WILLIAM PENN INTEREST INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
Dear Shareholders:
The Board of Trustees and management of William Penn Interest Income Fund:
Pennsylvania Tax-Free Income Portfolio (the "William Penn Portfolio") are
pleased to submit for your vote a proposal for the tax-free transfer of all the
assets of the William Penn Portfolio to Federated Pennsylvania Municipal Income
Fund (the "Federated Fund"), a portfolio of Municipal Securities Income Trust
(the "Federated Trust") a mutual fund advised by Federated Advisers. The
Federated Fund has an investment objective similar to that of the William Penn
Portfolio in that it seeks current income which is exempt from federal regular
income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania. As part of the transaction, holders of shares in the William Penn
Portfolio would receive shares of the Federated Fund equal in value to their
shares in the William Penn Portfolio and the William Penn Portfolio would be
liquidated. Shareholders would not have to pay a sales charge upon receiving
such shares, nor would they be subject to any contingent deferred sales charges
in connection with the exercise of exchange rights or redemptions of such
shares. Further, William Penn fund group shareholders who were invested as of
November 30, 1988, will not be charged a sales charge for future purchases made
in any Federated Fund, provided the account has remained open since that date.
You may be contacted by Shareholder Communications Corporation, a telephone
solicitation firm, requesting that you cast your vote by telephone. Also, you
may cast your vote by telephone by calling Shareholder Communications
Corporation toll free at (800) 733-8481, extension 459 (telephone voting only).
If you have any questions regarding the proxy/prospectus you may call the
William Penn Portfolio at (800) 523-8440 or the Federated Fund at (800)
245-4770.
The Board of Trustees of the William Penn Portfolio, as well as Penn Square
Management Corporation, the William Penn Portfolio's manager and distributor,
believe the proposed agreement and plan of reorganization is in the best
interests of William Penn Portfolio shareholders for the following reasons:
- The Federated Fund has an investment objective similar to that of the
William Penn Portfolio and offers an investment portfolio which invests
in municipal securities which are exempt from federal regular income tax
and Pennsylvania state and local income tax.
- The Federated Fund offers competitive performance and comparable expense
ratios.
- The reorganization of the William Penn Portfolio into the Federated Fund
may provide operating efficiencies as a result of the size of the
combined Federated Fund and William Penn Portfolio.
- As an investor in the Federated Fund, shareholders would have access to a
dramatically expanded array of investment alternatives in the Federated
retail family of funds.
- Federated Investors has an excellent reputation for customer servicing,
having received a #1 rating for five surveys in a row by DALBAR, Inc. The
shareholder services for the Federated funds include advanced
technological systems that result in quick shareholder access to a broad
spectrum of information and efficient routing of telephone calls to the
appropriate person.
The Federated Fund is managed by Federated Advisers, a subsidiary of
Federated Investors. Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania. Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, Federated Investors
is one of the largest mutual fund investment managers in the United States. With
more than 2,000 employees,
Federated continues to be led by the family management who founded the company
in 1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
We believe the transfer of the William Penn Portfolio's assets in this
transaction presents an exciting investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer will be
effected only if approved by a majority of the votes cast at the Special Meeting
of Shareholders. We hope you share our enthusiasm and will participate by
casting your vote in person, or by proxy if you are unable to attend the
meeting. Please read the enclosed prospectus/ proxy statement carefully before
you vote.
THE BOARD OF TRUSTEES BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE WILLIAM PENN PORTFOLIO AND ITS SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
/s/ James E. Jordan
James E. Jordan
President
WILLIAM PENN INTEREST INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF WILLIAM PENN INTEREST INCOME FUND,
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO:
A Special Meeting of Shareholders of Pennsylvania Tax-Free Income
Portfolio, a portfolio of William Penn Interest Income Fund (the "William Penn
Portfolio") will be held at 9:00 a.m. on May 29, 1997 at: Sheraton Berkshire
Motor Inn, 1741 Paper Mill Road, Wyomissing, PA 19610, for the following
purposes:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between the William Penn Portfolio and Federated Pennsylvania Municipal Income
Fund (the "Federated Fund"), a portfolio of Municipal Securities Income Trust,
whereby the Federated Fund would acquire all of the assets and assume certain
liabilities of the William Penn Portfolio in exchange for the Federated Fund's
Class A Shares to be distributed pro rata by the William Penn Portfolio to the
holders of its Class A and Class C Shares in complete liquidation of the William
Penn Portfolio; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
By Order of the Board of Directors,
Sandra J. Houck
Sandra J. Houck
Secretary
Dated: April 25, 1997
Shareholders of record at the close of business on April 14, 1997 are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF
YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
APRIL 17, 1997
ACQUISITION OF THE ASSETS OF
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
A PORTFOLIO OF WILLIAM PENN INTEREST INCOME FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
TELEPHONE NUMBER: 1-800-523-8440
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-4770
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Federated Pennsylvania Municipal Income
Fund, (the "Federated Fund"), a portfolio of Municipal Securities Income Trust
(the "Federated Trust"), a Massachusetts business trust, would acquire all of
the assets and assume certain liabilities of Pennsylvania Tax-Free Income Fund,
(the "William Penn Portfolio"), a portfolio of William Penn Interest Income
Fund, a Pennsylvania common law trust (the "Trust"), in exchange for the
Federated Fund's Class A Shares to be distributed pro rata by the William Penn
Portfolio to the holders of its Class A Shares and Class C Shares, in complete
liquidation of the William Penn Portfolio. As a result of the Plan, each
shareholder of the William Penn Portfolio will become the owner of the Federated
Fund's Class A Shares having a total net asset value equal to the total net
asset value of his or her holdings in the William Penn Portfolio's Class A
Shares and Class C Shares.
THE BOARD OF TRUSTEES OF THE WILLIAM PENN PORTFOLIO UNANIMOUSLY RECOMMENDS
APPROVAL OF THE PLAN.
The shares of each of the Federated Fund and the William Penn Portfolio
represent interests in separate open-end, diversified management investment
companies. The Federated Fund's investment objective is to provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania. The William Penn Portfolio's
investment objective is to provide a high level of current income exempt from
both Federal income taxes and Pennsylvania income and personal property taxes
without assuming any undue risk to income or principal. Although both the
Federated Fund and the William Penn Portfolio may invest in securities subject
to the alternative minimum tax, the Federated Fund may invest all of its assets
in securities subject to the alternative minimum tax. For a comparison of the
investment policies of the Federated Fund and the William Penn Portfolio, see
"Summary--Investment Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/ Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated March 4, 1997, which
is incorporated herein by reference. Statements of Additional Information for
the Federated Fund dated March 4, 1997 (relating to the Federated Fund's
Prospectus of the same date) and April 17, 1997 (relating to this
Prospectus/Proxy Statement), and the Annual Report to Shareholders dated August
31, 1996, all containing additional information, have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
Copies of the Statements of Additional Information, and the Annual Report may be
obtained without charge by writing or calling the Federated Fund at the address
and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses........................................................... 3
Summary....................................................................... 6
About the Proposed Reorganization........................................... 6
Investment Objectives, Policies and Limitations............................. 6
Advisory and Other Fees..................................................... 8
Distribution Arrangements................................................... 9
Purchase, Exchange and Redemption Procedures................................ 10
Dividends................................................................... 12
Tax Consequences............................................................ 12
Risk Factors.................................................................. 12
Information About the Reorganization.......................................... 12
Background and Reasons for the Proposed Reorganization...................... 12
Agreement Between The William Penn Company and Federated.................... 14
Description of the Plan of Reorganization................................... 14
Description of Federated Fund Shares........................................ 15
Federal Income Tax Consequences............................................. 15
Comparative Information on Shareholder Rights and Obligations............... 16
Capitalization.............................................................. 18
Information About the Federated Fund and the William Penn Portfolio........... 18
Municipal Securities Income Trust, Federated Pennsylvania
Municipal Income Fund.................................................... 18
William Penn Interest Income Fund, Pennsylvania Tax-Free Income Portfolio... 18
Voting Information............................................................ 19
Outstanding Shares and Voting Requirements.................................. 19
Dissenter's Right of Appraisal.............................................. 21
Other Matters and Discretion of Persons Named in the Proxy.................... 21
Agreement and Plan of Reorganization.......................................... Exhibit A
</TABLE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
WILLIAM WILLIAM
FEDERATED PENN PENN
FUND PORTFOLIO PORTFOLIO
(CLASS A (CLASS A (CLASS C PRO FORMA
SHARES) SHARES) SHARES) COMBINED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................ 4.50%(1) 4.75% None 4.50%(1)
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price)....................................... None None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable).......... 0.00%(2) None 1.00%(3) 0.00%(2)
Redemption Fee (as a percentage of amount
redeemed, if applicable)(4).................. None None None None
Exchange Fee................................... None None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver).................. 0.17%(5) 0.37% 0.37% 0.30%(5)
12b-1 Fee (after waiver)(6).................... 0.00% 0.20% 0.75% 0.00%
Total Other Expenses (after waiver)(7)....... 0.58% 0.28% 0.52% 0.45%
Total Operating Expenses (after
waivers)(8)............................. 0.75% 0.85% 1.64% 0.75%
</TABLE>
(1) This sales charge would not be applicable to Class A Shares of the Federated
Fund acquired through the proposed reorganization or to William Penn fund group
shareholders invested as of November 30, 1988, for future purchases of any of
the Federated Funds provided the account remains open.
(2) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. would not be charged a sales
charge but may be charged a contingent deferred sales charge of 0.50% for
redemptions made within one full year of purchase. For a more complete
description, see "Summary--Distribution Arrangements." This contingent deferred
sales charge would not be applicable to Class A Shares of the Federated Fund
acquired through the proposed reorganization.
(3) The Contingent Deferred Sales Charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within one
year of their purchase date. For a more complete description, see
"Summary--Distribution Arrangements."
(4) Wire-transferred redemptions of Class A Shares of the Federated Fund of less
than $5,000 may be subject to additional fees. A $10.00 fee is charged for
redemptions of William Penn Portfolio shares by wire transfer.
(5) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time in its sole discretion. The maximum management fee is 0.40%.
(6) The 12b-1 fee with respect to the William Penn Portfolio Class A Shares has
been reduced to reflect the voluntary waiver; the maximum 12b-1 fee for Class A
Shares is 0.50%. The Federated Fund's Class A Shares did not pay or accrue 12b-1
fees during the fiscal year ended August 31, 1996. The class has no present
intention of paying or accruing the 12b-1 fee during the fiscal year ending
August 31, 1997. If the class were paying or accruing the 12b-1 fee, the class
would be able to pay up to 0.40% of its
average daily net assets for the 12b-1 fee. The maximum 12b-1 fee for Class C
Shares of the William Penn Portfolio is 0.75%.
(7) Total Other Expenses include a shareholder services fee of 0.23% for the
Class A Shares of the Federated Fund and the Pro Forma Combined Fund and
shareholder services fees of 0.00% and 0.25% for William Penn Portfolio Class A
Shares and Class C Shares, respectively. The shareholder services fees have been
reduced to reflect the voluntary waivers of a portion of the shareholder
services fees. The shareholder service providers can terminate these voluntary
waivers at any time at their sole discretion. The maximum shareholder services
fee is 0.25%, 0.25%, 0.50% and 0.25% for the Federated Fund Class A Shares, the
Pro Forma Combined Fund, and the William Penn Portfolio's Class A Shares and
Class C Shares, respectively.
(8) The Total Operating Expenses for Class A Shares of the Federated Fund are
based on expenses incurred during its fiscal year ended August 31, 1996, and
would have been 1.00% absent the voluntary waivers of a portion of the
management fee and a portion of the shareholder services fee. The Total
Operating Expenses for the William Penn Portfolio are based upon expenses
incurred for Class A Shares and for Class C Shares by the William Penn Portfolio
during its fiscal year ended December 31, 1996, and would have been 1.25% and
2.05, respectively, without expense waivers.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of shares of each of the Class A
Shares of the Federated Fund, Class A Shares and Class C Shares of the William
Penn Portfolio, and the Pro Forma Combined Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Summary--Advisory and Other Fees" and "Summary -Distribution Arrangements."
LONG TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLES
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class A
Shares received as a result of the proposed reorganization.
An investor would pay the following expenses on a 1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
Expenses would be the same if there were no redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund (Class A Shares)......................... $ 8 $24 $42 $ 93
William Penn Portfolio (Class A Shares)................. $ 9 $27 $47 $105
William Penn Portfolio (Class C Shares)................. $ 17 $52 $89 $194
Pro Forma Combined...................................... $ 8 $24 $42 $ 93
</TABLE>
(2) This Example includes sales charges since Class A Shares of the Federated
Fund purchased subsequent to the reorganization may be subject to sales charges.
For a more complete description of sales charges, contingent deferred sales
charges and exemptions from such charges, reference is hereby made to the
Prospectus of the Federated Fund dated March 4, 1997, and the Prospectus of the
William Penn Portfolio dated March 15, 1996, each of which is incorporated
herein by reference thereto.
An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return, (2) redemption at the end of each time period,
and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Fund (Class A Shares)......................... $ 52 $68 $85 $134
William Penn Portfolio (Class A Shares)................. $ 56 $73 $92 $147
William Penn Portfolio (Class C Shares)................. $ 27 $52 $89 $194
Pro Forma Combined...................................... $ 52 $68 $85 $134
</TABLE>
An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return, (2) no redemption at the end of each time period,
and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Federated Fund (Class A Shares)..................... $52 $ 68 $ 85 $ 134
William Penn Portfolio (Class A Shares)............. $56 $ 73 $ 92 $ 147
William Penn Portfolio (Class C Shares)............. $17 $ 52 $ 89 $ 194
Pro Forma Combined.................................. $52 $ 68 $ 85 $ 134
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Statement of Additional Information dated April 17, 1997 related to this
Prospectus/Proxy Statement, the Prospectus of the Federated Fund dated March 4,
1997, the Statement of Additional Information of the Federated Fund dated March
4, 1997, the Prospectus of the William Penn Portfolio dated March 15, 1996, the
Statement of Additional Information of the William Penn Portfolio dated March
15, 1996, and the Plan, a copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A all of which are incorporated herein by reference
thereto.
About the Proposed Reorganization
The Board of Trustees of the William Penn Portfolio has voted unanimously
to recommend to holders of the Class A Shares and Class C Shares of the William
Penn Portfolio the approval of the Plan whereby the Federated Fund would acquire
all of the assets and assume certain liabilities of the William Penn Portfolio
in exchange for the Federated Fund's Class A Shares to be distributed pro rata
by the William Penn Portfolio to holders of its Class A Shares and Class C
Shares in complete liquidation and dissolution of the William Penn Portfolio
(the "Reorganization"). As a result of the Reorganization, each shareholder of
the William Penn Portfolio Class A Shares and Class C Shares will become the
owner of the Federated Fund's Class A Shares having a total net asset value
equal to the total net asset value of his or her holdings in the William Penn
Portfolio on the date of the Reorganization, i.e., the Closing Date (as
hereinafter defined).
As a condition to the Reorganization transactions, the Federated Fund and
the William Penn Portfolio will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), so
that no gain or loss will be recognized by either the Federated Fund or the
William Penn Portfolio or the shareholders of the William Penn Portfolio. The
tax basis of the Federated Fund's corresponding Class A Shares received by
William Penn Portfolio's Class A Shares and Class C Shares shareholders will be
the same as the tax basis of their shares in the William Penn Portfolio. After
the acquisition is completed, the William Penn Portfolio will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to provide current income
which is exempt from federal regular income tax (federal regular income tax does
not include the federal alternative minimum tax) and the personal income taxes
imposed by the Commonwealth of Pennsylvania. This investment objective may not
be changed without the affirmative vote of a majority of the outstanding voting
securities of the Federated Fund, as defined in the Investment Company Act of
1940, as amended (the "1940 Act").
The investment objective of the William Penn Portfolio is to provide a high
level of current income exempt from both Federal income taxes and Pennsylvania
income and personal property taxes, without assuming any undue risk to income or
principal. In pursuing this objective, the William Penn Portfolio invests
principally in investment grade Pennsylvania municipal obligations with varying
terms of maturity. This investment objective may not be changed without the
affirmative vote of a majority of the outstanding voting securities of the
William Penn Portfolio, as defined in the 1940 Act.
The Federated Fund invests in a portfolio of municipal securities which are
exempt from federal regular income tax and Pennsylvania state and local income
tax ("Pennsylvania municipal securities"). The Pennsylvania municipal securities
in which the Federated Fund invests include: obligations issued by or on behalf
of the Commonwealth of Pennsylvania, its political subdivisions, or agencies;
debt obligations of any state, territory, or possession of the United States, or
any political subdivision of any of these; and participation interests, in any
of the above obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Federated Fund
and/or the investment adviser to the Federated Fund, exempt from both federal
regular income tax and the
personal income taxes imposed by the Commonwealth of Pennsylvania. At least 80%
of the value of the Federated Fund's total assets will be invested in
Pennsylvania Municipal Securities.
The Federated Fund may purchase Pennsylvania municipal securities which may
have variable interest rates; municipal leases which are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities and may be considered to be illiquid; securities on a
when-issued or delayed delivery basis; and up to 10% of its total assets in
restricted securities. The Federated Fund's 10% limit on investment in
restricted securities may not be changed without shareholder approval. The
Federated Fund may invest in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, up to 15% of its net
assets. This investment policy may not be changed without shareholder approval.
The Federated Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the Commonwealth
of Pennsylvania personal income taxes. However, from time to time when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Federated Fund may invest in short-term non-Pennsylvania
municipal tax-exempt obligations or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Federated Fund a bond or temporary investment
agrees at the time of sale to repurchase it at a mutually agreed upon time and
price). The investment policies of the Federated Fund may be changed by the
Board of Trustees without shareholder approval unless otherwise indicated.
The William Penn Portfolio invests principally in investment grade
municipal obligations issued by or on behalf of the Commonwealth of Pennsylvania
and its political subdivisions, agencies, authorities, and instrumentalities
("Pennsylvania Bonds"). The William Penn Portfolio, under normal market
circumstances, invests generally 100%, but at least 80%, of the value of its
total assets in Pennsylvania Bonds, and no more than 20% will be invested in
taxable securities. Under certain market conditions, however, the William Penn
Portfolio may invest in non-tax-exempt securities for temporary defensive
purposes. Such temporary investments may include investments in U.S. government
securities or other high grade investments (two highest categories of Moody's or
S&P). The William Penn Portfolio may invest in futures contracts and options on
futures contracts, provided that the securities underlying such transactions do
not exceed 35% of the portfolio's assets at the time of purchase. The William
Penn Portfolio may engage in futures and/or options transactions only for
hedging purposes and only if such transactions are consistent with its
investment objectives and policies. Unless otherwise designated in the
prospectus, the investment policies of the William Penn Portfolio may be changed
by the Board of Trustees without shareholder approval.
Both the Federated Fund and the William Penn Portfolio are subject to
certain investment limitations. For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money except, under certain
circumstances (e.g., for temporary or emergency purposes), the Federated Fund
may borrow up to 10% of the value of its total assets; or (2) varying its
investments, except to: (i) eliminate unsafe investments and investments not
consistent with the preservation of the capital or the tax status of the
investments of the Federated Fund; (ii) honor redemption orders, meet
anticipated redemption requirements, and negate gains from discount purchases,
(iii) reinvest the earnings from securities in like securities; or (iv) defray
normal administrative expenses. The above investment limitations cannot be
changed without shareholder approval.
The William Penn Portfolio may not: (1) invest more than 5% of the value of
its assets in the securities of any single issuer (except of the U.S.
Government, its agencies or instrumentalities), (2) purchase more than 10% of
the voting securities of any issuer; (3) invest more than 5% of its assets in
companies with a continuous operating history (including predecessors) of less
than 3 years; (4) invest more than 25% of its assets in any one industry, with
the exceptions of (i) obligations of the U.S. Government or its agencies or
instrumentalities, and (ii) certificates of deposit or bankers' acceptances; (5)
borrow money, except from a bank and only for temporary or emergency purposes.
Any such borrowings may not exceed 5% of the lower of the value or cost of the
portfolio's total assets; (6) pledge, mortgage, or otherwise hypothecate its
assets to an extent greater than 5% of the value of its total assets; (7) invest
more than 10% of the value of its assets in illiquid securities, including
restricted securities, and repurchase agreements maturing in more than seven
days. The above investment limitations of the William Penn Portfolio cannot be
changed without shareholder approval.
In addition to the policies and limitations set forth above, both the
Federated Fund and the William Penn Portfolio are subject to certain additional
investment policies and limitations, described in the Federated Fund's Statement
of Additional Information dated March 4, 1997, and the William Penn Portfolio's
Statement of Additional Information dated March 15, 1996. Reference is hereby
made to the Federated Fund's Prospectus and Statement of Additional Information,
each dated March 4, 1997, and to the William Penn Portfolio's Prospectus and
Statement of Additional Information, each dated March 15, 1996, which set forth
in full the investment objective, policies and investment limitations of each of
the Federated Fund and the William Penn Portfolio, all of which are incorporated
herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.40% of the
Federated Fund's average daily net assets. The investment adviser to the
Federated Fund, Federated Advisers ("Federated Advisers"), a subsidiary of
Federated Investors, may voluntarily choose to waive a portion of its advisory
fee or reimburse the Federated Fund for certain operating expenses. This
voluntary reimbursement of expenses may be terminated by Federated Advisers at
any time in its sole discretion. The maximum annual management fee for the
William Penn Portfolio is 0.65% of average daily net assets of the William Penn
Portfolio. The investment adviser of the William Penn Portfolio is Penn Square
Management Corporation. The adviser is a wholly owned subsidiary of The William
Penn Company, New York, New York. Miller, Anderson & Sherrerd LLP (the
Sub-Adviser) serves as an investment adviser for the William Penn Portfolio
pursuant to a sub-advisory agreement with the adviser. The Sub-Adviser, a wholly
owned subsidiary of Morgan Stanley Group Inc., was organized in 1969 and is
located in West Conshohocken, Pennsylvania. The Sub-Adviser provides management
services to employee benefit plans, endowment funds, foundations, and other
institutional investors, and currently manages assets in excess of $30 billion.
Under an agreement entered into with the adviser, the Sub-Adviser provides
investment advisory services for the William Penn Portfolio and is compensated
solely by the adviser. The adviser pays the Sub-Adviser a fee based on the
aggregate net asset value of all portfolios comprising the William Penn Interest
Income Fund, as follows: .375% on the first $50,000,000, .25% on the next
$50,000,000 and .20% over $100,000,000.
Federated Services Company, an affiliate of Federated Advisers, provides
certain administrative personnel and services necessary to operate the Federated
Fund at an annual rate based upon the average aggregate daily net assets of all
funds advised by Federated Advisers and its affiliates. The rate charged is
0.15% on the first $250 million of all such funds' average aggregate daily net
assets, 0.125% on the next $250 million, 0.10% on the next $250 million and
0.075% of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for
each additional class of shares of any such portfolio. Federated Services
Company may choose voluntarily to waive a portion of its fee. The administrative
fee expense for the Federated Fund's fiscal year ended August 31, 1996 was
$125,000, representing an effective fee rate of 0.15%. Administrative personnel
and services necessary to operate the William Penn Portfolio are currently
provided by Penn Square Management Corporation and are included in the annual
transfer agent fee for the William Penn Portfolio.
The Federated Fund has entered into a Shareholder Services Agreement under
which it may make payments of up to 0.25% of the average daily net asset value
of each of the Class A Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts. The Shareholder
Services Agreement provides that Federated Shareholder Services ("FSS"), an
affiliate of Federated Advisers, either will perform shareholder services
directly or will select financial institutions to perform such services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedule of such fees and the basis upon which such
fees will be paid is determined from time to time by the Federated Fund and FSS.
The total annual operating expenses for Class A Shares of the Federated
Fund were 0.75% of average daily net assets (after waivers) for its most recent
fiscal year. The total annual operating expenses for Class A Shares and Class C
Shares of the William Penn Portfolio were 0.85% and 1.64% respectively of
average daily net assets (after expense waivers) for its most recent fiscal
year. Without such waivers, the expense ratios of the Federated Fund would have
been 1.00% (Class A Shares), and for the William Penn Portfolio, 1.25% (Class A
Shares) and 2.05% (Class C Shares).
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers, is
the principal distributor for shares of the Federated Fund. The Federated Fund
has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to
which the Federated Fund may pay a fee to the distributor in an amount computed
at an annual rate of 0.40% of the average daily net assets of the Class A Shares
to finance any activity which is principally intended to result in the sale of
Class A Shares subject to the Distribution Plan. All or a portion of the Rule
12b-1 fee may be paid to financial institutions for their efforts in selling
Class A Shares. Class A Shares did not pay or accrue 12b-1 fees during the
fiscal year ended August 31, 1996. The class has no present intention of paying
or accruing the 12b-1 fee during the fiscal year ending August 31, 1997. FSC may
pay financial institutions, at the time of purchase of Class A Shares, an amount
equal to 0.50% of the net asset value of Class A Shares purchased by certain
qualified plans as approved by FSC. (Such payments are subject to a reclaim from
the financial institution should the assets leave the program within 12 months
after purchase). In addition, FSC and FSS, from their own assets, may pay
financial institutions supplemental fees as financial assistance for providing
substantial sales services, distribution-related support services or shareholder
services with respect to the Class A Shares of the Federated Fund. Such
assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
FSC may be reimbursed by Federated Advisers or its affiliates. If a financial
institution elects to waive receipt of this payment, the Federated Fund will
waive any applicable contingent deferred sales charge (such contingent deferred
sales charges are discussed below).
Penn Square Management Corporation is the principal distributor for shares
of the William Penn Portfolio. The William Penn Portfolio has adopted a Rule
12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant to which the William
Penn Portfolio reimburses Penn Square Management Corporation for certain of its
expenses incurred in connection with its services as distributor at an annual
rate not to exceed 0.50% of the average daily net assets of the William Penn
Portfolio's Class A Shares. After the reorganization, the Federated Fund will
not assume any liability related to the William Penn Portfolio's Rule 12b-1
Plan. The fee may be used by Penn Square Management Corporation for its expenses
incurred in connection with (a) advertising and marketing Class A Shares; (b)
printing and distributing the Prospectus; (c) implementing and operating the
Rule 12b-1 Plan; and (d) payments made by the distributor for servicing fees to
broker/dealers, financial institutions, or other industry professionals
("Service Organizations") for distribution and/or shareholder administrative
services provided to their customers who own Class A Shares. Pursuant to a
Servicing Agreement with Penn Square Management Corporation, a Service
Organization may receive, on an annual basis, up to 0.50% of the average daily
net asset value of the Class A Shares owned by shareholders with whom the
Service Organization has a servicing relationship. The services provided by a
Service Organization pursuant to a Servicing Agreement may include distribution
or shareholder administrative services, including establishing and maintaining
shareholder accounts, sending confirmations of transactions, forwarding
financial reports and other communications to shareholders, and responding to
shareholder inquiries regarding the William Penn Portfolio. The William Penn
Portfolio has adopted a Distribution Plan for Class C Shares to compensate the
distributor for its services and costs in distributing Class C Shares. Under the
Rule 12b-1 Plan, the William Penn Portfolio pays Penn Square Management
Corporation an annual 12b-1 Distribution Fee of 0.75% per year on Class C
Shares. Penn Square
Management Corporation also receives a Service Fee of 0.25% per year. Both fees
are computed on the average annual net assets of Class C Shares, determined as
of the close of each regular business day. The distribution fee allows investors
to buy Class C Shares without a front end sales charge while permitting the
distributor to compensate dealers who sell Class C Shares. The distribution and
service fee increase Class C expenses by 1.00% of average net assets per year.
Penn Square Management Corporation pays sales commissions of 1.00% of the
purchase price to dealers from its own resources at the time of sale. Penn
Square Management Corporation retains the distribution fee during the first year
shares are outstanding to recoup the sales commission it pays, the advances of
service fee payments it makes, and its financing costs. Penn Square Management
Corporation plans to pay the distribution fee as an ongoing commission to the
dealer on Class C Shares that have been outstanding for a year or more. Penn
Square Management Corporation receives no other compensation for its services as
distributor, except that the sales charge will be paid to the distributor. Penn
Square Management Corporation may, in turn, pay such sales charge to
broker/dealers as a commission for generating sales of Class C Shares.
Certain costs exist with respect to the purchase and sale of Federated Fund
and William Penn Portfolio shares. Shares of the Federated Fund and shares of
the William Penn Portfolio are sold at their net asset value next determined
after an order is received, plus any applicable sales charge. The Federated Fund
Class A Shares and William Penn Portfolio Class A Shares have a maximum sales
charge of 4.50% and 4.75%, respectively. No sales charge will be imposed in
connection with the issuance of Federated Fund Class A Shares to Class A and
Class C Shareholders of the William Penn Portfolio as a result of the
Reorganization. Further, William Penn fund group shareholders who were invested
as of November 30, 1988, will not be charged a sales charge for future purchases
made in any Federated fund structured as a retail product, provided the account
has remained open. Class A Shares of the Federated Fund purchased with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales charge and not distributed by FSC may be
charged a contingent deferred sales charge of 0.50% for redemptions made within
one full year of purchase. Any such charge will be imposed on the lesser of the
net asset value of the redeemed shares at the time of purchase or redemption.
The contingent deferred sales charges are not imposed in connection with the
exercise of exchange rights, nor will they be imposed on redemptions of
Federated Fund Class A Shares received by shareholders of the William Penn
Portfolio as a result of the Reorganization. For a complete description of sales
charges, contingent deferred sales charges and exemptions from such charges,
reference is hereby made to the Prospectus of the Federated Fund dated March 4,
1997 and the Prospectus of the William Penn Portfolio dated March 15, 1996, each
of which is incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund is
Federated Shareholder Services Company. The transfer agent and dividend
disbursing agent for the William Penn Portfolio is Penn Square Management
Corporation. Procedures for the purchase, exchange and redemption of the
Federated Fund's Class A Shares differ slightly from procedures applicable to
the purchase, exchange and redemption of the William Penn Portfolio's Class A
Shares and Class C Shares. Any questions about such procedures may be directed
to, and assistance in effecting purchases, exchanges or redemptions of the
Federated Fund's Class A Shares or the William Penn Portfolio's Class A Shares
and Class C Shares may be obtained from FSC, principal distributor for the
Federated Fund, at 1-800-245-4770, or from Penn Square Management Corporation,
principal distributor for the William Penn Portfolio, at 1-800-523-8440.
Reference is made to the Prospectus of the Federated Fund dated March 4,
1997, and the Prospectus of the William Penn Portfolio dated March 15, 1996, for
a complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and William
Penn Portfolio shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange and
redemption procedures applicable to the Federated Fund's Class A Shares and the
William Penn Portfolio's Class A Shares and Class C Shares.
Purchases of Class A Shares of the Federated Fund may be made through a
financial institution that has an agreement with FSC or, once an account has
been established, by wire or check. Purchases of shares of the William Penn
Portfolio may be made through Penn Square Management Corporation and through
broker-dealers under contract with Penn Square Management Corporation or
directly by wire or check once an account has been established. The minimum
initial investment in the Federated Fund is $1,000 for Class A Shares.
Subsequent investments must be in amounts of at least $100. The minimum initial
investment in the William Penn Portfolio is $500 for either Class of Shares,
except for retirement accounts for which the minimum is $250. Subsequent
investments must be in amounts of at least $100. The Federated Fund and the
William Penn Portfolio each reserves the right to reject any purchase request.
The purchase price of the Federated Fund's Class A Shares and the William
Penn Portfolio's Class A Shares is based on net asset value plus a sales charge.
The net asset value per share for each class of the Federated Fund and the
William Penn Portfolio is calculated as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Inc. (the "NYSE") on each
day on which the Federated Fund and the William Penn Portfolio compute their net
asset value. Purchase and redemption orders for the Federated Fund received from
broker/dealers before 5:00 p.m. (Eastern time) and from financial institutions
before 4:00 p.m. (Eastern time) may be entered at that day's price. Purchase
orders for the William Penn Portfolio are executed based on the net asset value
calculated at the close of business on the day such purchase orders are
received. Purchase orders received after the close of the NYSE will be executed
based on the net asset value calculated on the next business day. Redemption
orders for shares of the William Penn Portfolio presented prior to the close of
the NYSE on any business day are redeemed at the net asset value calculated at
the close of the exchange that day, except that some Class C Shares may be
subject to a 1.0% contingent deferred sales charge. Federated Fund purchase
orders by wire are considered received upon receipt of payment by wire.
Federated Fund purchase orders received by check are considered received after
the check is converted into federal funds, which normally occurs the business
day after receipt. The William Penn Portfolio does not have a similar procedure.
Holders of Class A Shares of the Federated Fund have exchange privileges
with respect to corresponding Class A Shares in certain of the funds for which
affiliates of Federated Investors serve as investment adviser or principal
underwriter (collectively, the "Federated Funds"), each of which has different
investment objectives and policies. Class A Shares of the Federated Fund may be
exchanged for corresponding Class A Shares of certain Federated Funds at net
asset value without a contingent deferred sales charge. To the extent a
shareholder exchanges Class A Shares of the Federated Fund for Class A Shares of
other Federated Funds, the time for which the exchanged-for shares are to be
held will be added to the time for which exchanged-from shares were held for
purposes of satisfying the applicable holding period for purposes of determining
the contingent deferred sales charge. Class A Shares to be exchanged must have a
net asset value which meets the minimum investment requirement for the fund into
which the exchange is being made. Holders of shares of the William Penn
Portfolio have exchange privileges with respect to shares in certain of the
other funds for which Penn Square Management Corporation serves as investment
manager (collectively, the "William Penn Fund Group"), each of which has
different investment objectives and policies. Any exchange for shares of other
funds in the William Penn Fund Group will generally be at the respective net
asset values next determined after receipt of the request for exchange, provided
the amount exchanged previously incurred a sales charge. Exercise of the
exchange privilege is treated as a sale for federal income tax purposes and,
accordingly, may have tax consequences for the shareholder. Information on share
exchanges may be obtained from the Federated Fund or the William Penn Portfolio,
as appropriate.
Redemptions of Federated Fund Class A Shares may be made through a
financial institution, by telephone, by mailing a written request or through the
Federated Fund's systematic withdrawal program. Redemptions of William Penn
Portfolio shares may be made by presenting share certificates, by letter form,
by telephone, or through the William Penn Portfolio's systematic withdrawal
plan. The
William Penn Portfolio imposes no charges for redemptions of Class A Shares. For
Class C shares of the William Penn Portfolio, redemptions within the first year
of purchase will bear a contingent deferred sales charge. Redemptions may also
be made through a broker/dealer, and that broker/dealer may charge a transaction
fee. Checks for redemption proceeds will be mailed within three business days.
However, redemption checks will not be mailed until all checks in payment for
the shares redeemed have been cleared (not more than seven days).
Dividends
Both the Federated Fund and the William Penn Portfolio pay dividends
monthly from net investment income and make annual distributions of net realized
capital gains, if any. With respect to both the Federated Fund and the William
Penn Portfolio, unless a shareholder otherwise instructs, dividends and capital
gain distributions will be reinvested automatically in additional shares at net
asset value, subject to no sales charge.
Tax Consequences
As a condition to the Reorganization, the Federated Trust, on behalf of the
Federated Fund, and the Trust, on behalf of the William Penn Portfolio, will
receive an opinion of legal counsel that the Reorganization will be considered a
tax-free "reorganization" under applicable provisions of the Code so that no
gain or loss will be recognized by either the Federated Fund or the William Penn
Portfolio or the shareholders of the William Penn Portfolio. The tax basis of
the Federated Fund shares received by William Penn Portfolio shareholders will
be the same as the tax basis of their shares in the William Penn Portfolio.
RISK FACTORS
As with other mutual funds that invest in Pennsylvania Municipal
Securities, the Federated Fund is subject to market risks. Yields on
Pennsylvania Municipal Securities depend on a variety of factors, including, but
not limited to: the general conditions of the municipal bond market; the size of
the particular offering; the maturity of the obligations; and the rating of the
issue. Further, any adverse economic conditions or developments affecting the
Commonwealth of Pennsylvania or its municipalities could impact the Federated
Fund's portfolio. The ability of the Federated Fund to achieve its investment
objective also depends on the continuing ability of the issuers of Pennsylvania
Municipal Securities and participation interests, or the guarantors of either,
to meet their obligations for the payment of interest and principal when due.
Investing in Pennsylvania Municipal Securities which meet the Federated Fund's
quality standards may not be possible if the Commonwealth of Pennsylvania or its
municipalities do not maintain their current credit ratings. In addition, any
Pennsylvania constitutional amendments, legislative measures, executive orders,
administrative regulations, and voter initiatives could result in adverse
consequences affecting Pennsylvania Municipal Securities. Since the William Penn
Portfolio also invests primarily in Pennsylvania Municipal Securities, these
risk factors are generally also present in an investment in the William Penn
Portfolio. A full discussion of the risks inherent in investment in the
Federated Fund and the William Penn Portfolio is set forth in the Federated
Fund's Prospectus and Statement of Additional Information, each dated March 4,
1997, and the William Penn Portfolio's Prospectus and Statement of Additional
Information, each dated March 15, 1996, each of which is incorporated herein by
reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
CONSIDERATIONS OF THE BOARD OF TRUSTEES OF THE WILLIAM PENN PORTFOLIO.
During 1996, Penn Square Management Corporation advised the Board of Trustees of
the William Penn Portfolio that The William Penn Company was considering
redirecting its corporate strategy away from the management and distribution of
retail mutual funds and that it was seeking a buyer for its core businesses.
Moreover,
The William Penn Company engaged an investment banker to locate potential buyers
for the Penn Square Management Corporation. The potential buyer would provide
value-added shareholder services, technological advancements, comprehensive
distribution networks, and diversified mutual fund product choices that many
larger mutual fund complexes offer. After conducting a screening process, Penn
Square Management Corporation determined that in its judgment, the proposed
Reorganization was the most desirable alternative involving the William Penn
Portfolio that was reasonably available and presented it to the William Penn
Portfolio's Board of Trustees for its consideration at its February 12, 1997
meeting.
The independent Trustees formed a four-person due diligence team. The due
diligence team visited the Federated Investors offices in Pittsburgh,
Pennsylvania, and reviewed with the portfolio manager of the Federated Fund the
investment style and philosophy used to manage the assets of the Federated Fund.
In addition, the due diligence team inspected the Federated customer services
area and the William Penn Fund's independent counsel inspected the legal records
of the Federated Fund.
A meeting of the entire Board of Trustees was held on March 5, 1997, at
which Federated Investors presented to the Board information relating to the
overall reputation, financial strength and stability of Federated Investors, the
parent company of Federated Advisers (together with its affiliates,
"Federated"). Federated, founded in 1955, is among the seven largest mutual fund
sponsors, with over $110 billion invested across more than 300 funds under
management and/or administration by its subsidiaries, and over 2,000 employees.
Federated's management discussed the Federated Fund's investment performance
history and explained to the Board that the majority of this growth came from
within Federated through its multiple distribution channels. The Board was also
informed of the variety of investment products available through Federated,
including international funds and an array of domestic funds broader than
currently offered in the William Penn Fund Group, as well as the exchange
privileges that would be available to former William Penn Portfolio shareholders
if the Reorganization is consummated, and the multiple sales charge (or "load")
structures available to prospective shareholders. The Board took into account
that if the Reorganization takes place, shareholders of the William Penn
Portfolio would receive shares of the Federated Fund without the imposition of
any sales charge and without incurring any tax consequences.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for five surveys in a row by
DALBAR, Inc. Federated's management stated that its shareholder services include
advanced technological systems that result in quick shareholder access to a
broad spectrum of information, including: telephonic automated yield and
performance information; consolidated monthly shareholder statements; no-fee
IRAs; quarterly newsletters; year-end tax reporting information; direct deposit;
and telephonic redemption and exchange.
Federated's management also discussed comparative sales loads with the
Board. In particular, it was noted that the maximum front-end sales load of the
Class A Shares of the Federated Fund is lower than that of the Class A Shares of
the William Penn Portfolio. Federated's management also reviewed with the Board
relative asset size and expense ratios, including relative advisory fees.
The Board determined that the investment objectives and policies of the
William Penn Portfolio were substantially similar to those of the Federated
Fund. The Board was also presented with and discussed materials comparing the
performance, and relative risks of the William Penn Portfolio and the Federated
Fund. Federated's management also presented biographical information about each
of the Trustees of the Federated Fund and reviewed with the Board the structure
of its compliance and internal audit departments and the scope of its training
programs.
THE BOARD NOTED THAT THE WILLIAM PENN PORTFOLIO WOULD NOT BEAR ANY OF THE
COSTS INVOLVED IN THE REORGANIZATION, WHICH WOULD BE BORNE ENTIRELY BY THE
WILLIAM PENN COMPANY AND/OR FEDERATED. In addition, the Board discussed the
anticipated tax-free nature of the Reorganization to the William Penn Portfolio
and its shareholders.
In connection with their consideration of the Reorganization, the Board
also reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of
the 1940 Act, which provides that an investment manager to an investment
company, and the affiliates of such manager (such as Penn Square Management
Corporation), may receive any amount or benefit in connection with a sale of any
interest in such investment manager which results in an assignment of an
investment management contract if (1) for a period of three years after such
assignment, at least 75% of the Board of Trustees of the investment company are
not "interested persons" (as defined in the 1940 Act) of the new investment
manager or its predecessor; and (2) no "unfair burden" (as defined in the 1940
Act) is imposed on the investment company as a result of the assignment or any
express or implied terms, conditions or understandings applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Trustees
presently consists of thirteen (13) Trustees, only three (3) of whom are
"interested persons." With respect to the second condition of Section 15(f),
while there is no specific definition of "unfair burden," it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes any payments from the fund for other
than bona fide investment advisory or other services. The Board considered the
fact that representations were made by Federated and Penn Square Management
Corporation that the agreement between Federated and The William Penn Company
would contain representations and covenants that the Reorganization would not
impose an unfair burden on the Penn Square Group.
After reviewing and considering all of the information provided by
Federated and Penn Square Management Corporation, including the terms of the
Reorganization, the Board, including all of the Trustees who are not interested
persons of the William Penn Portfolio or Penn Square Management Corporation,
voted unanimously in person at the meeting held on March 5, 1997, to approve the
Reorganization and to recommend it to the shareholders of the William Penn
Portfolio for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
CONSIDERATIONS OF THE BOARD OF TRUSTEES OF THE FEDERATED FUND. The Board of
Trustees of the Federated Fund, including the independent Trustees, have
unanimously concluded that consummation of the Reorganization is in the best
interests of the Federated Fund and the shareholders of the Federated Fund and
that the interests of Federated Fund shareholders would not be diluted as a
result of effecting the Reorganization and have unanimously voted to approve the
Plan.
Agreement Between The William Penn Company and Federated
The Reorganization is being proposed as part of an agreement between
Federated and The William Penn Company pursuant to which the shareholders of The
William Penn Company would be compensated for selling to Federated their capital
stock and cooperating in facilitating the transaction contemplated by the
agreement.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the assets
and assume certain liabilities of the William Penn Portfolio in exchange for the
Federated Fund's Class A Shares to be distributed pro rata by the William Penn
Portfolio to its Class A and Class C shareholders respectively, in complete
liquidation of the William Penn Portfolio on or about May 30, 1997, or such
later date as the parties may mutually agree (the "Closing Date"). Shareholders
of the William Penn Portfolio will become shareholders of the Federated Fund as
of the close of business on the Closing Date, and will be entitled to the
Federated Fund's next dividend distribution.
As of or prior to the Closing Date, the William Penn Portfolio will declare
and pay a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its
shareholders all income for the period ending on the Closing Date. In addition,
the William Penn Portfolio's dividend will include its net capital gains
realized in the period ending on the Closing Date.
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance satisfactory
to the William Penn Portfolio and the Federated Fund, as described under the
caption "Federal Income Tax Consequences" below. The Plan may be terminated and
the Reorganization may be abandoned at any time before or after approval by
shareholders of the William Penn Portfolio prior to the Closing Date if a
majority of the independent board members of either board reasonably believe
that continuing the transaction would have a material adverse impact on that
fund.
Federated Advisers is responsible for the payment of substantially all of
the expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
registration fees, transfer taxes (if any), and the costs of preparing,
printing, copying and mailing proxy solicitation materials to the William Penn
Portfolio shareholders. Penn Square Management Corporation is responsible for
the payment of the legal and accounting fees of the William Penn Portfolio.
The foregoing description of the Plan entered into between the Federated
Fund and the William Penn Portfolio is qualified in its entirety by the terms
and provisions of the Plan, a copy of which is attached hereto as Exhibit A and
incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares of the Federated Fund will be issued
without the imposition of a sales charge or other fee to the corresponding
shareholders of the William Penn Portfolio in accordance with the procedures
described above. Class A Shares of the Federated Fund to be issued to
shareholders of the William Penn Portfolio under the Plan will be fully paid and
nonassessable when issued and transferable without restriction and will have no
preemptive or conversion rights. Reference is hereby made to the Prospectus of
the Federated Fund dated March 4, 1997, provided herewith for additional
information about Class A Shares of the Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Federated Trust, on behalf of the
Federated Fund, and the Trust, on behalf of the William Penn Portfolio, will
receive an opinion from Dickstein Shapiro Morin & Oshinsky LLP, counsel to the
Federated Fund, to the effect that, on the basis of the existing provisions of
the Code, current administrative rules and court decisions, for federal income
tax purposes: (1) the Reorganization as set forth in the Plan will constitute a
tax-free reorganization under Section 368(a)(1)(C) of the Code; (2) no gain or
loss will be recognized by the Federated Fund upon its receipt of the William
Penn Portfolio's assets solely in exchange for Federated Fund Class A Shares and
the assumption of certain stated liabilities; (3) no gain or loss will be
recognized by the William Penn Portfolio upon the transfer of its assets to the
Federated Fund in exchange for Federated Fund Class A Shares and the assumption
of certain stated liabilities or upon the distribution (whether actual or
constructive) of the Federated Fund Class A Shares to the William Penn Portfolio
shareholders in exchange for their shares of the William Penn Portfolio; (4) no
gain or loss will be recognized by shareholders of the William Penn Portfolio
upon the exchange of their William Penn Portfolio shares for Federated Fund
Class A Shares; (5) the tax basis of the William Penn Portfolio's assets
acquired by the Federated Fund will be the same as the tax basis of such assets
to the William Penn Portfolio immediately prior to the Reorganization; (6) the
tax basis of Federated Fund Class A Shares received by each shareholder of the
William Penn Portfolio pursuant to the Plan will be the same as the tax basis of
William Penn Portfolio shares held by such shareholder immediately prior to the
Reorganization; (7) the holding period of the assets of the William Penn
Portfolio in the hands of the Federated Fund will include the period during
which those assets were held by the William Penn Portfolio; and (8) the holding
period of Federated Fund Class A Shares received by each shareholder of the
William Penn Portfolio will include the period during which the William Penn
Portfolio shares exchanged therefor
were held by such shareholder, provided the William Penn Portfolio shares were
held as capital assets on the date of the Reorganization.
Shareholders should recognize that an opinion of counsel is not binding on
the Internal Revenue Service ("IRS") or any court. The William Penn Portfolio
does not expect to obtain a ruling from the IRS regarding the consequences of
the Reorganization. Accordingly, if the IRS sought to challenge the tax
treatment of the Reorganization and was successful, neither of which is
anticipated, the Reorganization would be treated as a taxable sale of assets of
the William Penn Portfolio, followed by the taxable liquidation of the William
Penn Portfolio. Shareholders should also be aware that following the
Reorganization the Federated adviser may decide to sell certain portfolio
securities which may result in the realization of capital gains.
Comparative Information on Shareholder Rights and Obligations
GENERAL. Both the Federated Trust and the Trust are open-end, diversified
management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Federated Fund is organized as a separate series of the Federated Trust as a
Massachusetts business trust under the laws of the State of Massachusetts and is
governed by its Declaration of Trust, By-Laws, and Board of Trustees, in
addition to applicable state and federal law. The William Penn Portfolio is
organized as a separate series of William Penn Interest Income Fund as a common
law trust under the laws of the Commonwealth of Pennsylvania and is governed by
its Declaration of Trust and Board of Trustees, in addition to applicable state
and federal law. Set forth below is a brief summary of the significant rights of
shareholders of the Federated Fund and the William Penn Portfolio.
SHARES OF THE FEDERATED FUND AND THE WILLIAM PENN PORTFOLIO. The Federated
Fund is authorized to issue an indefinite number of full and fractional shares
of beneficial interest without par value. The Board of Trustees has established
Class A Shares and Class B Shares of the Federated Fund. The William Penn
Portfolio is authorized to issue an unlimited number of shares of beneficial
interest which have no par value. The William Penn Portfolio is currently one of
five investment portfolios of William Penn Interest Income Fund and has Class A
Shares and Class C Shares outstanding. Issued and outstanding shares of both the
Federated Fund and William Penn Portfolio are fully paid and nonassessable, and
freely transferable.
VOTING RIGHTS. Neither the Federated Fund nor the William Penn Portfolio is
required to hold annual meetings of shareholders, except as required under the
1940 Act. Shareholder approval is necessary only for certain changes in
operations or the election of trustees under certain circumstances. The
Federated Fund requires that a special meeting of shareholders be called for any
permissible purpose upon the written request of the holders of at least 10% of
the outstanding shares of the series of the Federated Fund entitled to vote. A
special meeting of the shareholders of the William Penn Portfolio is required to
be called upon the written request of shareholders representing not less than
30% of the issued and outstanding shares entitled to vote. Each share of the
Federated Fund and the William Penn Portfolio gives the shareholder one vote in
director elections and other matters submitted to shareholders for vote. All
shares of each series or class in the Federated Fund and the William Penn
Portfolio have equal voting rights except that in matters affecting only a
particular series or class, only shares of that series or class are entitled to
vote.
TRUSTEES. The Declaration of Trust of the Federated Trust provides that the
term of office of each Trustee shall be until his or her resignation or removal
or until the annual meeting next held after his or her election or until
election and qualification of his or her successor. A Trustee of the Federated
Trust may be removed by a vote of a majority of all shares outstanding and
entitled to vote at any special meeting of shareholders, and such shareholders
may elect a Trustee to replace the Trustee so removed to serve for the remainder
of the term and until the election and qualification of his or her successor. A
vacancy on the Board may be filled by the action of a majority of the Trustees
remaining in office, and such elected Trustee shall hold office until the next
annual meeting of shareholders or until his or her successor is duly elected and
qualifies. Notwithstanding the foregoing, the shareholders may, at any
time during the term of such Trustee elected to fill a vacancy, elect some other
person to fill said vacancy and thereupon the election by the Board shall be
superseded. The Declaration of Trust of the Trust provides that each Trustee
appointed or elected in accordance with the Declaration of Trust serves for
terms of one year subject to annual re-elections and continues to serve until
their successors have been elected and qualified, unless they resign or are
removed. Regarding the Trust , a majority of the Trustees may accept the written
resignation of another Trustee or may remove him or her from office by written
notice to him and to the custodian. In addition, the holders of record of not
less than two-thirds of the outstanding shares of the Trust may have a Trustee
removed by filing a declaration with the custodian or by a vote at a meeting
called for such purpose. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon removal of such Trustee(s) when
requested in writing by holders of at least 10% of the Trust's outstanding
shares. Pending the filling of any vacancy or vacancies caused by death,
resignation, or removal, the remaining Trustee or Trustees shall have all the
powers and duties of the whole number of Trustees. If a vacancy occurs in the
office of a Trustee for any reason, including an increase in the number of
Trustees, the other Trustees shall by written notice delivered to the custodian
appoint a Trustee to fill the vacancy and will promptly notify the shareholders
that they have done so, subject to the provisions of Section 16(a) of the 1940
Act. The agreement to be entered into with the custodian will provide that, if
at any time the custodian decides that there is no Trustee available or able to
serve, it will call a meeting of the shareholders to elect at least three (3)
Trustees. With respect to the Federated Trust, a meeting of shareholders will be
required for the purpose of electing additional Trustees whenever fewer than a
majority of the Trustees then in office were elected by shareholders.
LIABILITY OF TRUSTEES AND OFFICERS. Under the Declaration of Trust of the
Federated Trust, a Trustee or officer will be personally liable only for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. The Declaration of
Trust further provide that Trustees and officers will be indemnified by the
Federated Trust against reasonable costs and expenses incurred in connection
with any claim or litigation unless the person's conduct is determined to
constitute willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the person's office. The
Declaration of Trust for the Trust contains a provision eliminating personal
liability of the Trustees. Claimants must look only to the assets of the
portfolio for payment or satisfaction of claims. Trustees of the Trust are not
protected from liability by reason of willful misconduct, bad faith,
recklessness, or gross negligence in the performance of their duties as
Trustees. Further, the Trustees have the power to indemnify the officers and
employees of the Trust against reasonable liabilities and expenses unless
incurred in bad faith or reckless disregard of his duties, or with willful
misconduct or gross negligence. In addition, due to the provisions of the 1940
Act, shareholders would still have the right to pursue monetary claims against
directors or officers for acts involving willful malfeasance, bad faith, gross
negligence or reckless disregard of their duties as directors or officers.
TERMINATION OR LIQUIDATION. In the event of the termination or liquidation
of the Federated Trust or any series or class of the Federated Fund or of the
termination or liquidation of the Trust or the William Penn Portfolio, the
shareholders of the respective fund or class are entitled to receive, when and
as declared by its Trustees, the excess of the assets belonging to the
respective fund or class over the liabilities belonging to the respective fund
or class. In either case, the assets belonging to the fund or class will be
distributed among the shareholders in proportion to the number of shares of the
respective fund or class held by them.
Capitalization.
The following table sets forth the unaudited capitalization of the Class A
Shares of the Federated Fund and the shares of the William Penn Portfolio as of
February 28, 1997, and on a pro forma combined basis as of that date:
<TABLE>
<CAPTION>
CLASS A SHARES
--------------------------- CLASS C SHARES PRO FORMA
FED. FUND WM. PENN WM. PENN COMBINED
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net Assets........................... $85,237,124 $128,662,876 $1,655,528 $215,555,528
Net Asset Value Per Share............ $ 11.53 $ 11.07 $ 11.06 $ 11.53
Shares Outstanding................... 7,390,441 11,623,704 149,657 18,689,631
</TABLE>
INFORMATION ABOUT THE FEDERATED FUND
AND THE WILLIAM PENN PORTFOLIO
Municipal Securities Income Trust, Federated Pennsylvania Municipal Income Fund
Information about the Federated Fund is contained in the Federated Fund's
current Prospectus dated March 4, 1997, a copy of which is included herewith and
incorporated herein by reference. Additional information about the Federated
Fund is included in the Federated Fund's Annual Report to Shareholders dated
August 31, 1996, the Statement of Additional Information dated March 4, 1997,
and the Statement of Additional Information dated April 17, 1997 (relating to
this Prospectus/Proxy Statement), each of which is incorporated herein by
reference. Copies of the Annual Report and Statements of Additional Information,
which have been filed with the Securities and Exchange Commission (the "SEC"),
may be obtained upon request and without charge by contacting the Federated Fund
at 1-800-245-4770, or by writing the Federated Fund at Federated Investors
Tower, Pittsburgh, PA 15222-3779. The Federated Fund is subject to the
informational requirements of the Securities Act of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and in accordance therewith files reports and other information with
the SEC. Reports, proxy and information statements, charter documents and other
information filed by the Federated Fund can be obtained by calling or writing
the Federated Fund and can also be inspected and copied by the public at the
public reference facilities maintained by the SEC in Washington, DC located at
Room 1024, 450 Fifth Street, N.W., Washington, DC 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New
York, NY 10048. Copies of such material can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450
Fifth Street, N.W., Washington, DC 20549 at prescribed rates or electronically
at Internet Web Site (www.sec.gov).
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Fund with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Federated Fund and the shares offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
William Penn Interest Income Fund, Pennsylvania Tax-Free Income Portfolio
Information about the William Penn Interest Income Fund, Pennsylvania
Tax-Free Income Portfolio is contained in the William Penn Portfolio's current
Prospectus dated March 15, 1996, the Annual Report to Shareholders dated
December 31, 1996, the Semi-Annual Report to Shareholders dated June 30, 1996,
the Statement of Additional Information dated March 15, 1996, and the Statement
of Additional Information dated April 17, 1997 (relating to this
Prospectus/Proxy Statement), each of which is incorporated herein by reference.
Copies of such Prospectus, Annual Report, Semi-Annual
Report, and Statements of Additional Information, which have been filed with the
SEC, may be obtained upon request and without charge from the William Penn
Portfolio by calling 1-800-523-8440 or by writing to the William Penn Portfolio
at 2650 Westview Drive, Wyomissing, PA 19610. The William Penn Portfolio is
subject to the informational requirements of the 1933 Act, the 1934 Act and the
1940 Act and in accordance therewith files reports and other information with
the SEC. Reports, proxy and information statements, charter documents and other
information filed by William Penn Interest Income Fund or its portfolio, the
William Penn Portfolio, can be obtained by calling or writing the William Penn
Portfolio and can also be inspected at the public reference facilities
maintained by the SEC or obtained at prescribed rates at the addresses listed in
the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the William Penn Portfolio of proxies
for use at the Special Meeting of Shareholders (the "Special Meeting") to be
held at 9:00 a.m. on May 29, 1997 at: Sheraton Berkshire Motor Inn, 1741 Paper
Mill Road, Wyomissing, PA 19610, and at any adjournments thereof. The proxy
confers discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before the
Special Meeting. A proxy, if properly executed, duly returned and not revoked,
will be voted in accordance with the specifications thereon; if no instructions
are given, such proxy will be voted in favor of the Plan. A shareholder may
revoke a proxy at any time prior to use by filing with the Secretary of the
William Penn Portfolio an instrument revoking the proxy, by submitting a proxy
bearing a later date or by attending and voting at the Special Meeting. Proxies,
instruments revoking a proxy, or proxies bearing a later date may be
communicated by telephone, by electronic means including facsimile, or by mail.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Advisers. In addition to solicitations
through the mails, proxies may be solicited by officers, employees and agents,
including third party solicitors, of the William Penn Portfolio, Federated
Advisers and their respective affiliates at no additional cost to the William
Penn Portfolio. Such solicitations may be by telephone, telegraph, or personal
contact. Any telephonic solicitations will follow procedures designed to insure
accuracy and prevent fraud including requiring identifying shareholder
information, recording the shareholder's instructions, and confirming to the
shareholder after the fact that the vote was in accordance with the
shareholder's instructions. Shareholders who communicate proxies by telephone or
by other electronic means have the same power and authority to issue, revoke, or
otherwise change their voting instructions as currently exists for instructions
communicated in written form. Federated Advisers will reimburse custodians,
nominees and fiduciaries for the reasonable costs incurred by them in connection
with forwarding solicitation materials to the beneficial owners of shares held
of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the William Penn Portfolio has fixed the close of
business on April 14, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. As of the record date, there were 11,152,694.535 Class A
Shares and 149,212.468 Class C Shares of the William Penn Portfolio outstanding.
Each of the William Penn Portfolio's shares is entitled to one vote and
fractional shares have proportionate voting rights. On the record date, the
Trustees and officers of the William Penn Portfolio as a group owned less than
1% of the outstanding Class A Shares and Class C Shares of the William Penn
Portfolio. To the best knowledge of Penn Square Management Corporation, as of
the record date, no person, except as set forth in the table below, owned
beneficially or of record 5% or more of the outstanding Class A or Class C
Shares of William Penn Portfolio.
CLASS A SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ---------------------------------------------------- ------------- -------------------
<S> <C> <C>
Shearson Lehman Brothers............................ 1,312,603.419 11.77%
New York, NY
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ---------------------------------------------------- ------------- -------------------
<S> <C> <C>
Jean Michalak....................................... 17,597.537 11.79%
Pipersville, PA
Harold J. Purvis.................................... 7,700.942 5.16%
Shillington, PA
Robert W. and Judith I. Miller...................... 14,114.820 9.46%
Joint tenants in common
Orwigsburg, PA
</TABLE>
As of the record date, there were 7,647,087.504 Class A Shares, and
86,676.093 Class B Shares of the Federated Fund outstanding. On the record date,
the Trustees and officers of the Federated Fund as a group owned less than 1% of
the outstanding Class A Shares and Class B Shares of the Federated Fund. To the
best knowledge of Federated Advisers, as of the record date, no person, except
as set forth in the table below, owned beneficially or of record 5% or more of
the Federated Fund's outstanding Class A or Class B Shares.
CLASS A SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------------ -------------- ------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith......................... 1,149,589.00 15.03%
acting in various capacities for
numerous accounts on behalf of its customers
Jacksonville, FL
BHC Securities, Inc......................................... 385,564.001 5.04%
Philadelphia, PA
CLASS B SHARES
Marilyn H. Rattner.......................................... 16,129.992 18.61%
Pittsburgh, PA
Merrill Lynch Pierce Fenner & Smith......................... 10,267.00 11.85%
acting in various capacities for
numerous accounts on behalf of its customers
Jacksonville, FL
Stewart E. Lauer, Jr........................................ 8,751.954 10.10%
Pittsburgh, PA
Wendie G. Riordan........................................... 6,504.77 7.50%
Sewickley, PA
BHC Securities, Inc......................................... 6,337.129 7.31%
Philadelphia, PA
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------------ -------------- ------------------
<S> <C> <C>
Elizabeth Martinick......................................... 5,664.100 6.53%
Pittsburgh, PA
PaineWebber................................................. 5,479.332 6.32%
for the benefit of John W. Hurst, M.D.
Hollidayburg, PA
BHC Securities, Inc......................................... 5,006.341 5.78%
Philadelphia, PA
</TABLE>
Approval of the Plan requires the affirmative vote of a majority of the
votes cast at the Special Meeting. Shares represented by abstentions and "broker
non-votes" will be counted as present at the Special Meeting, but not as votes
cast, which means they will have the effect of reducing the number of votes cast
required to approve the Plan. The votes of shareholders of the Federated Fund
are not being solicited since their approval is not required in order to effect
the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the William Penn Portfolio objecting to the Reorganization
have no appraisal rights under the William Penn Portfolio's Declaration of Trust
or Pennsylvania law. Under the Plan, if approved by William Penn Portfolio
shareholders, each shareholder will become the owner of Class A Shares of the
Federated Fund having a total net asset value equal to the total net asset value
of his or her holdings in the William Penn Portfolio's Class A or Class C Shares
at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the William Penn Portfolio knows of no other matters that may
properly be, or which are likely to be, brought before the Special Meeting.
However, if any other business shall properly come before the Special Meeting,
the persons named in the proxy intend to vote thereon in accordance with their
best judgment.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to a
later date. In the event that a quorum is present but sufficient votes in favor
of one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to any such proposal. All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which they are
entitled to vote in favor of the proposal, in favor of such an adjournment, and
will vote those proxies required to be voted against the proposal, against any
such adjournment.
Whether or not shareholders expect to attend the Special Meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated March 24, 1997 (the
"Agreement"), between MUNICIPAL SECURITIES INCOME TRUST, a Massachusetts
business trust (the "Federated Trust"), on behalf of its portfolio FEDERATED
PENNSYLVANIA MUNICIPAL INCOME FUND (hereinafter called the "Acquiring Fund"),
and WILLIAM PENN INTEREST INCOME FUND, a Pennsylvania Common Law Trust
(hereinafter called the "Trust") on behalf of its portfolio PENNSYLVANIA
TAX-FREE INCOME PORTFOLIO (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all the assets and the
assumption of certain liabilities of the Acquired Fund in exchange solely for
Class A Shares of the Acquiring Fund (the "Acquiring Fund Shares") and the
distribution, after the Closing Date (as hereinafter defined), of the Acquiring
Fund Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Trust and the Federated Trust are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock or shares of beneficial interest, as the case
may be;
WHEREAS, the Board of Trustees, including a majority of the directors who
are not "interested persons" (as defined under the Investment Company Act
of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined
that the transfer of all of the assets and the assumption of certain
liabilities of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund shareholders and that the interests of the
existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act), of the Trust
has determined that the transfer of all of the assets and the assumption of
certain liabilities of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired Fund
agrees to assign, transfer and convey to the Acquiring Fund all of the assets of
the Acquired Fund, including all securities and cash, other than cash in an
amount necessary to pay any unpaid dividends and distributions as provided in
paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring Fund
agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares,
the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's
account, for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the shareholders of
the Acquired Fund.
1.2 The Acquiring Fund will assume only those certain liabilities which are
set forth in a certificate to be provided by the Acquired Fund at Closing and
accepted by the Acquiring Fund.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash delivered
shall be in the form of immediately available funds payable to the order of the
Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record, determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Trust up to and including the Closing Date and such
later dates, with respect to dissolution and deregistration of the Trust, on
which the Trust is dissolved and deregistered.
1.9 The Trust shall be deregistered as an investment company under the 1940
Act and dissolved as a Pennsylvania common law trust as promptly as practicable
following the Closing Date and the making of all distributions pursuant to
paragraph 1.5.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the
Closing Date (such time and date being herein called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets shall
be determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund, which practices have been reviewed by the
Acquired Fund's Board of Trustees.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be May 30, 1997 or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time)
at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA
15222-3779, or such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 Penn Square Management Corporation, as transfer agent for the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, assumption agreements, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust represents and warrants to the Acquiring Fund as follows:
(a) The Trust is a Common Law Trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and has power
to own all of its properties and assets and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as an open-end, management
investment company, and such registration has not been revoked or rescinded and
is in full force and effect.
(c) The Trust is not, and the execution, delivery and performance of this
Agreement will not result, in material violation of the Trust's Declaration of
Trust or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund at
December 31, 1995 and at December 31, 1996 has been audited by Ernst & Young
LLP, independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such dates not disclosed
therein.
(h) Since December 31, 1996, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(i) At the Closing Date, all federal and other tax returns and reports of
the Acquired Fund required by law to have been filed by such date shall have
been filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of the Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Trust and, subject to the approval of the Acquired Fund
Shareholders, this Agreement constitutes the valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (only insofar as it relates to the Acquired Fund)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
4.2 The Acquiring Fund represents and warrants to the Trust as follows:
(a) The Federated Trust is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts and has the power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Federated Trust is registered under the 1940 Act as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Federated Trust is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Federated
Trust's Declaration of Trust or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at August
31, 1995 and 1996, have been audited by Deloitte & Touche LLP, independent
auditors, and have been prepared in accordance with generally accepted
accounting principles, and such statements (copies of which have been furnished
to the Acquired Fund) fairly reflect the financial condition of the Acquiring
Fund as of such dates, and there are no known contingent liabilities of the
Acquiring Fund as of such dates not disclosed therein.
(g) Since August 31, 1996, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business.
(h) At the Closing Date, all federal and other tax returns and reports of
the Acquiring Fund required by law to have been filed or an appropriate
extension obtained, by such date shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof or contest in good faith, and to the best of the
Acquiring Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Federated Trust, and this
Agreement constitutes the valid and legally binding obligation of the Acquiring
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Trust will call a meeting of the Acquired Fund Shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes which will be
carried over to the Acquiring Fund as a result of Section 381 of the Code and
which will be certified by the Trust's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(o), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act as it may
deem appropriate in order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Section 103(a) of the Code over its deductions disallowed
under Sections 265 and 171(a)(2) of the Code for the taxable periods or years
ended on or before December 31, 1996 and for the period from said date to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in taxable
periods or years ended on or before December 31, 1996 and in the period from
said date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Trust shall have delivered to the Acquiring Fund a statement of the
Acquired Fund's assets, together with a list of the Acquired Fund's portfolio
securities showing the tax costs of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the Treasurer
of the Trust.
6.3 The Trust shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the
effect that the representations and warranties of the Trust made in this
Agreement are true and correct in all material respects at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request.
6.4 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate specifying the liabilities which are to be assumed by the Acquiring
Fund all of which shall be reflected in the net asset value of the Acquired Fund
on the Closing Date, which liabilities shall be acceptable to the Acquiring Fund
in its sole discretion.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Federated Trust contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquired
Fund, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct in all material respects at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, either
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of applicable law.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in
all material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Acquired Fund, provided that either party hereto may
for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Federated Trust and the Trust shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets and the assumption of
certain liabilities in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in
liquidation of the Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund solely in exchange for the Acquiring Fund Shares and the assumption of
certain liabilities; (c) No gain or loss will be recognized by the Acquired Fund
upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption of certain liabilities or upon
the distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e)
The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately prior
to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received
by each of the Acquired Fund Shareholders pursuant to the Reorganization will be
the same as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and (h) The holding
period of the Acquiring Fund Shares to be received by each Acquired Fund
Shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the Trust or
the Board of Trustees of the Federated Trust at any time prior to the Closing
Date (and notwithstanding any vote of the Acquired Fund Shareholders) if a
majority of the independent board members of either board reasonably believes
that continuing this transaction would have a material adverse impact on
shareholders of that fund.
9.2 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the trustees or officers of the Trust or the Federated Trust or the
shareholders of the Acquiring Fund or of the Acquired Fund, in respect of this
Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may
be waived by the Board of Trustees of the Federated Trust or the Board of
Trustees of the Trust, if, in the judgment of either, such waiver will not have
a material adverse effect on the benefits intended under this Agreement to the
shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, without giving effect to
principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6 An agreement has been entered into under which Federated Advisers will
assume substantially all of the expenses of the Reorganization including
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund Shareholders and the costs of
holding the special meeting of shareholders. Penn Square Management Corporation
will assume the legal and accounting fees of the Acquired Fund.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
<TABLE>
<S> <C>
Acquired Fund:
WILLIAM PENN INTEREST INCOME FUND,
on behalf of its portfolio,
PENNSYLVANIA TAX-FREE
Attest: INCOME PORTFOLIO
/s/ SANDRA J. HOUCK /s/ JAMES E. JORDAN
- -------------------------------------- By:
Name: Sandra J. Houck --------------------------------------------
Title: Secretary Name: James E. Jordan
Title: President
Acquiring Fund:
MUNICIPAL SECURITIES INCOME TRUST
on behalf of its portfolio,
FEDERATED PENNSYLVANIA MUNICIPAL
Attest: INCOME FUND
/s/ S. ELLIOTT COHAN /s/ RICHARD B. FISHER
- -------------------------------------- By:
Name: S. Elliott Cohan --------------------------------------------
Title: Assistant Secretary Name: Richard B. Fisher
Title: President
</TABLE>
CUSIP: 625922505
G02062-05 4/97
STATEMENT OF ADDITIONAL INFORMATION
APRIL 17, 1997
Acquisition of the Assets of
Pennsylvania Tax-Free Income Portfolio, a Portfolio of
William Penn Interest Income Fund
2650 Westview Drive
Wyomissing, Pennsylvania 19610
Telephone Number: 1-800-523-8440
By and in exchange for Class A Shares of
Federated Pennsylvania Municipal Income Fund,
a portfolio of
Municipal Securities Income Trust
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-4770
This Statement of Additional Information dated April 17, 1997 is not a
prospectus. A Prospectus/Proxy Statement dated April 17, 1997 related to the
above-referenced matter may be obtained from Federated Pennsylvania
Municipal Income Fund, a Portfolio of Municipal Securities Income Trust,
Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This
Statement of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated Pennsylvania Municipal
Income Fund, a portfolio of Municipal Securities Income Trust, dated March
4, 1997.
2. Statement of Additional Information of Pennsylvania Tax-Free Income
Portfolio, a portfolio of William Penn Interest Income Fund, dated March 15,
1996.
3. Financial Statements of Federated Pennsylvania Municipal Income Fund, a
portfolio of Municipal Securities Income Trust, dated August 31, 1996.
4. Financial Statements of Pennsylvania Tax-Free Income Portfolio, a
portfolio of William Penn Interest Income Fund, dated December 31, 1996.
5. Pro forma Financial Statements (unaudited) of the combined Pennsylvania
Tax-Free Income Portfolio, a portfolio of William Penn Interest Income Fund,
dated August 31, 1996 and the Federated Pennsylvania Municipal Income Fund,
a portfolio of Municipal Securities Income Trust, dated August 31, 1996.
The Statement of Additional Information of Federated Pennsylvania Municipal
Income Fund (the "Federated Fund"), a portfolio of Municipal Securities
Income Trust, dated March 4, 1997, is incorporated herein by reference to
Post-Effective Amendment No. 22 to the Federated Trust's Registration
Statement on Form N-1A (File Nos. 33-36729 and 811-6165) which was
filed with the Securities and Exchange Commission on or about February 12,
1997. A copy may be obtained, upon request and without charge, from the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-245-4770.
The Statement of Additional Information of Pennsylvania Tax-Free Income
Portfolio (the "William Penn Portfolio"), a portfolio of William Penn
Interest Income Fund (the "Trust"), dated March 15, 1996, is incorporated
herein by reference to Post-Effective Amendment No. 16 to the Trust's
Registration Statement on Form N-1A (File
Nos. 33-14609 and 811-5177) which was filed with the Securities and Exchange
Commission on or about March 21, 1996. A copy may be obtained, upon request
and without charge, from the William Penn Portfolio at 2650 Westview Drive,
Wyomissing, Pennsylvania 19610; telephone number: 1-800-523-8440.
The audited financial statements of the Federated Fund, dated August 31,
1996, are incorporated herein by reference to the Federated Fund's Annual
Report to Shareholders dated August 31, 1996 which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3779; telephone number: 1-800-245-4770.
The audited financial statements of the William Penn Portfolio, dated
December 31, 1996, are incorporated herein by reference to the William Penn
Portfolio's Annual Report to Shareholders dated December 31, 1996, which was
filed with the Securities and Exchange Commission. A copy may be obtained,
upon request and without charge, from the William Penn Portfolio at 2650
Westview Drive, Wyomissing, Pennsylvania 19610; telephone number
1-800-523-8440.
Pro forma financial statements are included herein as the total net assets
of the William Penn Portfolio do exceed 10% of the total assets of the
Federated Fund. At February 28, 1997, the total net assets of the William
Penn Portfolio were $130,318,404 and the total net assets of the Federated
Fund were $85,237,124.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
INTRODUCTION TO PROPOSED MERGER
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
Pennsylvania Municipal Income Fund and Pennsylvania Tax-Free Income
Portfolio, collectively ("the Funds"), as of August 31, 1996. These
statements have been derived from the books and records utilized in
calculating daily net asset values at August 31, 1996. The accompanying
unaudited Pro Forma Combining Statement of Operations reflects the accounts
of Federated Pennsylvania Municipal Income Fund's most recent fiscal year
ended August 31, 1996, and the twelve-month period ended August 31, 1996,
for Pennsylvania Tax-Free Income Portfolio.
The Pro Forma statements give effect to the proposed transfer of assets from
Pennsylvania Tax-Free Income Portfolio in exchange for Class A Shares of
Federated Pennsylvania Municipal Income Fund.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- 96.1%
PENNSYLVANIA -- 96.1%
$ -- $ 685,000 $ 685,000 Aliquippa, PA,
Aliquippa School
District, 6/1/2013 $ -- $ 245,894 $ 245,894
-- 585,000 585,000 Aliquippa, PA,
Aliquippa School
District, 6/1/2014 -- 196,858 196,858
-- 690,000 690,000 Allegheny County, PA,
GO Bonds,
7.300%, 2/15/1997 -- 700,840 700,840
-- 325,000 325,000 Allegheny County, PA
Hospital
Authority, (MBIA INS),
7.600%,
3/1/2008 -- 346,593 346,593
-- 3,465,000 3,465,000 Allegheny County, PA
Hospital
Authority, (ESCROW),
6.625%,
7/1/2009 -- 3,815,242 3,815,242
2,000,000 -- 2,000,000 Allegheny County, PA
HDA, Health
& Education Revenue
Bonds, 7.000%
(Rehabilitation
Institute of
Pittsburgh)/(Original
Issue
Yield: 7.132%), 6/1/2022 2,027,100 -- 2,027,100
2,325,000 -- 2,325,000 Allegheny County, PA
HDA,
Revenue Refunding
Bonds, 6.875%
(Children's Hospital of
Pittsburgh)/
(MBIA INS)/(Original
Issue Yield:
7.061%), 7/1/2014 2,467,337 -- 2,467,337
-- 500,000 500,000 Allegheny County, PA
INS District,
6.800%, (MBIA INS),
4/1/2000 -- 537,840 537,840
-- 500,000 500,000 Allegheny County, PA
INS District,
7.300%, (MBIA INS),
4/1/2009 -- 536,450 536,450
465,000 -- 465,000 Allegheny County, PA
Residential
Finance Agency, SFM
Revenue
Bonds (Series K),
7.750% (GNMA
COL), 12/1/2022 489,087 -- 489,087
775,000 -- 775,000 Allegheny County, PA
Residential
Finance Agency, SFM
Revenue
Bonds (Series Q),
7.400% (GNMA
COL), 12/1/2022 815,548 -- 815,548
-- 590,000 590,000 Allegheny County, PA
Sanitary
Authority, (FGIC INS),
7.250%,
12/1/2003 -- 632,456 632,456
-- 500,000 500,000 Allentown, PA,
Allentown School
District, GO Bond,
6.500%,
(AMBAC INS), 11/1/2001 -- 542,510 542,510
2,060,000 -- 2,060,000 Allentown, PA Area
Hospital
Authority, Revenue
Bonds (Series B),
6.750% (Sacred Heart
Hospital of
Allentown), 11/15/2015 2,064,326 -- 2,064,326
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 1,170,000 $ 1,170,000 Bethlehem, PA, 6.150%,
(AMBAC
INS), 6/1/2002 $ -- $ 1,250,297 $ 1,250,297
-- 500,000 500,000 Bethlehem, PA, 6.750%,
(AMBAC
INS), 9/1/2002 -- 542,345 542,345
-- 400,000 400,000 Berks County, PA
Municipal
Authority, 6.300%,
9/1/2002 -- 408,996 408,996
-- 3,000,000 3,000,000 Berks County, PA,
11/15/2020 -- 689,040 689,040
4,250,000 -- 4,250,000 Bradford County, PA
IDA, Solid
Waste Disposal Revenue
Bonds
(Series A), 6.600%
(International
Paper Co.), 3/1/2019 4,394,713 -- 4,394,713
-- 705,000 705,000 Bucks County, PA Water
& Sewer
Authority, (FGIC INS),
5.500%,
2/1/2008 721,786 721,786
750,000 -- 750,000 Butler County, PA
Hospital
Authority, Hospital
Revenue Bonds
(Series A), 7.000%
(North Hills
Passavant
Hospital)/(FSA INS),
6/1/2022 809,798 -- 809,798
-- 1,260,000 1,260,000 Butler, PA, Butler
School District,
12/1/2014 -- 421,521 421,521
-- 100,000 100,000 Canon, PA, Canon School
District,
3/1/2010 -- 45,486 45,486
-- 150,000 150,000 Center Township, PA,
Sewer
Authority, (Series
A)/(MBIA INS),
4/15/2018 -- 40,561 40,561
-- 2,170,000 2,170,000 Chartiers Valley, PA,
Chartiers
Valley School District,
6.150%,
(ESCROW), 3/1/2007 -- 2,239,440 2,239,440
-- 1,035,000 1,035,000 Chester County, 6.400%, -- 1,112,366 1,112,366
12/15/2001
-- 745,000 745,000 Cocalico School
District, PA, 6.400%,
(MBIA INS), 3/1/2001 -- 799,921 799,921
-- 1,575,000 1,575,000 Commonwealth of
Pennsylvania,
6.000%, 7/1/2007 -- 1,668,870 1,668,870
-- 1,105,000 1,105,000 Cornell, PA, Cornell
School District,
6.000%, 9/1/2002 -- 1,162,858 1,162,858
-- 920,000 920,000 Dauphin, PA, GO Bonds,
(MBIA
INS), 10/1/2018 -- 241,942 241,942
-- 425,000 425,000 Delaware County, PA
IDA, 7.900%,
12/1/2005 -- 443,224 443,224
1,750,000 -- 1,750,000 Delaware County, PA
Authority,
Hospital Revenue Bonds,
5.300%
(Crozer-Chester Medical
Center)/
(MBIA INS)/(Original
Issue
Yield: 5.550%),
12/15/2020 1,603,630 -- 1,603,630
-- 200,000 200,000 Delaware County, PA
Delaware
River Joint Toll
Authority, 7.400%,
7/1/2002 -- 214,554 214,554
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 750,000 $ -- $ 750,000 Derry Township, PA
School District,
GO Bonds, 7.00% (United
States
Treasury PRF),
9/15/2009 $ 832,110 $ -- $ 832,110
1,600,000 -- 1,600,000 Dormont Borough, PA,
Allegheny
County, UT GO Bonds
(Series 1995),
7.000% (United States
Treasury
PRF)/(Original Issue
Yield: 7.125%),
3/1/2010 (@100) 1,719,872 -- 1,719,872
-- 500,000 500,000 Easton, PA, Northampton
County,
12/1/2011 -- 203,840 203,840
-- 700,000 700,000 Easton, PA, Northampton
County,
6/1/2012 -- 274,995 274,995
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2018 -- 605,717 605,717
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2019 -- 571,108 571,108
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2020 -- 533,494 533,494
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2021 -- 507,725 507,725
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2022 -- 478,708 478,708
-- 2,210,000 2,210,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2023 -- 451,370 451,370
-- 2,170,000 2,170,000 Elizabeth, PA,
Elizabeth School
District, (MBIA INS),
9/1/2024 -- 412,235 412,235
-- 500,000 500,000 Erie, PA, Erie Lease
Revenue, (Erie
Prison), 6.450%, (MBIA
INS),
11/1/2001 -- 543,525 543,525
-- 3,800,000 3,800,000 Exeter School District,
PA, (FGIC
INS), 5/15/2017 -- 1,079,618 1,079,618
-- 3,800,000 3,800,000 Exeter School District,
PA, (FGIC
INS), 5/15/2018 -- 1,015,968 1,015,968
-- 3,800,000 3,800,000 Exeter School District,
PA, (FGIC
INS), 5/15/2019 -- 956,080 956,080
2,000,000 -- 2,000,000 Fayette County, PA
Hospital
Authority, Hospital
Revenue Bonds
(Series 1996A), 5.750%
(Uniontown
Hospital)/(Connie Lee
INS)/
(Original Issue Yield:
6.050%),
6/15/2015 1,898,580 -- 1,898,580
1,000,000 -- 1,000,000 Geisinger Authority, PA
Health
System, Revenue Bonds,
7.625%
(United States Treasury
PRF)/
(Original Issue Yield:
7.697%),
7/1/2009 (@102) 1,101,990 -- 1,101,990
-- 750,000 750,000 Harrisburg, PA,
Harrisburg Water
Authority, 6.650%,
(FGIC INS),
7/15/2001 -- 816,067 816,067
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 175,000 $ 175,000 Harrisburg, PA,
Harrisburg Water
Authority, 6.800%,
7/15/2002 $ -- $ 190,913 $ 190,913
-- 1,000,000 1,000,000 Harrisburg, PA,
Harrisburg Water
Authority, 7.000%,
(FGIC INS),
7/15/2015 -- 1,099,550 1,099,550
-- 500,000 500,000 Harrisburg, PA, Public
School
Authority, 6.500%,
(MBIA INS),
4/1/2002 -- 543,995 543,995
-- 710,000 710,000 Hatboro, PA, Hatboro
School
District, 6.650%,
9/1/2002 -- 746,728 746,728
-- 2,000,000 2,000,000 Hempfield, PA,
Hempfield Area
School District,
4.600%, 10/15/2004 -- 1,950,920 1,950,920
-- 955,000 955,000 Johnstown, PA,
Johnstown School
District Pre 1987,
7.250%, 5/1/2003 -- 975,284 975,284
1,000,000 -- 1,000,000 Lackawanna Trail School
District,
PA, UT GO Refunding
Bonds,
6.900% (AMBAC INS),
3/15/2010 1,089,060 -- 1,089,060
1,380,000 -- 1,380,000 Latrobe, PA Industrial
Development
Authority, College
Revenue
Bonds, 6.750% (St.
Vincent
College, PA)/(Original
Issue
Yield: 7.000%),
5/1/2024 1,389,067 -- 1,389,067
1,500,000 -- 1,500,000 Lebanon County, PA Good
Samaritan Hospital
Authority,
Hospital Revenue Bonds,
6.000%
(Good Samaritan
Hospital)/
(Original Issue Yield:
6.100%),
11/15/2018 1,395,705 -- 1,395,705
1,000,000 -- 1,000,000 Lehigh County, PA
General
Purpose Authority,
Hospital
Refunding Revenue Bonds
(Series 1996A), 5.750%
(Muhlenberg Hospital
Center)/
(Original Issue Yield:
5.850%),
7/15/2010 975,680 -- 975,680
-- 750,000 750,000 Lehigh County, PA
Higher
Education, (Lehigh
University)/
(North Hampton County),
6.400%, 9/1/1997 -- 766,478 766,478
2,500,000 -- 2,500,000 Luzerne County, PA IDA,
Revenue Refunding Bonds
(Series A), 7.000%
(Pennsylvania
Gas & Water Company)/
(AMBAC INS), 12/1/2017 2,747,100 -- 2,747,100
4,000,000 -- 4,000,000 Lycoming County PA
Authority,
Hospital Lease Revenue
Bonds
(Series B), 6.500%
(Divine
Providence Hospital,
PA)/
(Original Issue Yield:
6.700%),
7/1/2022 4,275,440 -- 4,275,440
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 1,000,000 $ 1,000,000 Mannheim, PA, Mannheim
Central School
District, 6.400%,
(FGIC INS), 3/1/2001 $ -- $ 1,069,520 $ 1,069,520
-- 1,010,000 1,010,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2021 -- 222,119 222,119
-- 435,000 435,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2022 -- 89,588 89,588
-- 2,210,000 2,210,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2023 -- 428,320 428,320
-- 2,210,000 2,210,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2024 -- 403,060 403,060
-- 2,210,000 2,210,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2025 -- 379,302 379,302
-- 1,880,000 1,880,000 Mars, PA, Mars School
District,
(FGIC INS), 9/1/2026 -- 303,639 303,639
-- 390,000 390,000 McKean, PA, McKean IDA,
(Kmart), 6.375%,
4/1/2004 -- 381,213 381,213
-- 1,000,000 1,000,000 McKeesport, PA,
McKeesport
School District, (FSA
INS),
10/1/2016 -- 296,790 296,790
-- 1,200,000 1,200,000 McKeesport, PA,
McKeesport
School District, (FSA
INS),
10/1/2017 -- 333,192 333,192
-- 1,440,000 1,440,000 McKeesport, PA,
McKeesport
School District, (FSA
INS), 10/1/2018 -- 376,258 376,258
-- 2,000,000 2,000,000 McKeesport, PA,
McKeesport
School District, (FSA
INS), 10/1/2019 -- 491,780 491,780
-- 1,000,000 1,000,000 McKeesport, PA,
McKeesport
School District, (FSA
INS), 10/1/2020 -- 229,240 229,240
-- 1,375,000 1,375,000 McKeesport, PA,
McKeesport
School District, (FSA
INS), 10/1/2021 -- 296,505 296,505
-- 800,000 800,000 Mill Creek Township
School
District, PA, (FGIC
INS), 8/15/2002 -- 590,208 590,208
1,000,000 -- 1,000,000 Monroeville, PA
Hospital Authority,
Hospital Refunding
Revenue Bonds
(Series 1995), 6.250%
(Forbes Health
System, PA)/(Original
Issue
Yield: 6.600%),
10/1/2015 983,530 -- 983,530
-- 500,000 500,000 Montour, PA, Montour
School
District, 7/1/2018 -- 136,740 136,740
-- 445,000 445,000 Montour, PA, Montour
School
District, 1/1/2011 -- 191,470 191,470
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 500,000 $ 500,000 North Cambria, PA,
Northern
Cambria School
District, 7.100%,
(AMBAC INS), 1/15/2007 $ -- $ 538,790 $ 538,790
-- 1,080,000 1,080,000 Northeastern York
County School
District, 9/1/2012 -- 418,036 418,036
-- 400,000 400,000 North Hills School
District, PA,
7/15/2004 -- 267,600 267,600
-- 1,250,000 1,250,000 North Penn, PA, North
Penn School
District, 6.200%,
(ESCROW),
3/1/2007 -- 1,319,600 1,319,600
-- 2,650,000 2,650,000 Penn Hills, PA, (AMBAC
INS)
6/1/2013 -- 875,693 875,693
-- 945,000 945,000 Penn Hills, PA, (AMBAC
INS)
12/1/2013 -- 302,126 302,126
-- 490,000 490,000 Penn Hills, PA, (AMBAC
INS)
6/1/2006 -- 288,110 288,110
-- 500,000 500,000 Penn Hills, PA, (AMBAC
INS)
12/1/2006 -- 286,095 286,095
-- 560,000 560,000 Penn Hills, PA, (AMBAC
INS)
6/1/2007 -- 309,546 309,546
-- 1,465,000 1,465,000 Penn Hills, PA, (AMBAC
INS) 12/1/2010 -- 637,846 637,846
-- 480,000 480,000 Penn Manor, PA, Penn
Manor
School District,
3.650%, (FGIC INS),
6/1/1997 -- 479,554 479,554
-- 500,000 500,000 Pennsylvania Convention
Center,
6.250%, (FGIC INS),
9/1/2004 -- 519,100 519,100
-- 1,000,000 1,000,000 Pennsylvania Convention
Center,
6.700%, (FGIC INS),
9/1/2016 -- 1,112,050 1,112,050
-- 1,000,000 1,000,000 Pennsylvania COPs,
5.000%,
(AMBAC INS), 7/1/2003 -- 1,004,530 1,004,530
4,000,000 -- 4,000,000 Pennsylvania EDFA,
Revenue
Bonds, 7.600%
(Macmillan Bloedel
LTD
Partnership)/(Original
Issue Yield: 7.650%),
12/1/2020 4,398,080 -- 4,398,080
8,000,000 -- 8,000,000 Pennsylvania EDFA,
Wastewater
Treatment Revenue Bonds
(Series A),
7.600% (Sun Co.,
Inc.)/(Original
Issue Yield: 7.653%), 8,807,840 -- 8,807,840
12/1/2024
-- 2,000,000 2,000,000 Pennsylvania GO Bonds,
4.100%,
5/1/1997 -- 2,003,840 2,003,840
-- 7,000,000 7,000,000 Pennsylvania GO Bonds,
5.375%,
(FGIC INS), 5/15/2006 -- 7,078,610 7,078,610
-- 500,000 500,000 Pennsylvania GO Bonds,
6.875%,
11/1/2001 -- 542,660 542,660
-- 1,750,000 1,750,000 Pennsylvania Housing
Finance
Authority, 5.350%,
10/1/2008 -- 1,763,440 1,763,440
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 1,000,000 $ 1,000,000 Pennsylvania Housing
Finance
Authority, 5.375%,
10/1/2016 $ -- $ 1,007,680 $ 1,007,680
-- 580,000 580,000 Pennsylvania Housing
Finance
Authority, (Series 96),
5.550%,
10/1/2012 -- 546,998 546,998
-- 1,000,000 1,000,000 Pennsylvania Housing
Finance
Authority, 5.650%,
4/1/2020 -- 1,001,240 1,001,240
2,290,000 -- 2,290,000 Pennsylvania Housing
Finance
Authority, SFM Revenue
Bond
Bonds (Series 39B),
6.875%,
10/1/2024 2,380,157 -- 2,380,157
750,000 -- 750,000 Pennsylvania Housing
Finance
Authority, SFM Revenue
Bonds
(Series 33), 6.900%,
4/1/2017 785,490 -- 785,490
1,000,000 -- 1,000,000 Pennsylvania Housing
Finance
Authority, SFM Revenue
Bonds
(Series 34-B), 7.000%
(FHA GTD),
4/1/2024 1,040,410 -- 1,040,410
4,540,000 -- 4,540,000 Pennsylvania Housing
Finance
Authority, SFM Revenue
Bonds
(Series 28), 7.650%
(FHA GTD),
10/1/2023 4,774,673 -- 4,774,673
-- 450,000 450,000 Pennsylvania Housing
Finance
Authority, 7.900%, (FHA
GTD),
10/1/2007 -- 464,477 464,477
-- 500,000 500,000 Pennsylvania IDA,
6.800%, 1/1/2001 -- 546,450 546,450
-- 2,500,000 2,500,000 Pennsylvania
Intergovernmental
Co-op Authority,
4.000%, 6/15/1997 -- 2,504,325 2,504,325
-- 750,000 750,000 Pennsylvania
Intergovernmental
Co-op Authority,
6.000%, 6/15/2002 -- 798,870 798,870
2,500,000 -- 2,500,000 Pennsylvania
Intergovernmental
Co-op Authority,
Special Tax
Revenue Bond,
Philadelphia
Funding Program, 6.750%
(FGIC
INS)/(United States
Treasury PRF)/
(Original Issue Yield:
7.130%),
6/15/2021 2,803,200 -- 2,803,200
-- 350,000 350,000 Pennsylvania
Intergovernmental
Co-op Authority,
7.000%, (FGIC
INS), 6/15/2005 -- 964,478 964,478
-- 840,000 840,000 Pennsylvania Montgomery
County
Hospital, 4.500%,
(AMBAC INS),
6/1/2004 -- 802,813 802,813
2,000,000 -- 2,000,000 Pennsylvania State
Higher
Education Facilities
Authority,
Health Services Revenue
Bonds
(Series A of 1996),
5.750%
(University of
Pennsylvania)/
(Original Issue Yield:
6.035%),
1/1/2022 1,949,080 -- 1,949,080
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 1,000,000 $ -- $ 1,000,000 Pennsylvania State
Higher
Education Facilities
Authority,
Hospital Revenue Bonds
(Series A),
7.250% (Allegheny
General Hospital)/
(Original Issue Yield:
7.400%),
9/1/2017 $ 1,065,760 $ -- $ 1,065,760
-- 750,000 750,000 Pennsylvania State
Higher
Education Facilities
Authority,
Revenue Bonds, 6.800%,
(MBIA
INS), 6/15/2001 -- 807,015 807,015
2,000,000 -- 2,000,000 Pennsylvania State
Higher
Education Facilities
Authority,
Revenue Bonds (Series
1996), 7.200%
(Thiel College),
5/15/2026 2,000,480 -- 2,000,480
4,000,000 -- 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:
7.450%),
3/1/2021 4,475,720 -- 4,475,720
2,000,000 -- 2,000,000 Pennsylvania State
Higher
Education Facilities
Authority,
Revenue Bonds (Series
N), 5.875%
(MBIA Insurance
Corporation INS)/
(Original Issue Yield:
5.913%),
6/15/2021 1,993,320 -- 1,993,320
2,000,000 -- 2,000,000 Pennsylvania State
Higher
Education Facilities
Authority,
Revenue Bonds, 6.375%
(Drexel
University)/(Original
Issue Yield:
6.415%), 5/1/2017 2,019,640 -- 2,019,640
-- 1,000,000 1,000,000 Pennsylvania State
Turnpike
Commission, 5.450%,
(MBIA INS),
12/1/2002 -- 1,034,130 1,034,130
-- 1,000,000 1,000,000 Pennsylvania State
Turnpike
Commission, 6.000%,
(MBIA INS),
6/1/2015 -- 1,018,200 1,018,200
-- 500,000 500,000 Pennsylvania State
University,
(Series 1993A), 4.700%,
3/1/2002 -- 499,280 499,280
-- 460,000 460,000 Pennsylvania State
University,
(Series 1993A), 4.800%,
3/1/2003 -- 459,236 459,236
-- 1,505,000 1,505,000 Pennsylvania State
University,
(Series 1992A), 5.200%,
8/15/2002 -- 1,544,461 1,544,461
500,000 500,000 Pennsylvania State
University,
6.300%, (ETM), 7/1/1999 -- 525,715 525,715
-- 250,000 250,000 Pennsylvania State
University, GO
Bonds, 6.750%, 7/1/2002 -- 269,765 269,765
-- 1,700,000 1,700,000 Pennsylvania State
University, PRF,
7.000%, 7/1/2016 -- 1,895,177 1,895,177
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 500,000 $ 500,000 Pennsylvania University
Health
Services, 6.000%,
1/1/2006 $ -- $ 530,005 $ 530,005
-- 800,000 800,000 Philadelphia GO Bonds,
5.125%,
(FGIC INS), 5/15/2003 -- 808,984 808,984
-- 1,860,000 1,860,000 Philadelphia GO Bonds,
5.400%,
(FGIC INS), 11/15/2003 -- 1,913,494 1,913,494
-- 300,000 300,000 Philadelphia GO Bonds,
6.250%,
(FGIC INS), 11/15/2004 -- 325,599 325,599
-- 1,375,000 1,375,000 Philadelphia Hospital
Authority,
5.000%, (MBIA INS),
7/1/2006 -- 1,338,466 1,338,466
-- 325,000 325,000 Philadelphia Hospital
Authority,
6.150%, 7/1/2005 -- 326,505 326,505
-- 250,000 250,000 Philadelphia Hospital
Authority,
(AMBAC INS), 7.750%,
8/15/2008 -- 278,290 278,290
-- 1,000,000 1,000,000 Philadelphia Hospital
Authority,
10.875%, 7/1/2008 -- 1,309,960 1,309,960
4,000,000 -- 4,000,000 Philadelphia, PA,
(Series 1995A)
Airport Revenue Bonds,
6.100%
(Philadelphia Airport
System)/
(AMBAC INS)/(Original
Issue
Yield: 6.400%),
6/15/2025 3,991,480 -- 3,991,480
-- 150,000 150,000 Philadelphia, PA,
Philadelphia
Municipal Authority,
7.500%,
(FGIC INS), 4/1/2003 -- 160,104 160,104
-- 905,000 905,000 Philadelphia, PA,
Philadelphia
Municipal Authority
PRF, 7.800%,
4/1/2013 -- 999,998 999,998
-- 95,000 95,000 Philadelphia, PA,
Philadelphia
Municipal Authority
PRF,
7.800%, 4/1/2018 -- 101,831 101,831
-- 2,550,000 2,550,000 Philadelphia, PA,
Philadelphia
Municipal Authority,
7.875%,
7/15/2017 -- 2,683,340 2,683,340
-- 500,000 500,000 Philadelphia, PA,
(Philadelphia
Gas Works), 7.400%,
6/15/2000 -- 540,390 540,390
-- 1,500,000 1,500,000 Philadelphia, PA,
(Philadelphia
Gas Works), 5.800%,
7/1/2001 -- 1,539,210 1,539,210
-- 1,000,000 1,000,000 Philadelphia, PA,
(Philadelphia
Gas Works), 1/1/2001 -- 812,030 812,030
-- 245,000 245,000 Philadelphia, PA,
(Philadelphia
Justice Lease), 6.250%,
(MBIA
INS), 11/15/1997 -- 251,889 251,889
-- 1,300,000 1,300,000 Philadelphia School
District,
5.200%, (MBIA INS),
7/1/2003 -- 1,320,826 1,320,826
-- 500,000 500,000 Philadelphia School
District,
6.700%, (AMBAC INS),
7/1/1999 -- 530,035 530,035
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 1,500,000 $ 1,500,000 Philadelphia Waste,
5.200%,
(FGIC INS), 6/15/2005 $ -- $ 1,490,475 $ 1,490,475
-- 1,000,000 1,000,000 Philadelphia Water &
Sewer
Authority, 7.400%,
8/1/1999 -- 1,069,140 1,069,140
-- 650,000 650,000 Philadelphia Water &
Sewer
Authority, (MBIA INS),
10/1/2006 -- 369,831 369,831
-- 1,000,000 1,000,000 Philadelphia Water &
Sewer
Authority, (MBIA INS),
10/1/2008 -- 505,790 505,790
-- 280,000 280,000 Pittsburgh, PA, Stadium
Authority,
6.500%, (ESCROW),
4/1/2011 -- 292,076 292,076
-- 1,000,000 1,000,000 Pittsburgh, PA,
University of
Pittsburgh, 6.400%,
(MBIA INS),
4/1/2000 -- 1,061,210 1,061,210
-- 1,000,000 1,000,000 Pittsburgh, PA,
University of
Pittsburgh, 8.375%,
6/1/2005 -- 1,051,790 1,051,790
-- 1,000,000 1,000,000 Pittsburgh, PA, Water &
Sewer
Authority, 6.500%,
(FGIC INS),
9/1/2001 -- 1,086,840 1,086,840
-- 3,500,000 3,500,000 Reading, PA, Reading
Hospital,
5.500%, (MBIA INS),
10/1/2008 -- 3,481,520 3,481,520
-- 1,115,000 1,115,000 Reading, PA, Reading
School
District, (MBIA INS),
3/1/2010 -- 507,169 507,169
-- 1,000,000 1,000,000 Reading, PA, Reading
School
District, (MBIA INS),
7/15/2007 -- 550,210 550,210
-- 500,000 500,000 Reading, PA, Reading
School
District, (MBIA INS),
7/15/2008 -- 255,335 255,335
-- 80,000 80,000 Ringgold, PA, Ringgold
School
District, 7.200%, (MBIA
INS),
8/1/2006 -- 80,000 80,000
-- 500,000 500,000 Schuylkill, PA,
Schuylkill County
Redevelopment
Authority, 6.650%,
6/1/2001 -- 540,165 540,165
-- 1,000,000 1,000,000 Schuylkill County, PA,
6.750%,
(FGIC INS), 6/1/2002 -- 1,102,800 1,102,800
-- 120,000 120,000 Scranton-Lackawanna, PA
Health
& Welfare Authority,
Revenue
Bonds, 7.250%, (MBIA
INS),
7/1/1999 -- 126,927 126,927
2,500,000 -- 2,500,000 Scranton-Lackawanna, PA
Health
& Welfare Authority,
Revenue
Bonds (Series 1994-A),
7.600%
(Allied Services
Rehabilitation
Hospitals, PA),
7/15/2020 2,562,923 -- 2,562,923
-- 500,000 500,000 Seneca Valley, PA,
Seneca Valley
School District,
6.250%, (MBIA
INS), 7/1/2001 -- 521,260 521,260
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 2,245,000 $ 2,245,000 Shaler, PA, Shaler
School District,
6.250%, (ETM),
4/15/2003 $ -- $ 2,315,964 $ 2,315,964
2,650,000 -- 2,650,000 Sharon, PA General
Hospital
Authority, Hospital
Revenue Bonds,
6.875% (Sharon Regional
Health
System), 12/1/2022 2,659,196 -- 2,659,196
-- 495,000 495,000 Shenandoah Valley
School District,
PA, 8/1/2014 -- 164,880 164,880
-- 555,000 555,000 Shenandoah Valley
School District,
PA, 8/1/2015 -- 173,865 173,865
-- 590,000 590,000 Shenandoah Valley
School District,
PA, 8/1/2016 -- 173,832 173,832
-- 425,000 425,000 St. Agnes, PA, (Saint
Agnes Medical
Center)/(Philadelphia
Hospital
Authority), 6.750%,
3/15/2001 -- 464,895 464,895
-- 1,220,000 1,220,000 Steel Valley School
District, PA,
11/1/2014 -- 393,889 393,889
-- 750,000 750,000 Valley View School
District, PA,
(FGIC INS), 11/15/2015 -- 234,728 234,728
-- 750,000 750,000 Valley View School
District, PA,
(FGIC INS), 11/15/2016 -- 220,950 220,950
-- 1,500,000 1,500,000 Valley View School
District, PA,
(FGIC INS), 11/15/2017 -- 413,415 413,415
-- 1,500,000 1,500,000 Valley View School
District, PA,
(FGIC INS), 11/15/2018 -- 389,040 389,040
-- 1,500,000 1,500,000 Valley View School
District, PA,
(FGIC INS), 11/15/2019 -- 366,105 366,105
1,000,000 -- 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 1,008,450 -- 1,008,450
-- 400,000 400,000 Washington County, PA,
(Washington County
Lease)/(ETM),
7.875%, 12/15/2018 -- 485,604 485,604
-- 680,000 680,000 Washington County, PA,
(Shadyside
Hospital), 7.000%,
(AMBAC INS),
12/15/2000 -- 747,007 747,007
-- 2,850,000 2,850,000 Washington County, PA,
West Penn
Power Company, 4.950%,
3/1/2003 -- 2,777,411 2,777,411
-- 1,000,000 1,000,000 West View, PA, West
View
Municipal Special
Obligation
Bond, 9.500%, (ETM),
11/15/2014 -- 1,438,570 1,438,570
-- 1,000,000 1,000,000 Westmoreland County,
PA,
Westmoreland County
Special
Obligations, 2.000%,
(ETM),
7/1/2007 -- 717,090 717,090
<CAPTION>
FEDERATED PENNSYLVANIA FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO-FORMA MUNICIPAL INCOME PRO-FORMA
INCOME FUND PORTFOLIO COMBINED INCOME FUND PORTFOLIO COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ -- $ 305,000 $ 305,000 Westmoreland County,
PA,
Westmoreland County
Municipal
Authority, 6.800%,
(MBIA INS),
7/1/2001 $ -- $ 333,563 $ 333,563
-- 1,000,000 1,000,000 Westmoreland County,
PA,
Westmoreland County
Special
Obligations, 9.125%,
(ETM),
7/1/2010 -- 1,212,870 1,212,870
-- 2,500,000 2,500,000 Westmoreland County,
PA,
Westmoreland County
Special
Obligations, (ETM),
8/15/2012 -- 973,225 973,225
-- 900,000 900,000 Wyoming Valley, PA,
Valley
Sanitation Authority,
3.500%, (FSA),
11/15/1997 -- 896,382 896,382
-- 2,000,000 2,000,000 York, PA, York City
Savers, 3.900%,
7/1/2021 -- 2,000,000 2,000,000
TOTAL LONG-TERM
MUNICIPALS
(IDENTIFIED COST
$198,815,017) 81,795,572 123,695,467 205,491,039
SHORT-TERM OBLIGATIONS -- 2.2%
MUTUAL FUND -- 2.0%
4,337,817 4,337,817 CoreFund Tax-Free
Reserve -- 4,337,817 4,337,817
PENNSYLVANIA--0.2%
500,000 -- 500,000 Geisinger Authority, PA
Health
System, (Series 1992B)
Daily VRDNs 500,000 -- 500,000
TOTAL SHORT-TERM
OBLIGATIONS
(AT AMORTIZED COST) 500,000 4,337,817 4,837,817
TOTAL INVESTMENTS
(IDENTIFIED COST
$203,652,834)(A) $ 82,295,572 $ 128,033,284 $ 210,328,856
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$203,652,834. The net unrealized appreciation of investments on a federal
tax basis amounts to $6,676,022 which is comprised of $8,521,824
appreciation and $1,845,802 depreciation at August 31, 1996.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($213,769,561) at August 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
COPs -- Certificates of Participation
EDFA -- Economic Development Financing Authority
ESCROW -- Defined
ETM -- Escrowed to Maturity
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HDA -- Hospital Development Authority
IDA -- Industrial Development Authority
INS -- Insured
LTD -- Limited
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes to Pro Forma Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENNSYLVANIA
PENNSYLVANIA TAX-FREE
MUNICIPAL INCOME PRO FORMA PRO FORMA
INCOME FUND PORTFOLIO ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $ 82,295,572 $ 128,033,284 $ -- $ 210,328,856
Cash 84,381 528,442 -- 612,823
Receivables for: --
Shares of beneficial interest sold 168,137 91,900 -- 260,037
Income 1,798,545 1,675,138 -- 3,473,683
Total assets 84,346,635 130,328,764 -- 214,675,399
LIABILITIES:
Payables for/to:
Shares of beneficial interest redeemed -- 45,784 -- 45,784
Income distributions 176,401 -- -- 176,401
Investments purchased -- 584,739 -- 584,739
Accrued expenses and other liabilities 54,704 44,210 -- 98,914
Total liabilities 231,105 674,733 -- 905,838
TOTAL NET ASSETS $ 84,115,530 $ 129,654,031 -- $ 213,769,561
NET ASSETS CONSIST OF:
Paid in capital $ 81,237,429 $ 127,729,412 -- $ 208,966,841
Net unrealized appreciation of investments 4,611,761 2,064,261 -- 6,676,022
Accumulated net realized gain (loss) on (1,930,489) (139,642) -- (2,070,131)
investments
Undistributed net investment income 196,829 -- 196,829
TOTAL NET ASSETS $ 84,115,530 $ 129,654,031 $ -- $ 213,769,561
Class A Shares $ 84,115,530 $ 128,407,143 $ 1,246,888(a) $ 213,769,561
Class C Shares $ N/A $ 1,246,888 $ (1,246,888)(a) $ --
SHARES OUTSTANDING
Class A Shares 7,408,593 11,771,489 (352,021)(b) 18,828,061
Class C Shares N/A 114,291 (114,291)(b) --
TOTAL SHARES OUTSTANDING 7,408,593 11,885,780 (466,312) 18,828,061
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net asset value per share $ 11.35 $ 10.91 $ 11.35
Offering price per share $ 11.70* $ 11.45** $ 11.70*
Redemption proceeds per share $ 11.35 $ 10.91 $ 11.35
CLASS C SHARES:
Net asset value per share $ N/A $ 10.91 $ N/A
Offering price per share $ N/A $ 10.91 $ N/A
Redemption proceeds per share $ N/A $ 10.80*** $ N/A
TOTAL INVESTMENTS, AT IDENTIFIED COST $ 77,683,811 $ 125,969,023 $ 203,652,834
</TABLE>
(a) Adjustment to reflect Class C Shares combined with Class A Shares
(b) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.9607672361.
* See "What Shares Cost" in the Federated Pennsylvania Municipal Income Fund
Prospectus, as of October 31, 1996.
** See " How to Buy Shares" in the Pennsylvania Tax-Free Income Portfolio
Prospectus, as of March 15, 1996.
*** See " How to Redeem Shares" in the Pennsylvania Tax-Free Income
Portfolio Prospectus, as of March 15, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED
PENNSYLVANIA PENNSYLVANIA
MUNICIPAL TAX-FREE
INCOME INCOME PRO FORMA PRO FORMA
FUND PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 5,530,462 $ 7,789,111 $ -- $ 13,319,573
EXPENSES:
Investment advisory fee 341,175 806,454 (310,174)(a) 837,455
Administrative personnel and services fee 125,000 -- 33,070(b) 158,070
Custodian fees 20,600 74,142 (61,807)(c) 32,935
Transfer and dividend disbursing agent fees and expenses 37,388 185,283 (149,563)(d) 73,108
Directors'/Trustees' fees 3,302 14,351 (13,653)(e) 4,000
Legal and auditing fees 18,833 27,579 (26,640)(f) 19,772
Portfolio accounting fees 50,654 -- 17,713(g) 68,367
Distribution services fee -- Class A Shares -- 410,341 (410,341)(h) --
Distribution services fee -- Class C Shares -- 6,532 (6,532)(h) --
Shareholder services fee -- Class A Shares 213,235 -- 310,174(i) 523,409
Shareholder services fee -- Class C Shares 2,178 (2,178)(i) --
Share registration costs 14,447 17,248 (15,635)(j) 16,060
Printing and postage 18,838 33,630 (28,468)(k) 24,000
Insurance premiums and miscellaneous 12,478 8,620 (7,098)(l) 14,000
Total expenses 855,950 1,586,358 (671,132) 1,771,176
Deduct --
Waiver of investment advisory fee (195,433) (299,281) 302,978(a) (191,736)
Waiver of shareholder services fee -- Class A Shares (17,059) -- 17,059(i) --
Waiver of distribution services fee -- (228,532) 228,532(h) --
Net expenses 643,458 1,058,545 (122,563) 1,579,440
Net investment income 4,887,004 6,730,566 122,563 11,740,133
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 556,055 385,072 -- 941,127
Net change in unrealized appreciation of investments 353,374 (1,820,950) -- (1,467,576)
Net realized and unrealized gain on investments 909,429 (1,435,878) -- (526,449)
Change in net assets resulting from operations $ 5,796,433 $ 5,294,688 $ 122,563 $ 11,213,684
</TABLE>
(See Notes to Pro Forma Combining Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
(a) Federated Advisers receives for its services an annual investment
advisory fee equal to 0.40% of the Federated Pennsylvania Municipal Income
Fund's (the "Federated Fund") average daily net assets. Penn Square
Management Corporation receives for its services an annual investment
advisory fee equal to 0.65% of the Pennsylvania Tax-Free Income Portfolio's
average daily net assets. Either adviser may voluntarily choose to waive
any portion of its fee.
(b) Federated Services Company ("FServ") provides the Federated Fund with
certain 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.
(c) State Street Bank and Trust Company is custodian for the securities and
cash of the Federated Fund. The custodian fee is based upon the level of
the Federated Fund's average daily net assets for the period plus
out-of-pocket expenses.
(d) FServ serves as transfer and dividend disbursing agent for the Federated
Fund. The fee paid to FServ is based on the size, type and number of
accounts and transactions made by shareholders.
(e) Adjustment to reflect the elimination of the Trustees' fees paid for
Pennsylvania Tax-Free Income Portfolio.
(f) Adjustment to reflect the audit and legal fee reductions due to the
combining of two portfolios into a single portfolio.
(g) FServ maintains the Federated Fund's accounting records. The fee paid to
FServ is based on the level of the Federated Fund's average daily net
assets for the period, plus out-of-pocket expenses.
(h) Adjustment to reflect the elimination of the distribution services fee
charged to the shareholders of Pennsylvania Tax-Free Income Portfolio.
(i) The Federated Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"). The Federated Fund will pay
FSS up to 0.25% of the average daily net assets of the Federated Fund for
the period. Penn Square Management Corporation receives as a shareholder
services fee up to 0.50% and 0.25% of average daily net asset of
Pennsylvania Tax-Free Income Portfolio's Class A Shares and Class C Shares,
respectively. Either shareholder services provider may voluntarily choose
to waive any portion of their fee.
(j) Adjustment to reflect the registration costs for the Federated Fund
only.
(k) Printing and postage expenses are adjusted to reflect estimated savings
to be realized by combining two portfolios into a single portfolio.
(l) Adjustment to reflect the decrease in insurance fees due to the
reduction in the coverage requirement of a single portfolio.
(See Notes to Pro Forma Financial Statements)
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AUGUST 31, 1996 (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
Pennsylvania Municipal Income Fund and Pennsylvania Tax-Free Income
Portfolio, collectively ("the Funds"), as of August 31, 1996. These
statements have been derived from the books and records utilized in
calculating daily net asset values at August 31, 1996. The accompanying
unaudited Pro Forma Combining Statement of Operations reflects the accounts
of Federated Pennsylvania Municipal Income Fund's most recent fiscal year
ended August 31, 1996, and the twelve-month period ended August 31, 1996,
for Pennsylvania Tax-Free Income Portfolio.
The Pro Forma Financial Statements should be read in conjunction with
historical financial statements of the Funds which are incorporated by
reference in the Statement of Additional Information. The Funds follow
generally accepted accounting principles applicable to management investment
companies which are disclosed in the historical financial statements of each
fund.
The Pro Forma Financial Statements give effect to the proposed transfer of
assets of Pennsylvania Tax-Free Income Portfolio in exchange for Class A
Shares of Federated Pennsylvania Municipal Income Fund. Under generally
accepted accounting principles, Federated Pennsylvania Municipal Income Fund
will be the surviving entity for accounting purposes with its historical
cost of investment securities and results of operations being carried
forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administrative fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change as
a result of the reorganization are currently undeterminable.
For the twelve months ended August 31, 1996, Federated Pennsylvania
Municipal Income Fund and Pennsylvania Tax-Free Income Portfolio, paid
investment advisory fees computed at the annual rate of each Fund's average
net assets as follows:
<TABLE>
<CAPTION>
PERCENT OF EACH FUND'S
FUND AVERAGE NET ASSETS
<S> <C>
Federated Pennsylvania Municipal Income Fund 0.40%
Pennsylvania Tax-Free Income Portfolio 0.65%
</TABLE>
The adviser may voluntarily choose to waive a portion of their fees and
reimburse certain operating expenses.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 11,419,468
shares of Federated Pennsylvania Municipal Income Fund shares in exchange
for 11,771,489 Class A Shares and 114,291 Class C Shares of Pennsylvania
Tax-Free Income Portfolio at August 31, 1996, in conjunction with the
proposed reorganization.
Cusip 625922505
G02062-06
THE WILLIAM PENN FUNDS
Penn Square Management Corporation
PROXY SERVICES
P.O. BOX 9156
FARMINGDALE, NY 11735
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND,
---------------------------------------------------------
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO,
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND
The undersigned shareholder(s) of Pennsylvania Tax-Free Income Portfolio, a
portfolio of William Penn Interest Income Fund (the `William Penn
Portfolio'), hereby appoint(s) James E. Jordan, Sandra Houck, and Dennis
Westley, or any of them true and lawful proxies, with power of substitution
of each, to vote all shares of the William Penn Portfolio which the
undersigned is entitled to vote, at the Special Meeting of Shareholders to
be held on May 29, 1997, at Sheraton Berkshire Motor Inn, 1741 Paper Mill
Road, Wyomissing, PA 19610, at 9:00 a.m. (local time) and at any
adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board of Trustees unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
You may also cast your vote by telephone by calling Shareholder
Communications corporation toll free at (800) 733-8481 extension 459.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
THE WILLIAM PENN INTEREST INCOME FUND: PENNSYLVANIA TAX-FREE INCOME
PORTFOLIO, AND FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND, A PORTFOLIO OF
MUNICIPAL SECURITIES INCOME TRUST.
FOR AGAINST ABSTAIN
Signature[PLEASE SIGN WITHIN BOX]
Signature (Joint Owners)
Date: _________________________
