized gain (loss)
on
investments 0.25 0.04 0.03 (0.82) 0.88
Total from investment operations 0.53 0.62 0.60 (0.25) 1.32
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.58) (0.57) (0.57) (0.44)
NET ASSET VALUE, END OF PERIOD $10.42 $10.17 $10.13 $10.10 $10.92
TOTAL RETURN(B) 5.29% 6.18% 6.41% (2.31%) 13.38%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.62%* 0.60% 0.59% 0.39% 0.25%*
Net investment income 5.55%* 5.62% 5.94% 5.49% 5.53%*
Expense waiver/reimbursement(c) 1.87%* 1.93% 1.74% 2.07% 1.91%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $22,755 $21,932 $21,600 $23,152 $14,495
Portfolio turnover 15% 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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED NEW YORK MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
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
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized 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 Board of Trustees (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>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
Shares sold 197,429 319,948
Shares issued to shareholders in payment of 22,954 50,930
distributions declared
Shares redeemed (191,725) (348,051)
Net change resulting from Class F Share 28,658 22,827
transactions
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund'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 average daily 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.
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.
ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $79,004 were borne initially by 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 period ended February 28, 1997, the Fund paid
$21,068 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 February 28, 1997, were as follows:
PURCHASES $4,657,648
SALES $3,400,815
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 February 28, 1997, 23.22% 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 percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 9.40% of total
investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including
possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED NEW YORK
MUNICIPAL INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[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
4031009 (4/97)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Ohio Municipal
Income Fund, a portfolio of Municipal Securities Income Trust covering the
six-month reporting period from September 1, 1996 through February 28, 1997.
This report begins with an interview with the fund's portfolio manager,
which covers the economy, the municipal market, fund performance, and
strategy. Following the interview are the fund's portfolio holdings and
financial statements.
Designed for tax-sensitive Ohio residents, Federated Ohio Municipal Income
Fund continues to bring opportunities for monthly income that is exempt from
federal regular income tax and Ohio personal income tax.*
During the period, the fund's quality portfolio achieved a total return of
4.23% based on net asset value.** This return was the result of dividends
totaling $0.30 per share and a 1.5% increase in share price. On February 28,
1997, the fund's total net assets stood at $67.6 million.
Ohio municipal bonds can be one of the best ways to help protect your
investment income from federal and state taxes. We encourage you to increase
your holdings to take advantage of this opportunity.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1997
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 2.22%.
INVESTMENT REVIEW
Q.
What are your comments on the municipal market overall during the period?
A. The market's direction over the reporting period can best be
characterized as moving sideways, which means the trading range remained
between 6.25% and 7.25% for the Treasury bond market. This trading range
will likely remain in place until the economic data gives a better
indication as to the pace of real economic growth and inflation. Another
important piece of information for the bond market is whether the federal
government will be able to craft a budget which attempts to achieve fiscal
balance at some future date, preferably 2002. The municipal market is driven
to a large degree by specific market technicals such as the supply of
municipal bonds coming to market and the demand for that supply by the
various potential buyers, i.e. individuals, insurance companies and mutual
funds. The favorable technical position of the municipal market has allowed
it to outperform the Treasury market for most of the six-month period. The
ratio of municipal bond yields to Treasury bond yields is a useful measure
of the relative performance of the municipal bond market. Currently, this
ratio is approximately 80% which is close to the low for the previous twelve
months and reflects the municipal markets strong relative performance versus
Treasury bonds.
Q.
How is the health of the Ohio municipal bond market?
A. The overall condition of the Ohio economy is strong. The state has a more
diversified economy than in the past which has helped during cyclical
downturns. Recently, unemployment has been below national averages, boosted
by a strong manufacturing sector. The strong economy has improved the credit
quality of the state overall.
Q. In this environment, how did the Fund perform with respect to investment
return, income and yield over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1997, investors in
Federated Ohio Municipal Income Fund received a total return of 4.23% based
on net asset value.* Tax-free dividends totaled $0.30 per share. The 30-day
SEC yield on February 28, 1997, was 4.89% based on offering price.+ The
fund's performance has been determined primarily by its core position in
premium coupon bonds. These securities tend to generate an above average
income stream to shareholders and can provide a cushion to the Fund during
periods of rising interest rates.
Q.
What is your outlook for the municipal market through 1997?
A. The outlook for fixed-income investments in general and municipal bonds
in particular is favorable in 1997. The U.S. economy's real growth rate is
expected to slow in the second half of the year and inflation should
continue to remain submissive. This situation, combined with a federal
budget which is structured to potentially achieve balance in the year 2002
and a powerful market environment for potentially lower interest rates,
could result in higher bond prices. The municipal bond market should be
among the better performing fixed-income asset classes in 1997. The supply
of municipal bonds will continue to be somewhat constrained creating a
certain measure of scarcity value. At the same time, the demand for
municipal bonds is expected to improve as investors reach their desired
equity exposure and begin to realize that taxes do matter in making
investment decisions.
* Performance quoted reflects past performance and is not indicative of
future performance. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was 2.22%.
+ 30-day SEC yield is calculated by dividing the net investment income per
share for the 30 days ended on the date specified by the maximum offering
price per share on that date. The figure is then compounded and annualized.
FEDERATED OHIO MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- 98.4%
OHIO -- 92.0%
$ 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 $ 225,140
750,000 Ashland County, OH, LT GO Bonds, 7.00%, 12/1/2011 A 813,960
300,000 Bellefontaine, OH, Storm Water Utility LT GO Bonds,
7.05%,
6/1/2011 A 323,394
500,000 Brunswick, OH, UT GO Bonds, 7.35% (Original Issue
Yield:
7.446%), 12/1/2010 A 553,785
1,000,000 Clermont County, OH, Hospital Facilities Refunding &
Revenue Bonds (Series B), 5.625% (Mercy Health
Systems)/
(AMBAC INS)/(Original Issue Yield: 5.80%), 9/1/2021 AAA 981,740
2,500,000 Cleveland, OH Airport System, Revenue Bonds (Series
A),
6.00% (FGIC INS)/(Original Issue Yield: 6.378%), AAA 2,541,750
1/1/2024
2,000,000 Cleveland, OH Public Power System, Revenue Bonds,
First
Mortgage (Series A ), 7.00% (MBIA INS)/(United States
Treasury PRF)/(Original Issue Yield: 7.15%), AAA 2,338,860
11/15/2024
2,600,000 Columbus, OH Municipal Airport Authority, Improvement
Revenue Bonds, 6.25% (Port Columbus Intl Airport )/
(MBIA INS)/(Original Issue Yield: 6.35%), 1/1/2024 AAA 2,724,670
2,000,000 Cuyahoga County, OH Hospital Authority, Improvement &
Refunding Revenue Bonds (Series A), 5.625%
(University
Hospitals Health System, Inc.)/(MBIA LOC)/(Original
Issue
Yield: 5.90%), 1/15/2026 AAA 1,952,460
1,000,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds,
6.25% (Fairview General Hospital)/(Original Issue
Yield:
6.321%), 8/15/2010 A+ 1,038,350
1,500,000 Cuyahoga County, OH Hospital Authority, Revenue
Bonds,
6.25% (Meridia Health System)/(Original Issue Yield:
6.80%),
8/15/2024 A 1,530,540
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 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 $ 831,104
500,000 Cuyahoga County, OH Hospital Authority, Revenue
Refunding
Bonds, 8.00% (Cleveland Clinic)/(Original Issue Yield:
8.068%),
12/1/2015 A+ 517,600
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 553,230
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%), Aa 1,985,860
5/15/2020
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 1,351,376
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- 749,861
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 2,083,340
440,000 Lakewood, OH Hospital Improvement Authority, Revenue
Refunding Bonds (Series One), 6.00% (Lakewood
Hospital,
OH)/(MBIA INS)/(Original Issue Yield: 6.90%), AAA 446,442
2/15/2010
500,000 Lebanon, OH Waterworks System, Revenue Improvement and
Refunding Bonds, 7.10%, 3/1/2008 A 545,710
3,000,000 Mahoning County, OH Hospital Facilities, Revenue
Bonds,
5.50% (Western Reserve Care System)/(MBIA
INS)/(Original
Issue Yield: 5.75%), 10/15/2025 AAA 2,901,210
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 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+ $ 1,017,920
420,000 Marysville, OH, LT Sewer System GO Bonds, 7.15%, A 455,494
12/1/2011
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%), BBB 1,015,890
5/15/2026
650,000 Middleburg Heights, OH, LT GO Bonds, 7.20%, 12/1/2011 Aa 721,480
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%), AAA 1,076,610
5/15/2021
3,000,000 Montgomery County, OH, Hospital Refunding Revenue &
Improvement Bonds, 5.50% (Kettering Medical
Center)/(MBIA
INS)/(Original Issue Yield: 6.03%), 4/1/2026 AAA 2,900,610
1,000,000 Moraine, OH Solid Waste Disposal Authority, Revenue
Bonds,
6.75% (General Motors Corp.)/(Original Issue Yield:
6.80%),
7/1/2014 A- 1,123,950
10,195,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series
B-2),
6.70% (GNMA COL), 3/1/2025 AAA 10,594,134
2,315,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65% (GNMA
COL)/(Original Issue Yield: 7.669%), 3/1/2029 AAA 2,443,344
245,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80% (GNMA
COL), 3/1/2030 AAA 257,823
500,000 Ohio State Air Quality Development Authority, PCR
Refunding
Bonds (Series A), 7.45% (Ohio Edison Co.)/(FGIC INS),
3/1/2016 AAA 549,295
3,000,000 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 3,199,200
2,000,000 Ohio State Department of Transportation, Certificates
of
Participation, 6.125% (Rickenbacker, OH Port
Authority),
4/15/2015 A+ 1,941,500
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 2,000,000 Ohio State Turnpike Commission, Revenue Bonds, Series
A, 5.75%, 2/15/2024 AA- $ 1,993,160
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 676,091
500,000 South Euclid, OH, UT GO Refunding Bonds, 7.00%, A1 545,175
12/1/2011
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 542,440
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 3,588,550
500,000 University of Cincinnati, OH, General Receipts
Revenue
Bonds (Series B), 7.00% (Original Issue Yield: AA- 550,340
7.05%), 6/1/2011
Total 62,183,388
PUERTO RICO -- 3.8%
2,400,000 Puerto Rico Electric Power Authority, Revenue Bonds
(Series T), 6.375% (Original Issue Yield: 6.58%), A- 2,538,120
7/1/2024
VIRGIN ISLANDS -- 2.6%
1,750,000 Virgin Islands HFA, SFM Revenue Refunding Bonds
(Series A),
6.50% (GNMA COL)/(Original Issue Yield: 6.522%), AAA 1,783,478
3/1/2025
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $ 66,504,986
$63,047,197)(A)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 40.0% 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.
(a) The cost of investments for federal tax purposes amounts to $63,047,197.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,457,789 which is comprised of $3,522,347 appreciation and
$64,558 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($67,616,569) at February 28, 1997.
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
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax $ 66,504,986
cost $63,047,197)
Cash 69,561
Income receivable 1,223,725
Receivable for shares sold 31,115
Total assets 67,829,387
LIABILITIES:
Payable for shares redeemed $ 72,870
Income distribution payable 112,818
Accrued expenses 27,130
Total liabilities 212,818
NET ASSETS for 5,944,265 shares outstanding $ 67,616,569
NET ASSETS CONSIST OF:
Paid in capital $ 64,494,093
Net unrealized appreciation of investments 3,457,789
Accumulated net realized loss on investments (370,668)
Undistributed net investment income 35,355
Total Net Assets $ 67,616,569
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($67,616,569 / 5,944,265 shares $11.38
outstanding)
Offering Price Per Share (100/99.00 of $11.38)* $11.49
Redemption Proceeds Per Share (99.00/100 of $11.38)** $11.27
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,142,859
EXPENSES:
Investment advisory fee $ 138,827
Administrative personnel and services fee 61,987
Custodian fees 10,342
Transfer and dividend disbursing agent fees and 25,509
expenses
Directors'/Trustees' fees 1,991
Auditing fees 6,697
Legal fees 1,810
Portfolio accounting fees 25,163
Distribution services fee 138,827
Shareholder services fee 86,767
Share registration costs 6,697
Printing and postage 9,955
Insurance premiums 2,172
Taxes 181
Miscellaneous 1,267
Total expenses 518,192
Waivers --
Waiver of investment advisory fee $ (117,538)
Waiver of distribution services fee (83,296)
Waiver of shareholder services fee (3,471)
Total waivers (204,305)
Net expenses 313,887
Net investment income 1,828,972
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 191,827
Net change in unrealized appreciation of 846,710
investments
Net realized and unrealized gain on investments 1,038,537
Change in net assets resulting from $ 2,867,509
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,828,972 $ 3,765,876
Net realized gain on investments ($191,827 and
$230,283, respectively,
as computed for federal tax purposes) 191,827 415,434
Net change in unrealized appreciation 846,710 (528,504)
(depreciation)
Change in net assets resulting from operations 2,867,509 3,652,806
NET EQUALIZATION CREDITS (DEBITS) -- (4,971) (4,115)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (1,844,415) (3,771,215)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,979,368 7,290,549
Net asset value of shares issued to shareholders
in payment of
distributions declared 1,146,022 2,308,433
Cost of shares redeemed (7,094,659) (9,440,266)
Change in net assets resulting from share (3,969,269) 158,716
transactions
Change in net assets (2,951,146) 36,192
NET ASSETS:
Beginning of period 70,567,715 70,531,523
End of period (including undistributed net
investment income of
$35,355 and $55,769, respectively) $ 67,616,569 $ 70,567,715
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED OHIO MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $11.21 $11.22 $11.01 $11.65 $10.89 $10.40 $10.00
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.31 0.60 0.60 0.56 0.57 0.61 0.57
Net realized and unrealized
gain (loss) on investments 0.16 (0.01) 0.20 (0.64) 0.77 0.49 0.41
Total from investment 0.47 0.59 0.80 (0.08) 1.34 1.10 0.98
operations
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (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 (0.30) (0.60) (0.59) (0.56) (0.58) (0.61) (0.58)
NET ASSET VALUE, END OF PERIOD $11.38 $11.21 $11.22 $11.01 $11.65 $10.89 $10.40
TOTAL RETURN(C) 4.23% 5.34% 7.65% (0.72)% 12.69% 10.91% 10.01%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.91%* 0.90% 0.90% 0.90% 0.87% 0.73% 0.28%*
Net investment income 5.30%* 5.28% 5.53% 5.02% 5.13% 5.79% 6.35%*
Expense waiver/
reimbursement(d) 0.59%* 0.58% 0.60% 0.55% 0.83% 1.35% 1.66%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $67,617 $70,568 $70,532 $81,566 $73,973 $28,924 $19,840
Portfolio turnover 10% 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)
FEDERATED OHIO MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated 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 (federal income tax does not include the federal alternative minimum
tax) and the personal income taxes imposed by the state of Ohio and Ohio
municipalities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. 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 in 2003.
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 Board of Trustees (the "Trustees") to
issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
Shares sold 174,577 641,518
Shares issued to shareholders in payment of 101,099 204,123
distributions declared
Shares redeemed (626,831) (835,151)
Net change resulting from share transactions (351,155) 10,490
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.40% of the average daily net assets
of the Fund, annually, to compensate FSC. FSC may voluntarily choose to
waive 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 average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its 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.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $126,747 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five-year period following effective
date. For the period ended August 31, 1996, the Fund paid $878 pursuant to
this agreement.
INTERFUND TRANSACTIONS -- During the period ended February 28, 1997, 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 $6,800,000 and $6,800,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
PURCHASES $ 6,782,189
SALES $ 11,702,194
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 February 28, 1997, 32.7% 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 22.3% of total
investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including
possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED OHIO
MUNICIPAL INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[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 625922307
2032305 (4/97)
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report of Federated Pennsylvania
Municipal Income Fund, a portfolio of Municipal Securities Income Trust,
covering the six-month reporting period from September 1, 1996, through
February 28, 1997.
This report begins with an interview with the fund's portfolio manager,
which covers the economy, the municipal market, fund performance, and
strategy. Following the interview are the fund's portfolio holdings and
financial statements.
Designed for tax-sensitive Pennsylvania residents, Federated Pennsylvania
Municipal Income Fund continues to bring opportunities for monthly income
that is exempt from federal regular income tax and Pennsylvania personal
income tax.* Also, the shares are exempt from Pennsylvania personal property
tax, which further increases your tax benefit.
During the reporting period, the fund's quality portfolio achieved a total
return of 4.48% based on net asset value.** This return was the result of
dividends totaling $0.32 per share and a 1.6% increase in share price. On
February 28, 1997, the fund's total net assets stood at $85.2 million.
Pennsylvania municipal bonds can be one of the best ways to help protect
your investment income from federal and state taxes. We encourage you to
increase your holdings to take advantage of this opportunity.
Sincerely,
Richard B. Fisher
President
April 15, 1997
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was -0.18%.
INVESTMENT REVIEW
Q.
How would you sum up the municipal market overall during the period?
A. The market's direction over the reporting period can best be
characterized as moving sideways, which means the trading range remained
between 6.25% and 7.25% for the Treasury bond. This trading range will
likely remain in place until the economic data gives a better indication as
to the pace of real economic growth and inflation. Another important piece
of information for the bond market is whether the federal government will be
able to craft a budget which attempts to achieve fiscal balance at some
future date, preferably 2002. The municipal market is driven to a large
degree by specific market technicals such as the supply of municipal bonds
coming to market and the demand for that supply by the various potential
buyers, i.e. individuals, insurance companies and mutual funds. The
favorable technical position of the municipal market has allowed it to
outperform the Treasury market for most of the six-month period. The ratio
of municipal bond yields to Treasury bond yields is a useful measure of the
relative performance of the municipal bond market. Currently, this ratio is
approximately 80% which is close to the low for the previous twelve months
and reflects the municipal markets strong relative performance versus
Treasury bonds.
Q.
What is the condition of the Pennsylvania municipal bond market?
A. Pennsylvania's economy continued to underperform that of the nation.
Growth in jobs and total personal income have lagged the nation. Sectors
important to the Pennsylvania economy, such as health care,
telecommunications and defense contracting, have experienced consolidation
and layoffs. The state's financial position, however, has remained stable
due to improved spending controls and tax increases.
Q. In this environment, how did the Fund perform with respect to investment
return, income and yield over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1997, investors in
Federated Pennsylvania Municipal Income Fund received a total return of
4.48% based on net asset value.* Tax-free dividends totaled $0.32 per share.
The 30-day SEC yield on February 28, 1997, was 4.82% based on offering
price.+
Q.
What is your outlook for the municipal market through 1997?
A. The outlook for fixed-income investments in general and municipal bonds
in particular is favorable in 1997. The U.S. economy's real growth rate is
expected to slow in the second half of the year and inflation should
continue to remain submissive. This situation, combined with a federal
budget which is structured to potentially achieve balance in the year 2002
and a powerful market environment for potentially lower interest rates,
could result in higher bond prices. The municipal bond market should be
among the better performing fixed-income asset classes in 1997. The supply
of municipal bonds will continue to be somewhat constrained creating a
certain measure of scarcity value. At the same time the demand for municipal
bonds is expected to improve as investors reach their desired equity
exposure and begin to realize that taxes do matter in making investment
decisions.
* Performance quoted reflects past performance and is not indicative of
future performance. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for the six-month reporting period based
on offering price was -0.18%.
+ 30-day SEC yield is calculated by dividing the net investment income per
share for the 30 days ended on the date specified by the maximum offering
price per share on that date. The figure is then compounded and annualized.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- 98.1%
PENNSYLVANIA -- 98.1%
$ 2,000,000 Allegheny County, PA HDA, Health &
Education
Revenue Bonds, 7.00% (Rehabilitation
Institute of
Pittsburgh)/(Original Issue Yield: BBB $ 2,091,520
7.132%), 6/1/2022
4,000,000 Allegheny County, PA HDA, Revenue Bonds,
5.30% (Children's Hospital of
Pittsburgh)/(MBIA INS)/
(Original Issue Yield: 5.70%), 7/1/2026 AAA 3,743,280
450,000 Allegheny County, PA Residential Finance
Agency, SFM
Revenue Bonds (Series K), 7.75% (GNMA
COL),
12/1/2022 Aaa 472,459
750,000 Allegheny County, PA Residential Finance
Agency, SFM
Revenue Bonds (Series Q), 7.40% (GNMA Aaa 793,657
COL), 12/1/2022
2,060,000 Allentown, PA Area Hospital Authority,
Revenue Bonds
(Series B), 6.75% (Sacred Heart Hospital
of Allentown),
11/15/2015 BBB 2,135,849
4,250,000 Bradford County, PA IDA, Solid Waste
Disposal Revenue
Bonds (Series A), 6.60% (International
Paper Co.),
3/1/2019 A- 4,491,188
1,000,000 Bucks County, PA Community College
Authority, College
Building Revenue Bonds (Series 1996),
5.50% (Original
Issue Yield: 5.70%), 6/15/2017 Aa 987,280
750,000 Butler County, PA Hospital Authority,
Hospital Revenue
Bonds (Series A), 7.00% (North Hills
Passavant
Hospital)/(FSA INS), 6/1/2022 AAA 825,510
1,100,000 Dauphin County, PA General Authority,
Hospital Revenue
Bonds (Series A1), 5.50% (Hapsco-Western
PA Hospital)/
(MBIA INS)/(Original Issue Yield: AAA 1,040,754
5.85%), 7/1/2023
1,000,000 Delaware County Authority, PA, Revenue
Bonds (Series 1996),
5.50% (Elwyn, Inc.)/(Connie Lee
INS)/(Original Issue
Yield: 5.69%), 6/1/2020 AAA 957,560
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 1,750,000 Delaware County, PA Authority, Hospital
Revenue Bonds,
5.30% (Crozer-Chester Medical
Center)/(MBIA INS)/
(Original Issue Yield: 5.55%), AAA $ 1,613,325
12/15/2020
1,000,000 Fayette County, PA Hospital Authority,
Healthcare Facility
Revenue Bonds (Series 1996A), 6.00%
(Mount Macrina
Manor)/(National City, Pennsylvania A- 1,004,100
LOC), 9/1/2018
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%), AAA 1,968,700
6/15/2015
1,000,000 Geisinger Authority, PA Health System,
Revenue Bonds,
7.625% (United States Treasury
PRF)/(Original Issue
Yield: 7.697%), 7/1/1999 (@102) AA 1,096,400
800,000 Jeannette Health Services Authority, PA,
Hospital Revenue
Bonds (Series A of 1996), 6.00%
(Jeannette District Memorial
Hospital)/(Original Issue Yield: 6.15%), BBB+ 797,040
11/1/2018
1,000,000 Lackawanna Trail School District, PA, UT
GO Refunding
Bonds, 6.90% (AMBAC INS), 3/15/2010 AAA 1,091,880
3,000,000 Lancaster, PA School District, GO Bonds
(Series 1997), 5.40%
(FGIC INS)/(Original Issue Yield: AAA 2,964,840
5.50%), 2/15/2014
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 1,452,560
1,500,000 Lebanon County, PA Good Samaritan
Hospital Authority,
Hospital Revenue Bonds, 6.00% (Good
Samaritan Hospital)/
(Original Issue Yield: 6.10%), BBB+ 1,475,715
11/15/2018
1,000,000 Lehigh County, PA General Purpose
Authority, Hospital
Refunding Revenue Bonds (Series 1996A),
5.75% (Muhlenberg
Hospital Center)/(Original Issue Yield: A 992,560
5.85%), 7/15/2010
1,000,000 Luzerne County, PA, UT GO Bonds, 5.625%
(FGIC INS)/
(Original Issue Yield: 5.78%), AAA 988,050
12/15/2021
3,000,000 Luzerne County, PA Flood Protection
Authority, UT GO
Bonds, 5.65% (MBIA INS)/(Original Issue
Yield: 5.85%),
7/15/2026 AAA 2,972,190
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 2,500,000 Luzerne County, PA IDA, Revenue
Refunding Bonds
(Series A), 7.00% (Pennsylvania Gas &
Water Company)/
(AMBAC INS), 12/1/2017 AAA $ 2,835,650
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- 4,240,960
1,000,000 Lycoming County PA Authority, Hospital
Revenue Bonds,
5.50% (Divine Providence Hospital,
PA)/(Connie Lee INS)/
(Original Issue Yield: 5.90%), AAA 951,740
11/15/2022
1,000,000 Montgomery County, PA IDA, Retirement
Community
Revenue Bonds (Series 1996B), 5.75%
(Adult Communities
Total Services, Inc)/(Original Issue A- 974,520
Yield: 5.98%), 11/15/2017
1,000,000 Montgomery County, PA IDA, Retirement
Community
Revenue Refunding Bonds (Series 1996A),
5.875% (Adult
Communities Total Services,
Inc)/(Original Issue
Yield: 6.125%), 11/15/2022 A- 982,970
2,000,000 Pennsylvania EDFA, Revenue Bonds, 7.60%
(Macmillan
Bloedel LTD Partnership)/(Original Issue
Yield: 7.65%),
12/1/2020 BBB- 2,236,040
2,290,000 Pennsylvania Housing Finance Authority,
SFM Revenue
Bonds (Series 39B), 6.875%, 10/1/2024 AA 2,417,187
650,000 Pennsylvania Housing Finance Authority,
SFM Revenue
Bonds (Series 33), 6.90%, 4/1/2017 AA 685,412
1,000,000 Pennsylvania Housing Finance Authority,
SFM Revenue
Bonds (Series 34-B), 7.00% (FHA GTD), AA 1,048,190
4/1/2024
3,855,000 Pennsylvania Housing Finance Authority,
SFM Revenue
Bonds (Series 28), 7.65% (FHA GTD), AA 4,059,354
10/1/2023
2,000,000 Pennsylvania Intergovernmental Coop
Authority, Special
Tax Revenue Bonds, 5.625% (MBIA
INS)/(Original Issue
Yield: 97.245%), 6/15/2023 AAA 1,951,560
3,000,000 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 3,000,450
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 1,000,000 Pennsylvania State Higher Education
Facilities Authority,
Hospital Revenue Bonds (Series A), 7.25%
(Allegheny General
Hospital)/(Original Issue Yield: 7.40%), AA- $ 1,073,700
9/1/2017
2,000,000 Pennsylvania State Higher Education
Facilities Authority,
Revenue Bonds (Series 1996), 7.20%
(Thiel College),
5/15/2026 NR 2,031,200
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 4,477,360
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 2,033,440
2,000,000 Pennsylvania State Higher Education
Facilities Authority,
Revenue Bonds, 6.375% (Drexel
University)/(Original Issue
Yield: 6.415%), 5/1/2017 BBB+ 2,083,720
4,000,000 Philadelphia, PA, (Series 1995A) Airport
Revenue Bonds,
6.10% (Philadelphia Airport
System)/(AMBAC INS)/
(Original Issue Yield: 6.40%), 6/15/2025 AAA 4,068,360
2,500,000 Scranton-Lackawanna, PA Health & Welfare
Authority,
Revenue Bonds (Series 1994-A), 7.60%
(Allied Services
Rehabilitation Hospitals, PA), 7/15/2020 NR 2,656,350
2,650,000 Sharon, PA General Hospital Authority,
Hospital Revenue
Bonds, 6.875% (Sharon Regional Health BBB+ 2,765,964
System), 12/1/2022
1,000,000 Warren County, PA Hospital Authority,
Revenue Bonds
(Series A), 7.00% (Warren General
Hospital, PA)/(Original
Issue Yield: 7.101%), 4/1/2019 BBB+ 1,048,160
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED 83,578,704
COST $79,677,224)
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS -- 3.6%
PENNSYLVANIA -- 3.1%
$ 2,700,000 Philadelphia, PA Hospitals & Higher
Education Facilities
Authority, Hospital Revenue Bonds
(Series A of 1996) Daily
VRDNs (Children's Hospital of
Philadelphia)/(Morgan
Guaranty Trust Co., New York LIQ) AA $ 2,700,000
PUERTO RICO -- 0.4%
350,000 Puerto Rico Government Development Bank
Weekly VRDNs
(Credit Suisse, Zurich LOC) AA+ 350,000
TOTAL SHORT-TERM MUNICIPALS (AT 3,050,000
AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 86,628,704
$82,727,224)(A)
Securities that are subject to Alternative Minimum Tax represent 25.9% 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.
(a) The cost of investments for federal tax purposes amounts to $82,727,224.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,901,480 which is comprised of $4,005,752 appreciation and
$104,272 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($85,237,124) at February 28, 1997.
The following acronyms 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
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
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
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value $86,628,704
(identified and tax cost $82,727,224)
Cash 85,694
Income receivable 1,535,585
Receivable for shares sold 128,145
Total assets 88,378,128
LIABILITIES:
Payable for investments purchased $ 2,967,960
Income distribution payable 155,097
Accrued expenses 17,947
Total liabilities 3,141,004
NET ASSETS for 7,390,441 shares outstanding $85,237,124
NET ASSETS CONSIST OF:
Paid in capital $81,052,164
Net unrealized appreciation of investments 3,901,480
Accumulated net realized gain on investments 135,371
Undistributed net investment income 148,109
Total Net Assets $85,237,124
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
$85,237,124 / 7,390,441 shares outstanding $11.53
Offering Price Per Share (100/95.5 of 11.53)* $12.07
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,615,929
EXPENSES:
Investment advisory fee $ 165,087
Administrative personnel and services 61,892
fee
Custodian fees 9,778
Transfer and dividend disbursing agent 16,442
fees and expenses
Directors'/Trustees' fees 2,035
Auditing fees 6,697
Legal fees 4,970
Portfolio accounting fees 24,285
Shareholder services fee 103,179
Share registration costs 8,590
Printing and postage 13,264
Insurance premiums 2,172
Miscellaneous 3,448
Total expenses 421,839
Waivers --
Waiver of investment advisory fee $(102,230)
Waiver of shareholder services fee (8,254)
Total waivers (110,484)
Net expenses 311,355
Net investment income 2,304,574
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 2,065,860
Net change in unrealized (depreciation) (710,281)
of investments
Net realized and unrealized gain on 1,355,579
investments
Change in net assets resulting $ 3,660,153
from operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,304,574 $ 4,887,004
Net realized gain on
investments ($2,065,860
net gain and
$881,553 net loss, 2,065,860 556,055
respectively, as computed
for federal tax purposes)
Net change in unrealized (710,281) 353,374
appreciation
(depreciation)
Change in net assets 3,660,153 5,796,433
resulting from
operations
NET EQUALIZATION CREDITS 1,623 (6,300)
(DEBITS) --
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net (2,346,434) (4,846,944)
investment income
SHARE TRANSACTIONS
(EXCLUSIVE OF AMOUNTS
ALLOCATED TO NET
INVESTMENT INCOME) --
Proceeds from sale of 8,584,360 10,957,322
shares
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,442,353 3,064,941
Cost of shares redeemed (10,220,461) (14,571,991)
Change in net assets (193,748) (549,728)
resulting from share
transactions
Change in net assets 1,121,594 393,461
NET ASSETS:
Beginning of period 84,115,530 83,722,069
End of period (including
undistributed net
investment income of
$148,109 and $196,829, $ 85,237,124 $ 84,115,530
respectively)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995** 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $11.35 $11.23 $10.94 $11.68 $10.93 $10.44 $10.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.31 0.65 0.65 0.60 0.60 0.627 0.588
income
Net realized and
unrealized
gain (loss) on 0.19 0.12 0.27 (0.75) 0.75 0.493 0.456
investments
Total from 0.50 0.77 0.92 (0.15) 1.35 1.120 1.044
investment
operations
LESS DISTRIBUTIONS
Distributions
from net
investment (0.32) (0.65) (0.63) (0.59) (0.60) (0.627) (0.588)
income
Distributions in
excess of net
investment -- -- -- -- -- (0.003)(b) (0.016)(b)
income
Total (0.32) (0.65) (0.63) (0.59) (0.60) (0.630) (0.604)
distributions
NET ASSET VALUE, $11.53 $11.35 $11.23 $10.94 $11.68 $10.93 $10.44
END OF PERIOD
TOTAL RETURN(C) 4.48% 6.99% 8.76% (1.34%) 12.71% 11.06% 10.60%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.75%* 0.75% 0.75% 0.75% 0.83% 0.73% 0.26%*
Net investment 5.58%* 5.73% 5.92% 5.27% 5.33% 5.88% 6.45%*
income
Expense waiver/
reimbursement(d) 0.27%* 0.25% 0.28% 0.45% 0.70% 0.97% 1.24%*
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $85,237 $84,116 $83,722 $85,860 $69,947 $48,261 $31,067
Portfolio 25% 23% 59% 17% 0% 0% 10%
turnover
</TABLE>
* Computed on an annualized basis.
** Prior to November 18, 1994, the Fund provided two classes of shares.
(a) Reflects operations for the period from October 11, 1990 (date of
initial public investment) to August 31, 1991.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (UNAUDITED)
1. ORGANIZATION
Municipal Securities Income Fund (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Fund 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 (federal regular income tax does not
include the federal alternative minimum tax) and the personal income tax
imposed by the Commonwealth of Pennsylvania.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk, credit
quality, coupon, maturity, type of issue, and any other factors or market
data the pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2000 $ 12,837
2001 $ 63
2003 $ 1,036,056
2004 $ 881,533
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 Board of Trustees (the "Trustees") to
issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
SHARES SHARES
<S> <C> <C>
Shares sold 747,572 965,079
Shares issued to shareholders in payment of 125,660 270,041
distributions declared
Shares redeemed (891,384) (1,284,868)
Net change resulting share transactions (18,152) (49,748)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE - The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.40% of the average daily net assets
of the Fund, annually, to compensate FSC. The Fund has no present intention
of paying or accruing the 12b-1 fee during the fiscal year ending August
31, 1997.
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.
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 February 28, 1997, 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 $12,800,000 and $11,474,340, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
PURCHASES $ 21,233,423
SALES $ 20,815,313
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 February 28, 1997, 43.2% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The value of investments insured by or supported (backed) by a letter of
credit from any one institution or agency did not exceed 15.4% of total
investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including
possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[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 625922505
Cusip 625922836
2032304 (4/97)
