1933 Act File No. 33-36729
1940 Act File No. 811-6165
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. ..........................
Post-Effective Amendment No. 25 .........................X
---- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 24 ...............................................X
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MUNICIPAL SECURITIES INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b)
X on OCTOBER 31, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i) on pursuant to
paragraph (a)(i) 75 days after filing pursuant to paragraph
(a)(ii) on _________________ pursuant to paragraph (a)(ii) of
Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, DC 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of MUNICIPAL
SECURITIES INCOME TRUST, which is comprised of five portfolios: (1)
Federated Pennsylvania Municipal Income Fund, (a) Class A Shares and
(b) Class B Shares; (2) Federated Ohio Municipal Income Fund, (a)
Class F Shares; (3) Federated Michigan Intermediate Municipal Trust;
(4) Federated California Municipal Income Fund, (a) Class A Shares
(formerly, Class F Shares) and (b) Class B Shares; and (5) Federated
New York Municipal Income Fund, (a) Class F Shares. This filing
relates only to Federated Pennsylvania Municipal Income Fund,
Federated Ohio Municipal Income Fund, Federated Michigan Intermediate
Municipal Trust, and Federated New York Municipal Income Fund, and is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
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Prospectus Heading
(RULE 404(C) CROSS REFERENCE)
<S> <C> <C>
Item 1. COVER PAGE..................................(1-5) Cover Page.
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Item 2. SYNOPSIS....................................(1(a)) Summary of Fund Expenses - Class A Shares; (1(b)) Summary of
Fund Expenses - Class B Shares; (2-5) Summary of Fund Expenses.
--------
Item 3. CONDENSED FINANCIAL
INFORMATION.................................(1(a)) Financial Highlights - Class A Shares; (1(b)) Financial
Highlights - Class B Shares; (2-5) Financial Highlights;
(1-5) Performance Information.
Item 4. GENERAL DESCRIPTION OF
INFORMATION ................................(1-5) General Information;
(1-5) Investment Information;
(1-5) Investment Objective;
(1)
Pennsylvania
Municipal
Securities;
(2) Ohio
Municipal
Securities;
(3)
Michigan
Municipal
Securities;
(4)
California
Municipal
Securities;
(5) New
York
Municipal
Securities(1-5)
Investment
Policies
(1-5)
Investment
Risks;
(1-5)
Non-Diversification;
(1-5)
Investment
Limitations.
Item 5. MANAGEMENT OF THE FUND......................(1-5) Trust Information; (1-5) Management of the Trust; (1,3-5)
Distribution of Shares; (1-5) Administration of the Fund.
----------------------
Item 6. CAPITAL STOCK AND OTHER
SECURITIES..................................(1-5)
Investing
in the
Fund;
(1-5)
Account
and
Share
Information;
(1-5)
Confirmations
and
Account
Statements;
(1-5)
Dividends
and
Distributions;
(1-5)
Accounts
with Low
Balances;
(1-5)
Shareholder
Information;
(1)
Voting
Rights;
(1-5)
Tax
Information;
(1-5)
Federal
Income
Tax; (1)
Pennsylvania
Taxes;
(2)
State of
Ohio
Income
Taxes;
(3)
Michigan
Taxes;
(4)
California
Income
Taxes;
(5) New
York
Taxes;
(1-5)
State
and
Local
Taxes.
<PAGE>
Item 7. PURCHASE OF SECURITIES
BEING
OFFERED...............................(1,4)
Expenses
of the
Fund;
(1-5)
Net
Asset
Value;
(1-5)
Investing
in the
Fund;
(1-5)
Purchasing
Shares;
(1-5)
Purchase
Shares
Through
a
Financial
Intermediary;(1-5)
Purchasing
Shares
by Wire;
(1-5)
Purchasing
Shares
by
Check;
(1-5)
Systematic
Investment
Program;
(2,5)
Eliminating
the
Sales
Charge;
(3)
Reducing
or
Eliminating
the
Sales
Charge;
(1,4)
Class A
Shares;
(1,4)
Class B
Shares;
(1-5)
Confirmations
and
Account
Statements;
(1,3-5)
Distribution
of
Shares.
Item 8. REDEMPTION OR REPURCHASE....................(1-5) Redeeming and Exchanging Shares; (1,3-5) Redeeming or
Exchanging Shares Through a Financial Intermediary;
(2) Redeeming and Exchanging Shares Through a Financial Intermediary;
(1,3-5) Redeeming or Exchanging Shares by Telephone; (2) Redeeming
and Exchanging Shares by Telephone; (1,3-5) Redeeming or Exchanging
Shares by Mail; (2) Redeeming and Exchanging Shares by Mail;
(1-5) Requirements for Redemption; (1-5) Requirements for Exchange;
(1-5) Systematic Withdrawal Program; (1-4) Contingent Deferred
Sales Charge; (1-5) Accounts with Low Balances.
Item 9. PENDING LEGAL PROCEEDINGS None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. COVER PAGE..................................(1-5) Cover Page.
----------
Item 11. TABLE OF CONTENTS (1-5) Table of Contents.
Item 12. GENERAL INFORMATION AND
HISTORY.....................................(1-5) General Information About the Fund; (1-5) About Federated
Investors.
Item 13. INVESTMENT OBJECTIVES
AND POLICIES................................(1-5) Investment Objectives and Policies.
Item 14. MANAGEMENT OF THE FUND......................(1-5) Municipal Securities Income Trust Management.
----------------------
Item 15. CONTROL PERSONS AND PRINCIPAL
HOLDERS OF SECURITIES.......................(2-5) Municipal Securities Income Trust Management.
Item 16. INVESTMENT ADVISORY AND OTHER
SERVICES....................................(1-5) Investment Advisory Services; (1-5) Other Services;
(3) Shareholder Services Agreement.
Item 17. BROKERAGE ALLOCATION (1-5) Brokerage Transactions.
Item 18. CAPITAL STOCK AND OTHER
SECURITIES Not applicable.
Item 19. PURCHASE, REDEMPTION AND
PRICING OF SECURITIES
BEING OFFERED...............................(1-5) Purchasing Shares; (1-5) Determining Net Asset Value;
(1-5) Redeeming Shares.
Item 20. TAX STATUS (1-5) Tax Status.
Item 21. UNDERWRITERS Not applicable.
Item 22. CALCULATION OF PERFORMANCE
DATA........................................(1-5) Total Return; (1-5) Yield;
(1-5) Tax-Equivalent Yield; (1-5) Performance Comparisons.
Item 23. FINANCIAL STATEMENTS........................(1-3,5) Filed in Part A; (4) Filed in Annual Report to
Shareholders dated August 31, 1997.
--------------------
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FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST (A Portfolio of
Municipal Securities Income Trust)
PROSPECTUS
The shares of Federated Michigan Intermediate Municipal Trust (the
"Fund") offered by this prospectus represent interests in a
non-diversified portfolio of securities which is one of a series of
investment portfolios in Municipal Securities Income Trust (the
"Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes
imposed by the state of Michigan and Michigan municipalities. The Fund
invests primarily in a portfolio of Michigan municipal securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information dated
October 31, 1997, with the Securities and Exchange Commission ("SEC").
The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a
copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically,
free of charge by calling 1-800-341-7400. To obtain other information,
or make inquiries about the Fund, contact your financial institution.
The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated October 31, 1997
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES.............................. 1
Financial Highlights.................................. 2
General Information................................... 3
Calling the Fund..................................... 3
Investment Information................................ 3
Investment Objective................................. 3
Investment Policies.................................. 3
Michigan Municipal Securities........................ 5
Investment Risks..................................... 5
Non-Diversification.................................. 6
Investment Limitations............................... 6
Net Asset Value....................................... 6
Investing in the Fund................................. 6
Purchasing Shares..................................... 7
Purchasing Shares through a Financial Intermediary... 7
Purchasing Shares by Wire............................ 7
Purchasing Shares by Check........................... 7
Systematic Investment Program........................ 7
Reducing or Eliminating the Sales Charge............. 7
Redeeming and Exchanging Shares....................... 8
Redeeming or Exchanging Shares Through
a Financial Intermediary............................ 8
Redeeming or Exchanging Shares by Telephone.......... 8
Redeeming or Exchanging Shares by Mail............... 8
Requirements for Redemption.......................... 9
Requirements for Exchange............................ 9
Systematic Withdrawal Program........................ 9
Account and Share Information......................... 9
Confirmations and Account Statements................. 9
Dividends and Distributions.......................... 9
Accounts with Low Balances........................... 9
Trust Information..................................... 9
Management of the Trust.............................. 9
Distribution of Shares............................... 10
Administration of the Fund........................... 10
Shareholder Information............................... 11
Tax Information....................................... 11
Federal Income Tax................................... 11
Michigan Taxes....................................... 12
State and Local Taxes................................ 12
Performance Information............................... 12
Financial Statements.................................. 13
Independent Auditors' Report.......................... 24
</TABLE>
SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... 3.00%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)............... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds,
as applicable)....................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.00%
12b-1 Fee.............................................................................................. None
Total Other Expenses (after expense reimbursement)..................................................... 0.50%
Shareholder Services Fee (after waiver)(2)............................................................ 0.07%
Total Operating Expenses(3)......................................................................... 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary
waiver of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the
voluntary waiver of a portion of the shareholders services fee.
The shareholder services provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder
services fee is 0.25%.
(3) The total operating expenses would have been 1.09% absent the
voluntary waivers of the management fee and a portion of the
shareholder services fee and the voluntary reimbursement of
certain other operating expenses.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of the Fund will
bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in the Fund" and "Trust
Information". Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
EXAMPLE
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period,
and (3) payment of the maximum sales charge.
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1 Year................................................................ $35
3 Years............................................................... $46
5 Years............................................................... $57
10 Years.............................................................. $91
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period) Reference is made to
the Independent Auditors' Report on page 24.
Year Ended August 31,
------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
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NET ASSET VALUE, BEGINNING OF PERIOD $ 10.70 $ 10.80 $ 10.59 $ 11.02 $ 10.38 $ 10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.54 0.36 0.54 0.53 0.55 0.56
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.15 (0.10) 0.21 (0.43) 0.64 0.38
- -----------------------------------------------------------
Total from investment operations 0.69 0.26 0.75 0.10 1.19 0.94
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Distributions from net investment income (0.54) (0.36) (0.54) (0.53) (0.55) (0.56)
- -----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.85 $ 10.70 $ 10.80 $ 10.59 $ 11.02 $ 10.38
- -----------------------------------------------------------
TOTAL RETURN(B) 6.59% 4.13% 7.39% 0.88% 11.73% 9.60%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.50% 0.50% 0.50% 0.50% 0.37% 0.07%*
- -----------------------------------------------------------
Net investment income 5.00% 4.99% 5.19% 4.87% 5.11% 5.66%*
- -----------------------------------------------------------
Expense waiver/reimbursement(C) 0.59% 0.63% 0.65% 0.57% 1.06% 1.26%*
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $67,592 $62,785 $60,621 $58,480 $50,625 $29,998
- -----------------------------------------------------------
Portfolio turnover 12% 7% 23% 13% 3% 26%
- -----------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 18, 1991 (date
of initial public investment) to August 31, 1992.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust on August
6, 1990. Shares of the Fund ("Shares") are designed for customers of
financial institutions such as banks, fiduciaries, investment advisers
and broker/dealers as a convenient means of accumulating an interest
in a professionally managed, non-diversified portfolio investing
primarily in Michigan municipal securities. The Fund is not likely to
be a suitable investment for non-Michigan taxpayers or retirement
plans since Michigan municipal securities are not likely to produce
competitive after-tax yields for such persons and entities when
compared to other investments.
The Fund's current net asset value ("NAV") and offering price may be
found in the mutual funds section of local newspapers under
"Federated" and the appropriate class designation listing.
CALLING THE FUND Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes
imposed by the state of Michigan and Michigan municipalities. The
investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes
described above retains its exempt status when distributed to the
Fund's shareholders. However, income distributed by the Fund may not
necessarily be exempt from state or municipal taxes in states other
than Michigan.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
portfolio of Michigan municipal securities. Under normal market
conditions, the dollar-weighted average portfolio maturity of the Fund
will be between three and ten years, and the Fund's average-weight
duration will be between three and seven years. Unless indicated
otherwise, the investment policies of the Fund may be changed by the
Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material changes in these
policies become effective.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
. obligations issued by or on behalf of the state of Michigan, its political
subdivisions, or agencies;
. debt obligations of any state, territory, or possession of the United States,
or any political subdivision of any of these; and
. participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Fund
and/or the investment adviser to the Fund, exempt from both federal
regular income tax and the personal income tax imposed by the state
of Michigan.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
CHARACTERISTICS
The Michigan municipal securities which the Fund buys are investment
grade bonds rated Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's"), AAA, AA or A by Standard & Poor's Ratings Services
("S&P"), and AAA, AA or A by Fitch Investors Service, L.P. ("Fitch").
In certain cases the Fund's adviser may choose bonds which are unrated
if it judges the bonds to have the same characteristics as the
investment grade bonds described above. A description of the ratings
categories is contained in the Appendix to the Statement of Additional
Information. PARTICIPATION INTERESTS The Fund may purchase
participation interests from financial institutions such as commercial
banks, savings associations, and insurance companies. These
participation interests give the Fund an undivided interest in
Michigan municipal securities. The financial institutions from which
the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will
determine that participation interests meet the prescribed quality
standards for the Fund. VARIABLE RATE MUNICIPAL SECURITIES
Some of the Michigan municipal securities which the Fund purchases may
have variable interest rates. Variable interest rates are ordinarily
based on a published interest rate, interest rate index, or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable
rate municipal securities are subject to payment of principal on
demand by the Fund in not more than seven days. All variable rate
municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to
monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the
Fund on the basis of published financial information and reports of
the rating agencies and other analytical services.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities
and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract
or a participation certificate on any of the above. Lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced,
it is unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
RESTRICTED SECURITIES
As a matter of fundamental investment policy, the Fund may invest up
to 10% of its net assets in restricted securities. Restricted
securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies but which are
subject to restriction upon resale under federal securities laws. As a
matter of fundamental investment policy, the Fund will limit
investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, to 15% of its
net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The
Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to
miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase
prices. The Fund may dispose of a commitment prior to settlement
if the adviser deems it appropriate to do so. In addition, the Fund
may enter into transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Fund
may realize short-term profits or losses upon the sale of such
commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which
represent interests in municipal securities. The Fund intends to
purchase inverse floaters to assist in duration management and to seek
current income. These obligations pay interest rates that vary
inversely with changes in the interest rates of specified short-term
municipal securities or an index of short-term municipal securities.
The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term
market rates decline. Inverse floaters will generally respond to
changes in market interest rates more rapidly than fixed-rate
long-term securities (typically twice as fast). As a result, the
market values of inverse floaters will generally be more volatile than
the market values of fixed-rate municipal securities. Typically, the
portion of the portfolio invested in inverse floaters will be subject
to additional volatility. FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial
futures contracts. These financial futures contracts may be used to
hedge all or a portion of its portfolio against changes in the market
value of portfolio securities and interest rates, provide additional
liquidity, and accomplish its current strategies in a more expeditious
fashion. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time. As a
matter of investment policy, which may be changed without shareholder
approval, the Fund may not purchase or sell futures contracts if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions would exceed 5% of the market value
of the Fund's total assets. When the Fund purchases futures contracts,
an amount of municipal securities, cash or cash equivalents, equal to
the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account
with the Fund's custodian (or the broker, if legally permitted) to
collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the
prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's
portfolio. This may cause the futures contract to react differently
than the portfolio securities to market changes. In addition, the
Fund's investment adviser could be incorrect in its expectations
about the direction or extent of market factors such as interest
rate movements. In these events, the Fund may lose money on the
futures contract. It is not certain that a secondary market for
positions in futures contracts will exist at all times. Although
the investment adviser will consider liquidity before entering into
futures transactions, there is no assurance that a liquid secondary
market on an exchange or otherwise will exist for any particular
futures contract at any particular time. The Fund's ability to
establish and close out futures positions depends on this secondary
market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
state of Michigan and Michigan municipalities personal income taxes.
However, from time to time when the investment adviser determines that
market conditions call for a temporary defensive posture, the Fund may
invest in short-term, non-Michigan municipal tax-exempt obligations or
taxable temporary investments. These temporary investments include:
notes issued by or on behalf of municipal or corporate issuers;
obligations issued or guaranteed by the U.S. government, its agencies,
or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements
(arrangements in which the organization selling the Fund, a bond, or
temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to
those rated within the investment grade categories described under
"Acceptable Investments -- Characteristics" (if rated) or (if unrated)
those which the investment adviser judges to have the same
characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax or personal income taxes imposed by the state of
Michigan or Michigan municipalities.
MICHIGAN MUNICIPAL SECURITIES
Michigan municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works.
They are also issued to repay outstanding obligations, to raise funds
for general operating expenses, and to make loans to other public
institutions and facilities.
Michigan municipal securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid
to acquire sites or construct and equip facilities for privately or
publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. However, interest on and
principal of revenue bonds, are payable only from the revenue
generated by the facility financed by the bond or other specified
sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are
typically classified as revenue bonds.
INVESTMENT RISKS
Yields on Michigan municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the state of Michigan or
its municipalities could impact the Fund's portfolio. The ability of
the Fund to achieve its investment objective also depends on the
continuing ability of the issuers of Michigan municipal securities and
participation interests, or the guarantors of either, to meet their
obligations for the payment of interest and principal when due.
Investing in Michigan municipal securities which meet the Fund's
quality standards may not be possible if the state of Michigan or its
municipalities do not maintain their current credit ratings. In
addition, any Michigan constitutional amendments, legislative
measures, executive orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting Michigan
municipal securities.
A further discussion of the risks of a portfolio which invests largely
in Michigan municipal securities is contained in the Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is
no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified portfolio of securities
because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the Fund's
portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would
be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). This undertaking requires that
at the end of each quarter of the taxable year: (a) with regard to at
least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer, and (b)
beyond that, no more than 25% of its total assets are invested in the
securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy
it back on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of those assets to
secure such borrowings. The above investment limitation cannot be
changed without shareholder approval.
NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund.
The NAV is determined as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open.
INVESTING IN THE FUND
The characteristics of the Fund are described below.
- ----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Minimum and Subsequent $1,000/$100
Investment Amounts
Minimum and Subsequent NA
Investment Amount
for Retirement Plans
Maximum Sales Charge 3.00%*
Maximum Contingent None
Deferred Sales
Charge
Conversion Feature No
</TABLE>
. Shares are sold at NAV, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of
Public Net
Offering Amount
Amount of Transaction Price Invested
- ------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.00% 3.09%
$50,000 but less
than $100,000 2.50% 2.56%
$100,000 but less
than $250,000 2.00% 2.04%
$250,000 but less
than $500,000 1.50% 1.52%
$500,000 but less
than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%
</TABLE>
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased as described
below, either through a financial intermediary (such as a bank or
broker/dealer) or by sending a wire or check directly to the Fund.
Financial intermediaries may impose different minimum investment
requirements on their customers. An account must be established with a
financial intermediary or by completing, signing, and returning the
new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed
by affiliates of Federated Investors ("Federated Funds") may exchange
their shares For shares Of The fund. The Fund reserves the right to
reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time
to time, offer certain items of nominal value to any shareholder or
investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received
when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m.
(Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial intermediary's responsibility to
transmit orders promptly. Financial intermediaries may charge fees for
their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund.
All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by
wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA
02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name); (Fund
Number -- this number can be found on the account statement or by
contacting the Fund); Account Number; Trade Date and Order Number;
Group Number or Dealer Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of
the Fund (designate account number) to: Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal
funds (normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House
("ACH") member and invested in the Fund. Shareholders should contact
their financial intermediary or the Fund to participate in this
program.
REDUCING OR ELIMINATING THE SALES CHARGE
Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR SHARES PURCHASED:
. through financial intermediaries that do not receive sales charge dealer
concessions;
. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or
. through "wrap accounts" or similar programs under which clients pay a fee for
services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";
. combining concurrent purchases of two or more funds;
. signing a letter of intent to purchase a specific quantity of shares within
13 months; or
. using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for
details on these programs. In order to eliminate the sales charge or
receive sales charge reductions, Federated Securities Corp. must be
notified by the shareholder in writing or by a financial intermediary
at the time of purchase.
DEALER CONCESSION
For sales of Shares, the distributor will normally offer to pay
dealers up to 100% of the sales charge retained by it. On purchases of
$1 million or more, the investor pays no sales charge; however, the
distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of
Shares outstanding at each month end. Any portion of the sales charge
which is not paid to a dealer will be retained by the distributor.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts and
purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Class A
Shares of other Federated Funds on days on which the Fund computes its
NAV. Redemptions and exchanges are made at NAV. Shareholders who
desire to automatically exchange Shares for Class A Shares in a
pre-determined amount on a monthly, quarterly, or annual basis may
take advantage of a systematic exchange privilege. Information on this
privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be
realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your
financial intermediary before 4:00 p.m. (Eastern time). In order for
these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request
to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must
transmit the request to the Fund before 5:00 p.m. (Eastern time). The
financial intermediary is responsible for promptly submitting
transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount,
or exchanged, by calling 1-800-341-7400. Appropriate authorization
forms for these transactions must be on file with the Fund. Shares
held in certificate form must first be returned to the Fund as
described in the instructions under "Redeeming or Exchanging Shares by
Mail." Redemption proceeds will either be mailed in the form of a
check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System, normally within one business
day, but in no event more than seven days, after the redemption
request. The minimum amount for a wire transfer is $1,000. Proceeds
from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming or
Exchanging Shares By Mail" should be considered. The telephone
transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a
written request to: Federated Shareholder Services Company, Fund Name,
Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they must accompany the written
request. It is recommended that certificates be sent unendorsed by
registered or certified mail.
All written requests should state: Fund Name and the Share Class name;
the account name as registered with the Fund; the account number; and
the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the
Fund into which the exchange is to be made. All owners of the account
must sign the request exactly as the Shares are registered. A check
for redemption proceeds is normally mailed within one business day,
but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the
day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption
payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization
which is administered by the Federal Deposit Insurance Corporation; a
member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary
public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum
investment requirements of the fund into which the exchange is being
made. Contact your financial intermediary directly or the Fund for
free information on, and prospectuses for, the Federated Funds into
which your Shares may be exchanged. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and proceeds invested in
the same class of shares of the other fund. Signature guarantees will
be required to exchange between fund accounts not having identical
shareholder registrations. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. To be
eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for
participation in this program through his financial intermediary or by
calling the Fund.
Because participation in this program may reduce, and eventually
deplete the shareholder's investment in the Fund, payments under this
program should not be considered as yield or income. It is not
advisable for shareholders to continue to purchase Shares subject to a
sales charge while participating in this program.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions
(except for systematic program transactions). In addition,
shareholders will receive periodic statements reporting all account
activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly to all shareholders
invested in the Fund on the record date. Net long-term capital gains
realized by the Fund, if any, will be distributed at least once every
twelve months. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the
ex-dividend date without a sales charge, unless shareholders request
cash payments on the new account form or by contacting the transfer
agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may close an account by redeeming all Shares and paying the
proceeds to the shareholder if the account balance falls below the
applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes
will not be closed in this manner. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for
the shareholders. The Executive Committee of the Board of Trustees
handles the Trustees' responsibilities between meetings of the Board.
INVESTMENT ADVISER
Pursuant to an investment advisory contract with the Trust, investment
decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale
of portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.40%
of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary
waiver or reimbursement of expenses at any time in its sole
discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11,
1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All
of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and
trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's
son, J. Christopher Donahue, who is President and trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With
over $110 billion invested across over 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
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 management who founded the
company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
J. Scott Albrecht has been a portfolio manager of the Fund since
March, 1995. Mr. Albrecht joined Federated Investors in 1989 and has
been a Vice President of the Fund's investment adviser since 1994.
From 1992 to 1994, Mr. Albrecht served as an Assistant Vice President
of the Fund's investment adviser. Mr. Albrecht is a Chartered
Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
Mary Jo Ochson has been a portfolio manager of the Fund since April 1997. Ms.
Ochson joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. From 1988 through 1995,
Ms. Ochson served as a Vice President of the Fund's investment adviser. Ms.
Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from
the University of Pittsburgh.
Both the Trust and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests
of shareholders ahead of the employees' own interest. Among other
things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less
than sixty days. Violation of the codes are subject to review by the
Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund.
Federated Services Company provides these at an annual rate which
relates to the average aggregate daily net assets of all funds advised
by affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
- -----------------------------------------------------------
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25% of the average
daily NAV of the Shares, computed at an annual rate, to obtain certain
personal services for shareholders and provide the maintenance of
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily under
the Shareholder Services Agreement. Federated Shareholder Services
will either perform shareholder services directly or will receive fees
based upon Shares owned by their clients or customers. The schedules
of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to periodic payments to financial institutions under the
Shareholder Services Agreement, the distributor may offer to pay a fee
from its own assets to financial institutions as financial assistance
for providing substantial marketing and sales support. The support may
include participating in sales, educational and training seminars at
recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell and/or upon the
type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
shares of each portfolio or class in the Trust have equal voting
rights, except that in matters affecting only a particular portfolio
or class, only shares of that portfolio or class are entitled to vote.
Trustees may be removed by the Trustees or shareholders at a special
meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10%
of the Trust's outstanding shares of all series entitled to vote.
As of October 6, 1997, the following shareholder of record owned 25%
or more of the outstanding Shares of the Fund: Enbanco (as record
owner holding Shares for its clients), Traverse, MI, owned
approximately 2,333,703 Shares (37.08%) and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies
and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and
losses realized by the Trust's other portfolios will not be combined
for tax purposes with those realized by the Fund.
In general, shareholders are not required to pay federal regular
income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds, although tax exempt interest
will increase the taxable income of certain recipients of social
security benefits. However, under the Tax Reform Act of 1986,
dividends representing net interest income earned on some municipal
bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum
taxable income is equal to the regular taxable income of the taxpayer
increased by certain "tax preference" items not included in regular
taxable income and reduced by only a portion of the deductions allowed
in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax preference item
for both individuals and corporations. Unlike traditional governmental
purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide
benefits to private parties. The Fund may purchase all types of
municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the
Fund which represent interest on municipal bonds will become subject
to the 20% corporate alternative minimum tax because the dividends are
included in a corporation's "adjusted current earnings." The corporate
alternative minimum tax treats 75% of the excess of the taxpayer's
"adjusted current earnings" over the taxpayer's alternative minimum
taxable income as a tax preference item. "Adjusted current earnings"
is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any
Fund dividend, and alternative minimum taxable income does not include
the portion of the Fund's dividend attributable to municipal bonds
which are not private activity bonds, the difference will be included
in the calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed
as ordinary income.
These tax consequences apply whether dividends are received in cash or
as additional Shares. Information on the tax status of dividends and
distributions is provided annually.
MICHIGAN TAXES
Under existing Michigan laws, distributions made by the Fund will not
be subject to Michigan personal income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Code
and represent (i) interest income and dividends from obligations of
Michigan, which obligations are excluded from federal adjusted gross
income; or (ii) income from obligations of the United States
government which Michigan is prohibited by law from subjecting to a
net income tax. That portion of a shareholder's Shares in the
Fund representing (i) bonds or other similar obligations of Michigan
or its political subdivisions, or (ii) obligations of the United
States which are exempt from taxation by a law of the United States,
and dividends paid by the Fund representing interest payments on such
securities, will be exempt from Michigan intangibles tax. 1995 Public
Act 5 repeals the intangibles tax effective January 1, 1998.
Distributions by the Fund are not subject to the Michigan Single
Business Tax to the extent that such distributions are derived from
interest on obligations that would be exempt if owned directly by the
shareholder, such as obligations of Michigan and the United States
government.
Certain municipalities in Michigan also impose an income tax on
individuals and corporations. However, to the extent that the
dividends from the Funds are exempt from federal regular income taxes,
such dividends also will be exempt from Michigan municipal income
taxes.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states
other than Michigan. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return, yield, and
tax- equivalent yield.
Total return represents the change, over a specific period of time, in
the value of an investment in the Fund after reinvesting all income
and capital gains distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment
income per Share (as defined by the SEC) earned by the Fund over a
thirty-day period by the offering price per Share of the Fund on the
last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the Fund would have had to earn to equal its actual
yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by the Fund
and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. The performance information
reflects the effect of the maximum sales charge and other similar
non-recurring charges, such as the contingent deferred sales charge,
which, if excluded, would increase the total return, yield, and tax-
equivalent yield.
From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications
and/or compare the Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
AUGUST 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<S> <C> <C>
- ----------- ------------------------------------------------------------------------------- ------- ----------
LONG-TERM MUNICIPAL SECURITIES--97.6%
- ---------------------------------------------------------------------------------------------------
MICHIGAN--97.6%
- ---------------------------------------------------------------------------------------------------
$1,000,000 Anchor Bay, MI School District, UT GO Bonds , 5.30% (MBIA
INS)/(Original Issue Yield: 5.35%), 5/1/2008 AAA $1,027,350
-------------------------------------------------------------------------------
230,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2000 AA 241,245
-------------------------------------------------------------------------------
215,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2001 AA 227,831
-------------------------------------------------------------------------------
500,000 Avondale, MI School District, UT GO Refunding Bonds, 6.75% (Michigan
State GTD)/(Original Issue Yield: 6.95%), 5/1/2014 AA 539,430
-------------------------------------------------------------------------------
500,000 Battle Creek, MI Building Authority, Revenue Bonds, 6.00%, 4/1/2002 A+ 527,530
-------------------------------------------------------------------------------
500,000 Battle Creek, MI Building Authority, Revenue Bonds, 6.10%, 4/1/2003 A+ 527,475
-------------------------------------------------------------------------------
100,000 Battle Creek, MI Water Supply System, Revenue Bonds (Series B), 6.90%
(United States Treasury PRF), 9/1/1998 (@102) NR 104,847
-------------------------------------------------------------------------------
100,000 Detroit, MI City School District, UT GO Refunding Bonds (Series A),
7.15% (MBIA INS), 5/1/1998 AAA 102,205
-------------------------------------------------------------------------------
500,000 Detroit, MI Economic Development Corp., Resource Recovery Revenue Bonds
(Series A), 6.875% (FSA INS)/(Original Issue Yield: 7.00%), 5/1/2009 AAA 542,590
-------------------------------------------------------------------------------
1,500,000 Detroit, MI Sewage Disposal System, Revenue Bonds (Series 1997A), 6.00%
(MBIA INS), 7/1/2007 AAA 1,633,590
-------------------------------------------------------------------------------
3,000,000 Detroit, MI Water Supply System, Revenue Refunding Bonds, 6.00% (FGIC
INS)/(Original Issue Yield: 6.10%), 7/1/2002 AAA 3,190,830
-------------------------------------------------------------------------------
1,000,000 Detroit/Wayne County, MI Stadium Authority, Revenue Bonds, 5.25% (FGIC
INS)/(Original Issue Yield: 5.55%), 2/1/2011 AAA 1,001,660
-------------------------------------------------------------------------------
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10% (AMBAC INS)/(Original
Issue Yield: 6.15%), 6/1/2004 AAA 1,070,500
-------------------------------------------------------------------------------
200,000 Farmington Hills, MI Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Series A), 6.60% (Botsford General Hospital)/(MBIA INS),
2/15/2000 AAA 211,012
-------------------------------------------------------------------------------
425,000 Forest Hills, MI Public School, UT GO Bonds, 7.375% (United States
Treasury PRF)/(Original Issue Yield: 7.397%), 5/1/2000 (@101) AA 462,034
-------------------------------------------------------------------------------
285,000 Garden City, MI School District, UT GO Refunding Bonds, 5.80% (FSA AAA 304,608
INS), 5/1/2004
-------------------------------------------------------------------------------
250,000 Garden City, MI School District, UT GO Refunding Bonds, 5.90% (FSA AAA 269,272
INS), 5/1/2005
-------------------------------------------------------------------------------
565,000 Garden City, MI School District, UT GO Refunding Bonds, 6.00% (FSA AAA 609,403
INS), 5/1/2006
-------------------------------------------------------------------------------
515,000 Garden City, MI School District, UT GO Refunding Bonds, 6.10% (FSA AAA 556,550
INS), 5/1/2007
-------------------------------------------------------------------------------
1,200,000 Grand Rapids, MI Public Schools, UT GO Bonds, 5.00% (Original Issue
Yield: 5.40%), 5/1/2002 AA- 1,230,540
-------------------------------------------------------------------------------
150,000 Huron Valley, MI School District, UT GO Bonds, 6.50% (Michigan State
GTD)/(United States Treasury PRF), 5/1/2001 (@102) NR 162,985
-------------------------------------------------------------------------------
270,000 Ingham County MI Sewer Authority, Revenue Bonds, Project #4, Delhi
Charter Township, 5.70%, 11/1/2003 AA- 284,107
-------------------------------------------------------------------------------
360,000 Ingham County MI Sewer Authority, Revenue Bonds, Project #4, Delhi
Charter Township, 5.80%, 11/1/2004 AA- 378,904
-------------------------------------------------------------------------------
465,000 Ingham County MI Sewer Authority, Revenue Bonds, Project #4, Delhi
Charter Township, 5.90%, 11/1/2005 AA- 489,715
-------------------------------------------------------------------------------
1,850,000 Jenison Public Schools, UT GO School Building and Site Refunding Bonds,
Series 1996, 5.30% (FGIC INS)/(Original Issue Yield: 5.40%), 5/1/2007 AAA 1,919,911
-------------------------------------------------------------------------------
265,000 Kent Hospital Finance Authority, MI, Hospital Revenue Refunding Bonds,
6.30% (Pine Rest Christian Hospital, MI)/(FGIC INS)/(Original Issue
Yield: 6.40%), 11/1/2003 AAA 287,027
-------------------------------------------------------------------------------
415,000 Kent Hospital Finance Authority, MI, Hospital Revenue Refunding Bonds,
6.30% (Pine Rest Christian Hospital, MI)/(FGIC INS)/(Original Issue
Yield: 6.45%), 11/1/2004 AAA 448,009
-------------------------------------------------------------------------------
500,000 Lake Orion, MI School District, UT GO Refunding Bonds, 5.90% (Michigan
State GTD)/(AMBAC INS), 5/1/2001 AAA 526,355
-------------------------------------------------------------------------------
2,000,000 Lake Orion, MI School District, UT GO Refunding Bonds, 6.05% (AMBAC
INS)/(Michigan State LOC), 5/1/2002 AAA 2,135,240
-------------------------------------------------------------------------------
1,000,000 Lanse Creuse, MI Public Schools, UT GO School Building and Site Bonds,
Series 1997, 5.00% (AMBAC INS), 5/1/2008 AAA 1,004,500
-------------------------------------------------------------------------------
500,000 Lansing, MI Sewer Disposal System, Revenue Refunding Bonds, 5.50% (FGIC
INS)/(Original Issue Yield: 5.60%), 5/1/2007 AAA 524,555
-------------------------------------------------------------------------------
750,000 Livonia, MI Public School District, UT GO Bonds (Series I), 6.00%, AA 792,053
5/1/2001
-------------------------------------------------------------------------------
1,000,000 Lowell Area Schools, MI, UT GO Refunding Bonds, 5.20% (Michigan State
GTD)/(FGIC INS)/(Original Issue Yield: 5.25%), 5/1/2008 AAA 1,019,420
-------------------------------------------------------------------------------
1,710,000 Marquette, MI Hospital Finance Authority, Hospital Revenue Refunding
Bonds (1996 Series D), 5.30% (Marquette General Hospital, MI)/(FSA
INS), 4/1/2005 AAA 1,763,762
-------------------------------------------------------------------------------
1,290,000 Marquette, MI Hospital Finance Authority, Hospital Revenue Refunding
Bonds (1996 Series D), 5.40% (Marquette General Hospital, MI)/(FSA
INS), 4/1/2006 AAA 1,337,459
-------------------------------------------------------------------------------
100,000 Michigan Higher Education Student Loan Authority, Revenue Refunding
Bonds (Series X1), 7.10% (AMBAC INS), 10/1/1997 AAA 100,275
-------------------------------------------------------------------------------
1,000,000 Michigan Higher Education Student Loan Authority, Student Loan Revenue
Bonds, Series XVII-A, 5.50% (AMBAC LOC), 6/1/2008 AAA 1,018,610
-------------------------------------------------------------------------------
1,350,000 Michigan Higher Education Student Loan Authority, Student Loan Revenue
Bonds, Series XVII-A, 5.65% (AMBAC LOC), 6/1/2010 AAA 1,371,195
-------------------------------------------------------------------------------
1,500,000 Michigan Municipal Bond Authority, Revenue Refunding Q-SBLF Bonds, 6.00%
(Michigan State)/(Michigan State GTD)/(Original Issue Yield: 6.10%),
5/1/2002 AA 1,596,345
-------------------------------------------------------------------------------
3,000,000 Michigan Public Power Agency, Revenue Refunding Bonds (Series A) Belle
River Project, 5.70% (Original Issue Yield: 5.80%), 1/1/2003 AA- 3,161,700
-------------------------------------------------------------------------------
100,000 Michigan State Comprehensive Transportation Board, Revenue Refunding
Bonds (Series 1988-I), 6.55% (Michigan State), 9/1/1997 AA- 100,015
-------------------------------------------------------------------------------
1,000,000 Michigan State Comprehensive Transportation Board, Revenue Refunding
Bonds (Series B), 5.50% (Michigan State)/(Original Issue Yield: 5.60%),
5/15/2002 AA- 1,045,840
-------------------------------------------------------------------------------
1,000,000 Michigan State Comprehensive Transportation Board, Revenue Refunding
Bonds (Series B), 6.00% (Michigan State)/(Original Issue Yield: 6.05%),
5/15/2007 AA- 1,070,790
-------------------------------------------------------------------------------
100,000 Michigan State Comprehensive Transportation Board, Revenue Refunding
Bonds (Series B-II), 6.55% (Michigan State), 11/1/1997 AA- 100,469
-------------------------------------------------------------------------------
415,000 Michigan State Hospital Finance Authority, Revenue Bonds (Series A),
6.15% (Crittenton Hospital, MI), 3/1/2001 A+ 436,800
-------------------------------------------------------------------------------
440,000 Michigan State Hospital Finance Authority, Revenue Bonds (Series A),
6.25% (Crittenton Hospital, MI), 3/1/2002 A+ 468,230
-------------------------------------------------------------------------------
1,000,000 Michigan State Hospital Finance Authority, Revenue Bonds, 5.25% (St.
John Hospital, MI)/(AMBAC INS)/(Original Issue Yield: 5.65%),
5/15/2026 AAA 958,470
-------------------------------------------------------------------------------
500,000 Michigan State Hospital Finance Authority, Revenue Bonds, Providence
Hospital, 7.00% (Daughters of Charity)/(Original Issue Yield: 7.04%),
11/1/2021 AA 547,510
-------------------------------------------------------------------------------
1,500,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds
(Series A), 5.50% (St. John Hospital, MI)/(Original Issue Yield: 5.80%),
5/15/2001 A+ 1,549,395
-------------------------------------------------------------------------------
800,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
5.95% (Oakwood Obligated Group)/(FGIC INS)/(Original Issue Yield: 6.05%),
5/1/2002 AAA 847,640
-------------------------------------------------------------------------------
575,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
6.30% (Sparrow Obligated Group, MI)/(MBIA INS), 11/15/2003 AAA 620,793
-------------------------------------------------------------------------------
375,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
6.85% (Oakland General Hospital, MI)/(AMBAC INS), 7/1/2000 AAA 398,985
-------------------------------------------------------------------------------
1,000,000 Michigan State Housing Development Authority, (Series A) Rental Housing
Revenue Bonds, 5.55% (MBIA INS), 4/1/2004 AAA 1,020,210
-------------------------------------------------------------------------------
500,000 Michigan State Housing Development Authority, Revenue Bonds (Series A),
5.90%, 12/1/2005 AA+ 514,715
-------------------------------------------------------------------------------
500,000 Michigan State Housing Development Authority, Revenue Bonds (Series A),
5.90%, 6/1/2005 AA+ 513,995
-------------------------------------------------------------------------------
430,000 Michigan State Housing Development Authority, Revenue Bonds (Series A),
6.25%, 6/1/2002 AA+ 446,383
-------------------------------------------------------------------------------
200,000 Michigan State Housing Development Authority, Revenue Bonds (Series A),
7.00%, 12/1/2005 AA+ 211,376
-------------------------------------------------------------------------------
280,000 Michigan State Housing Development Authority, Revenue Bonds (Series B),
6.30%, 12/1/2003 AA+ 291,978
-------------------------------------------------------------------------------
1,000,000 Michigan State Housing Development Authority, Revenue Bonds (Series E),
5.55%, 12/1/2007 AA+ 1,018,940
-------------------------------------------------------------------------------
185,000 Michigan State Housing Development Authority, Single Family Mortgage
Revenue Bonds (Series B), 6.95%, 12/1/2020 AA+ 195,253
-------------------------------------------------------------------------------
1,000,000 Michigan State, UT GO Recreation Program Bonds, 5.75% (Original Issue Yield:
5.80%), 11/1/2001 AA $1,055,170
-------------------------------------------------------------------------------
250,000 Michigan Strategic Fund, LT Obligation Revenue Refunding Bonds (Series A), 7.10%
(Ford Motor Co.)/(Original Issue Yield: 7.127%), 2/1/2006 A+ 291,285
-------------------------------------------------------------------------------
4,250,000 Monroe County, MI Pollution Control Authority, PCR Revenue Bonds (Series A),
6.35% (Detroit Edison Co.)/(AMBAC INS), 12/1/2004 AAA 4,647,843
-------------------------------------------------------------------------------
1,750,000 Novi, MI Community School District, UT GO Bonds, Q-SBLF, 5.45%
(Original Issue Yield: 5.50%), 5/1/2003 AA 1,820,753
-------------------------------------------------------------------------------
300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds, 6.65% (Oakland Community
College District, MI)/(Original Issue Yield: 6.743%), 5/1/2011 AA- 328,824
-------------------------------------------------------------------------------
250,000 Oakland County, MI, LT GO Bonds, Evergreen-Farmington Sewer Disposal,
6.30%, 5/1/2005 AA+ 264,383
-------------------------------------------------------------------------------
610,000 Okemos, MI Public School District, UT GO Refunding Bonds, Q-SBLF, 6.00%
(Michigan State GTD), 5/1/2002 AA 649,449
-------------------------------------------------------------------------------
140,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water Supply System, 6.50%
(Original Issue Yield: 6.55%), 10/1/2002 AA- 146,360
-------------------------------------------------------------------------------
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water System, 6.85%, 5/1/2000 AA- 102,475
-------------------------------------------------------------------------------
220,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water Supply System,
6.50%, 10/1/2001 AA- 229,995
-------------------------------------------------------------------------------
400,000 Plymouth-Canton, MI Community School District, UT GO Bonds (Series C),
Q-SBLF, 6.00% (Michigan State GTD)/(Original Issue Yield: 6.10%), 5/1/2003 AA 428,476
-------------------------------------------------------------------------------
500,000 Plymouth-Canton, MI Community School District, UT GO Refunding Bonds
(Series B), Q-SBLF, 6.80% (Michigan State GTD)/(United States Treasury PRF)/
(Original Issue Yield: 6.90%), 5/1/2001 (@101) AA 545,480
-------------------------------------------------------------------------------
570,000 Riverview, MI Community School District, UT GO Bonds, 6.20% (FGIC INS)/
(United States Treasury PRF), 5/1/2002 (@101.5) AAA 619,208
-------------------------------------------------------------------------------
615,000 Riverview, MI Community School District, UT GO Bonds, 6.20% (FGIC INS)/
(United States Treasury PRF), 5/1/2002 (@101.5) AAA 668,093
-------------------------------------------------------------------------------
350,000 Rochester, MI Community School District, UT GO Bonds, 6.50% (Michigan State GTD)/
(United States Treasury PRF)/(Original Issue Yield: 6.60%), 5/1/2002 (@100) AA 380,016
-------------------------------------------------------------------------------
250,000 Rochester, MI Community School District, UT GO Bonds, 6.50% (Michigan State GTD)/
(United States Treasury PRF)/(Original Issue Yield: 6.75%), 5/1/2002 (@100) AA 271,440
-------------------------------------------------------------------------------
270,000 Shelby Charter Townships, MI Building Authority, Revenue Bonds, 6.25%
(AMBAC INS)/(Original Issue Yield: 6.45%), 11/1/2006 AAA 289,688
-------------------------------------------------------------------------------
230,000 Shelby Charter Townships, MI Building Authority, Revenue Bonds, 6.25%
(AMBAC INS)/(Original Issue Yield: 6.50%), 11/1/2007 AAA 247,954
-------------------------------------------------------------------------------
250,000 University of Michigan, Hospital Revenue Bonds, 7.00% (United States Treasury PRF)/
(Original Issue Yield: 7.25%), 12/1/2000 (@102) AA 274,113
-------------------------------------------------------------------------------
1,500,000 University of Michigan, Hospital Revenue Refunding Bonds (Series A), 5.70%
(Original Issue Yield: 5.80%), 12/1/2004 AA 1,598,310
-------------------------------------------------------------------------------
1,000,000 Walled Lake, MI Consolidated School District, UT GO Refunding Bonds, 5.30%
(MBIA INS)/(Original Issue Yield: 5.35%), 5/1/2008 AAA $1,025,030
-------------------------------------------------------------------------------
1,000,000 Wayne County, MI Building Authority, LT GO Capital Improvement Bonds, 5.35%
(MBIA INS)/(Original Issue Yield: 5.40%), 6/1/2009 AAA 1,025,410
-------------------------------------------------------------------------------
1,000,000 Western Michigan University, Revenue Bonds, 5.50% (FGIC INS)/(Original Issue Yield:
5.55%), 11/15/2002 AAA 1,049,230
-------------------------------------------------------------------------------
885,000 Wyandotte, MI Electric Authority, Revenue Refunding Bonds, 6.10% (MBIA INS),
10/1/2002 AAA 951,641
------------------------------------------------------------------------------- ------------
Total Long-Term Municipal Securities
(identified cost $62,788,574) 65,971,042
------------------------------------------------------------------------------- ------------
Short-Term Municipal Notes -- 1.0%
- ---------------------------------------------------------------------------------------------------
Puerto Rico -- 1.0%
- ---------------------------------------------------------------------------------------------------
700,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse, Zurich
LOC) (at amortized cost) AA+ 700,000
------------------------------------------------------------------------------- -----------
Total Investments (identified cost $63,488,574)(a) $66,671,042
------------------------------------------------------------------------------- -----------
</TABLE>
Securities that are subject to alternative minimum tax represent
8.2% of the Fund's portfolio as calculated based upon total
portfolio market value.
. Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(a) The cost of investments for federal tax purposes amounts to
$63,488,574. The net unrealized appreciation of investments on a
federal tax basis amounts to $3,182,468 which is comprised of
$3,195,420 appreciation and $12,952 depreciation at August 31,
1997.
Note: The categories of investments are shown as a percentage of net assets
($67,591,590) at August 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
GTD -- Guaranty
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control
Revenue PRF -- Prerefunded Q-SBLF -- Qualified State Bond Loan Fund UT
- -- Unlimited Tax VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
- ----------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $63,488,574) $66,671,042
- ----------------------------------------------------------------------------------------
Cash 75,679
- ----------------------------------------------------------------------------------------
Income receivable 1,082,349
- ----------------------------------------------------------------------------------------
Receivable for shares sold 31,192
- ---------------------------------------------------------------------------------------- -----------
Total assets 67,860,262
- ----------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------
Payable for shares redeemed $ 37,745
- ---------------------------------------------------------------------------
Income distribution payable 218,136
- ---------------------------------------------------------------------------
Accrued expenses 12,791
- --------------------------------------------------------------------------- ---------
Total liabilities 268,672
- ---------------------------------------------------------------------------------------- -----------
NET ASSETS for 6,229,544 shares outstanding $67,591,590
- ----------------------------------------------------------------------------------------
NET ASSETS Consist of:
- ----------------------------------------------------------------------------------------
Paid in capital $65,535,642
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,182,468
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,126,520)
- ----------------------------------------------------------------------------------------
Total Net Assets $67,591,590
- ---------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------
Net Asset Value Per Share ($67,591,590 O 6,229,544 shares outstanding) $ 10.85
- ---------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/97.00 of $10.85)* $ 11.19
- ---------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $ 10.85
- ---------------------------------------------------------------------------------------- -----------
</TABLE>
. See "Investing in the Fund" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
Interest $3,542,049
- --------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------
Investment advisory fee $ 257,217
- -------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- -------------------------------------------------------------------------
Custodian fees 11,042
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,076
- -------------------------------------------------------------------------
Directors'/Trustees' fees 3,688
- -------------------------------------------------------------------------
Auditing fees 13,858
- -------------------------------------------------------------------------
Legal fees 2,948
- -------------------------------------------------------------------------
Portfolio accounting fees 58,759
- -------------------------------------------------------------------------
Shareholder services fee 160,761
- -------------------------------------------------------------------------
Share registration costs 14,165
- -------------------------------------------------------------------------
Printing and postage 17,153
- -------------------------------------------------------------------------
Insurance premiums 3,031
- -------------------------------------------------------------------------
Miscellaneous 1,569
- -------------------------------------------------------------------------
Total expenses 701,267
- ------------------------------------------------------------------------- ---------
Waivers and reimbursements--
- ---------------------------------------------------------
Waiver of investment advisory fee $ (257,217)
- ---------------------------------------------------------
Waiver of shareholder services fee (115,748)
- ---------------------------------------------------------
Reimbursement of other operating expenses (3,912)
- ---------------------------------------------------------- -----------
Total waivers and reimbursements (376,877)
- ------------------------------------------------------------------------ ---------
Net expenses 324,390
- -------------------------------------------------------------------------------------- ----------
Net investment income 3,217,659
- -------------------------------------------------------------------------------------- ----------
Realized and Unrealized Gain (Loss) on Investments:
- --------------------------------------------------------------------------------------
Net realized gain on investments 149,867
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 767,866
- -------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 917,733
- -------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $4,135,392
- -------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------
Net investment income 3,217,659 $ 3,100,224
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($133,935 net gain and $934,269 net loss,
respectively, as computed for federal tax purposes) 149,867 (15,933)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation 767,866 (645,967)
- ---------------------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 4,135,392 2,438,324
- ---------------------------------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------------
Distributions from net investment income (3,217,659) (3,100,224)
- ----------------------------------------------------------------------------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------------
Proceeds from sale of shares 16,338,296 12,656,505
- ----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 615,490 531,641
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (13,065,032) (10,361,950)
- ---------------------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from share transactions 3,888,754 2,826,196
- ---------------------------------------------------------------------------------------- ------------ ------------
Change in net assets 4,806,487 2,164,296
- ----------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------
Beginning of period 62,785,103 60,620,807
- ---------------------------------------------------------------------------------------- ------------ ------------
End of period $ 67,591,590 $ 62,785,103
- ---------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
AUGUST 31, 1997
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an
open-end, management investment company. The Trust consists of five
portfolios. The financial statements included herein are only those of
Federated Michigan Intermediate Municipal Trust (the "Fund"), a
non-diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in
which shares are held. The investment objective of the Fund is to
provide current income which is exempt from federal regular income tax
and the personal income taxes imposed by the state of Michigan and
Michigan municipalities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon,
maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the Internal
Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
At August 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $1,126,520, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- --------------- -----------------
<S> <C>
2003 $192,251
2004 $934,269
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions.
The Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid assets will
be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized
over a period not to exceed five years from the Fund's commencement
date.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Shares sold 1,512,481 1,168,371
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 56,959 49,167
- --------------------------------------------------------------------
Shares redeemed (1,209,574) (959,378)
- -------------------------------------------------------------------- ---------- --------
Net change resulting from share transactions 359,866 258,160
- -------------------------------------------------------------------- ---------- --------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Fund with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of
average daily net assets of the Fund for the period. The fee paid to
FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
INTERFUND TRANSACTIONS
During the period ended August 31, 1997, the Fund engaged in purchase
and sale transactions with funds that have a common investment adviser
(or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at
current market value pursuant to Rule 17a-7 under the Act amounting to
$14,550,000 and $15,150,030, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities
(and in-kind contributions), for the period ended August 31, 1997,
were as follows:
<TABLE>
<S> <C>
Purchases $11,486,905
- -------------------------------------------------------- -----------
Sales $7,642,152
- -------------------------------------------------------- -----------
</TABLE>
6. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit
risk associated with such factors, at August 31, 1997, 65.4% of the
securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and
financial guaranty assurance agencies. The percentage of investments
insured by or supported (backed) by a letter of credit from any one
institution or agency did not exceed 20.6% of total investments.
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
MUNICIPAL SECURITIES INCOME TRUST
and Shareholders of
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Michigan
Intermediate Municipal Trust as of August 31, 1997, the related
statement of operations for the year then ended, the statements of
changes in net assets for the years ended August 31, 1997, and 1996,
and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned as of August 31, 1997, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Federated Michigan Intermediate Municipal Trust as of August 31, 1997,
the results of its operations, the changes in its net assets and its
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 13, 1997
NOTES
[LOGO OF FEDERATED INVESTORS]
FEDERATED MICHIGAN
INTERMEDIATE
MUNICIPAL TRUST
(A Portfolio of Municipal
Securities Income Trust)
FEDERATED MICHIGAN
INTERMEDIATE
MUNICIPAL TRUST
Federated Investors Tower
Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
PROSPECTUS
OCTOBER 31, 1997
A Non-Diversified Portfolio of Municpal
Securities Income Trust,
An Open-End, Management
Investment Company
Federated Securities Corp., Distributor
Cusip 625922703 [RECYCLED PAPER LOGO]
G01389-01 (10/97)
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Michigan Intermediate Municipal Trust (the
"Fund"), a portfolio of Municipal Securities Income Trust dated
October 31, 1997. This Statement is not a prospectus. You may request
a copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1997
[GRAPHIC OMITTED]
Cusip 625922703
1041202B (10/97)
<PAGE>
I
TABLE OF CONTENTS
<PAGE>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Futures Transactions 2
Temporary Investments 3
Portfolio Turnover 3
Investment Limitations 3
Michigan Investment Risks 5
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 5
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Adviser to the Fund 11
Advisory Fees 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
SHAREHOLDER SERVICES AGREEMENT 11
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 12
Quantity Discounts and Accumulated Purchases 12
Concurrent Purchases 12
Letter of Intent 13
Reinvestment Privilege 13
Conversion to Federal Funds 13
Purchases by Sales Representatives, Fund Trustees, and Employees 13
DETERMINING NET ASSET VALUE 13
Valuing Municipal Bonds 13
Use of Amortized Cost 14
REDEEMING SHARES 14
Redemption in Kind 14
Massachusetts Partnership Law 14
TAX STATUS 14
The Fund's Tax Status 14
Shareholders' Tax Status 15
TOTAL RETURN 15
YIELD 15
TAX-EQUIVALENT YIELD 15
Tax-Equivalency Table 16
PERFORMANCE COMPARISONS 17
Economic and Market Information 17
ABOUT FEDERATED INVESTORS 17
Mutual Fund Market 18
Institutional Clients 18
Bank Marketing 18
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 18
APPENDIX 19
<PAGE>
20
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in Municipal Securities Income Trust. The
Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 6, 1990. On June 1, 1994, Michigan
Municipal Income Fund changed its name to Michigan Intermediate
Municipal Trust. On February 26, 1996 (effective date March 31, 1996),
the Trustees approved changing the name of the Fund from Michigan
Intermediate Municipal Trust to Federated Michigan Intermediate
Municipal Trust. The shares of the Fund are hereafter referred to as
"Shares."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities. The investment
objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities,
which are exempt from federal regular income tax and Michigan state
and local tax ("Michigan Municipal Securities"). These securities
include those issued by or on behalf of the state of Michigan and
Michigan municipalities, and those issued by states, territories, and
possessions of the United States which are exempt from federal regular
income tax and the personal income tax imposed by the state of
Michigan and Michigan municipalities.
CHARACTERISTICS
The Michigan Municipal Securities in which the Fund invests
have the characteristics set forth in the prospectus. If a
rated bond loses its rating or has its rating reduced after
the Fund has purchased it, the Fund is not required to drop
the bond from the portfolio, but will consider doing so. If
ratings made by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P") or Fitch Investors
Service, L.P. ("Fitch") change because of changes in those
organizations or in their rating systems, the Fund will try
to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Michigan Municipal Securities are:
o municipal notes and municipal commercial paper;
o serial bonds sold with differing maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities;
o bond anticipation notes sold prior to the issuance of longer-term
bonds;
o pre-refunded municipal bonds; and
o general obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from
another financial institution irrevocable letters of credit
or guarantees and give the Fund the right to demand payment
of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the
market value of municipal securities from their original
purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities
than for fixed income obligations. The terms of these
variable rate demand instruments require payment of principal
and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests, or a
guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided
proportional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease
payments as they became due. In the event of default or
failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities,
the investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery, if any, from a sale of the leased property
upon termination of the lease;
o the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
o the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for
an "event of non-appropriation");
o any credit enhancement or legal recourse provided upon an
event of non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
FUTURES TRANSACTIONS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future. In the
fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to purchase
securities in the future at a predetermined price (i.e., "go long") to
hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in municipal securities, cash or cash
equivalents with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value ("NAV"), the Fund will mark-to-market its open futures
positions.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of
unusual market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions
sell U.S. government securities or certificates of deposit to
the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price within one year from
the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase
agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund believes that under the regular procedures normally
in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may
only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers,
which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the
Trustees.
From time to time, such as when suitable Michigan municipal
bonds are not available, the Fund may invest a portion of its
assets in cash. Any portion of the Fund's assets maintained
in cash will reduce the amount of assets in Michigan
municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of
the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to
be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets
of the Fund, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated at the
trade date. These securities are marked to market daily and
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual
rate of portfolio turnover exceeding 100%. For the fiscal years ended
August 31, 1997 and 1996, the Fund's portfolio turnover rates were 12%
and 7%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, but
only to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value
not exceeding 10% of the value of its total assets at the
time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except
as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may
invest in municipal bonds secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity
contracts, or commodities futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
net assets in securities subject to restrictions on resale under the
Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may
acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and
limitations or its Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would
be invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid
from revenues of similar types of projects. However, the Fund
may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued
or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation, or other
acquisition.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, and certain
restricted securities. Except with respect to borrowing money, if
a percentage limitation is adhered to at the time of investment, a
later increase or decrease in percentage resulting from any change in
value or net assets will not result in a
violation of such restriction.
The Fund does not expect to borrow money or pledge securities or
invest in repurchase agreements in excess of 5% of the value of its
net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 ("bank cash
items") at the time of investment to be included in "cash items."
However, the Fund does not intend to exceed its concentration
limitation with respect to bank cash items.
MICHIGAN INVESTMENT RISKS
Michigan continues to benefit from the prolonged national economic
expansion. Durable goods orders have remained strong and the auto
industry has restructured and reinvested to improve its competitive
position. In addition, the state continues to diversify its economic
base away from manufacturing to trade and services. All of these
factors have stabilized Michigan's traditionally cyclical economy
resulting in historically low unemployment figures and strong growth
in per capita income.
Michigan's fiscal position has been prudently managed. The state has
demonstrated an ability to achieve balanced budgets, high reserves and
low debt levels. Spending controls and higher than budgeted revenues
have resulted in a budget stabilization fund of about $1.1 billion.
These reserve funds are at their highest level in the state's history.
The enduring effectiveness of state financial management will
ultimately be tested by the next economic downturn.
The state's fiscal and economic health are reflected in its current
credit ratings. Michigan is rated Aa and AA by Moody's and S&P,
respectively.
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Municipal Securities Income Trust, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President and Trustee of the
Company.
<PAGE>
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior
Vice-President, John R. Wood and Associates, Inc., Realtors; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds.
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Retired from the law firm of Miller, Ament, Henny & Kochuba; Director
or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica & Murray; Director or Trustee of the Funds.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or
Trustee of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman
and Director, Federated Securities Corp.; President or Vice President
of some of the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
<PAGE>
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
* This Trustee is deemed to be an "interested person" as
defined in the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive
Committee of the Board of Trustees handles the
responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 6, 1997, the following shareholders of record owned 5%
or more of the outstanding Shares of the Fund: Enbanco, Traverse City,
MI, owned approximately 2,333,703 Shares (37.08%); First Mar & Co.,
Marquette, MI, owned approximately 854,493 Shares (13.57%); Shoreline
Co., South Haven, MI, owned approximately 459,375 Shares (7.30%);
Charles Schwab & Co. Inc., San Francisco, CA, owned approximately
457,093 Shares (7.26%); and First Mar and Company, Marquette, MI,
owned approximately 337,849 Shares (5.36%).
<PAGE>
TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>
John F. Donahue $-0- $-0- for the Trust and
Trustee and Chairman 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Trust and
Trustee and Executive 18 other investment companies in the Fund Complex
Vice President
James E. Dowd $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended August 31, 1997.
# The aggregate compensation is provided for the Trust which is
comprised of five portfolios.
The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees
of which are John F. Donahue, his wife and his son, J. Christopher
Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years
ended August 31, 1997, 1996 and 1995, the Adviser earned advisory fees
of $257,217, $248,517, and $233,527, respectively, all of which were
voluntarily waived.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
as described in the prospectus. From March 1, 1994, to March 1, 1996,
Federated Administrative Services, a subsidiary of Federated
Investors, served as the Fund's Administrator. For purposes of this
Statement, Federated Services Company and Federated Administrative
Services may hereinafter collectively be referred to as the
"Administrators". For the fiscal years ended August 31, 1997, 1996 and
1995, the Administrators earned $125,000, $125,000 and $125,000.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston, MA,
is custodian for the securities and cash of the Fund. Federated
Services Company, Pittsburgh, PA, provides certain accounting and
recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES AGREEMENT
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided
which are necessary for the maintenance of shareholder accounts and to
encourage personal services to shareholders by a representative who
has knowledge of the shareholder's particular circumstances and goals.
These activities and services may include, but are not limited to,
providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses. By adopting the Shareholder Services
Agreement, the Trustees expect that the Fund will benefit by: (1)
providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3)
enhancing shareholder record-keeping systems; and (4) responding
promptly to shareholder's requests and inquiries concerning their
accounts. For the fiscal year ended August 31, 1997, the Fund paid
shareholder service fees in the amount of $160,761, of which $115,748
were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished
directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or by its
affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine
in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services
provided. During the fiscal years ended August 31, 1997, 1996 and
1995, the Fund paid no brokerage commissions. Although investment
decisions for the Fund are made independently from those of the other
accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest
in, or desire to dispose of, the same security, available investments
or opportunities for sales will be allocated in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares
are sold at their NAV plus a sales charge on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the prospectus under "Investing in the Fund" and
"Purchasing Shares."
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, larger purchases reduce or eliminate
the sales charge paid. The Fund will combine purchases of Shares made
on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge.
In addition, the sales charge, if applicable, is reduced for purchases
made at one time by a trustee or fiduciary for a single trust estate
or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $40,000 and he purchases $10,000 more at the current
public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 2.50%, not 3.00%.
To receive the sales charge reduction, Federated Securities Corp. must
be notified by the shareholder in writing or by his financial
intermediary at the time the purchase is made that Shares are already
owned or that purchases are being combined. The Fund will reduce or
eliminate the sales charge after it confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction or
elimination, a shareholder has the privilege of combining concurrent
purchases of Fund Shares or Class A Shares of two or more funds for
which affiliates of Federated Investors serve as investment adviser
and principal underwriter (the "Federated Funds"), the purchase prices
of which include a sales charge. For example, if a shareholder
concurrently invested $400,000 in the Class A Shares of one of the
other Federated Funds with a sales charge, and $600,000 in this Fund,
the sales charge would be eliminated.
To receive this sales charge reduction or elimination, Federated
Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary at the time the concurrent purchases are
made. The Fund will reduce or eliminate the sales charge after it
confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of Shares of
Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within
the 13-month period and a provision for the custodian to hold up to
3.00% of the total amount intended to be purchased in escrow (in
Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be
released upon fulfillment of the letter of intent or the end of the
13-month period, whichever comes first. If the amount specified in the
letter of intent is not purchased, an appropriate number of escrowed
Shares may be redeemed in order to realize the sales charge.
While this letter of intent will not obligate the shareholder to
purchase Shares, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. At the
time a letter of intent is established, current balances in accounts
in any Class A Shares of any Federated Fund, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent.
The letter may be dated as of a prior date to include any purchase
made within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined NAV without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his
financial intermediary of the reinvestment in order to eliminate a
sales charge. If the shareholder redeems Shares in the Fund, there may
be tax consequences.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal
funds before shareholders begin to earn dividends. State Street Bank
acts as the shareholder's agent in depositing checks and converting
them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
The following individuals and their immediate family members may buy
Shares at NAV without a sales charge:
o Trustees, employees, and sales representatives of the
Fund, Federated Advisers, and Federated Securities
Corp. and its affiliates;
o Federated Life Members; and
o any associated person of an investment dealer who has a
sales agreement with Federated Securities Corp. Shares
may also be sold without a sales charge to trusts,
pensions, or profit-sharing plans for these
individuals.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not
be resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund.
NAV is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its NAV
might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received;
or (iii) the following holidays: New Year's Day, Martin Luther King
Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal
bonds. The independent pricing service takes into consideration yield,
stability, risk, quality, coupon rate, maturity, type of issue,
trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers
relevant in determining valuations for normal institutional size
trading units of debt securities, and does not rely exclusively on
quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60
days or less at the time of purchase, shall be their amortized cost
value, unless the particular circumstances of the security indicate
otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium
or accumulation of discount rather than at current market value. The
Executive Committee continually assesses this method of valuation and
recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith
by the Trustees.
REDEEMING SHARES
The Fund redeems Shares at the next computed NAV after the Fund
receives the redemption request. Redemption procedures are explained
in the respective prospectuses under "Redeeming and Exchanging
Shares." Although the transfer agent does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000
or 1.00% of the respective class's NAV, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the
Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way that NAV is determined.
The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their securities
and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain
transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for acts or obligations of
the Trust on behalf of the Fund. To protect shareholders of the Fund,
the Trust has filed legal documents with Massachusetts that expressly
disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Fund.
In the unlikely event a shareholder of the Fund is held personally
liable for the Trust's obligations on behalf of the Fund, the Trust is
required to use the property of the Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial
loss resulting from liability as a shareholder of the Fund will occur
only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the
Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive
the special tax treatment afforded to such companies. To qualify for
this treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
o invest in securities within certain statutory limits;
and
o distribute to its shareholders at least 90% of its net
income earned during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the
sale of portfolio securities and as a result of discounts from par
value on securities held to maturity. Sales would generally be made
because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the Shares. Any loss by a shareholder
on Fund Shares held for less than six months and sold after a capital
gains distribution will be treated as a long-term capital loss to the
extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for the one-year and five-year
periods ended August 31, 1997, and for the period from September 18,
1991 (date of initial public investment) to August 31, 1997, were
3.40%, 5.44% and 6.17%, respectively.
The average annual total return of the Fund is the average compounded
rate of return for a given period of time that would equate a $1,000
initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of
Shares owned at the end of the period by the offering price per Share
at the end of the period. The number of Shares owned at the end of the
period is based on the number of Shares purchased at the beginning of
the period with $1,000 less any applicable sales charge, adjusted over
the period by any additional Shares, assuming a monthly reinvestment
of all dividends and distributions. Any applicable contingent deferred
sales charge is deducted from the ending value of the investment based
on the lesser of the original purchase price or the offering price of
Shares redeemed.
YIELD
The Fund's yield for the thirty-day period ended August 31, 1997 was
3.98%.
The yield for the Fund is determined by dividing the net investment
income per Share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per Share of the Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period
is assume to be generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may
not correlate to the dividends or other distributions paid to
Shareholders. To the extent that financial institutions and
broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended August
31, 1997 was 5.53%.
The tax-equivalent yield for the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund
would have had to earn to equal its actual yield, assuming a 28% tax
rate and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the
Fund's portfolio generally remains free from federal regular income
tax* and the income taxes imposed by the state of Michigan. As the
table below indicates, a "tax-free" investment is an attractive choice
for investors, particularly in times of narrow spreads between
"tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MICHIGAN
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40% 44.00%
<S> <C> <C> <C> <C> <C> <C>
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund Shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
<PAGE>
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation
of yield and total return.
Investors may use financial publications and/or indices to obtain a
more complete view of the Fund's performance. When comparing
performance, investors should consider all relevant factors such as
the composition of any index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may
include:
o LEHMAN BROTHERS SEVEN YEAR STATE GENERAL OBLIGATION
BOND INDEX is an index of general obligation bonds
rated A or better with 6-8 years to maturity.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account
any change in offering price over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the
"general municipal bond funds" category in advertising and sales
literature.
o MORNINGSTAR, INC. an independent rating service, is the
publisher of the bi-weekly MUTUAL FUND VALUES. MUTUAL
FUND VALUES rates more than 1,000 NASDAQ listed mutual
funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The
total returns represent the historic change in the value of an
investment in Shares based on monthly reinvestment of dividends over a
specific period of time.
Advertisements may quote performance information which does not
reflect the effect of the sales charge.
Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in
general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their
views and analysis on how such developments could affect the Funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making -- structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual
funds in the industry and is now one of the largest institutional
buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers
Union regarding the tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to theses institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
* Source: Investment Company Institute
<PAGE>
I
APPENDIX
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond
rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, L.P. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality.
The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB--Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the AAA
category.
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc. Short-Term Loan Ratings
MIG1/VMIG1--This designation denotes best quality. The re is a present
strong protection by established cash flows, superior liquidity
support or demonstrated broad based access to the market for
refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS SERVICES COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
for issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate
liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FEDERATED NEW YORK MUNICIPAL INCOME FUND (A Portfolio of Municipal
Securities Income Trust) Class F Shares
PROSPECTUS
The Class F Shares of Federated New York Municipal Income Fund (the
"Fund") offered by this prospectus represent interests in a
non-diversified portfolio of securities which is one of a series of
investment portfolios in Municipal Securities Income Trust (the
"Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes
imposed by the state of New York and New York municipalities. The Fund
invests primarily in a portfolio of New York municipal securities.
The shares offered by this prospectus are not deposits or obligations
of any bank, are not endorsed or guaranteed by any bank, and are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency. Investment in these
shares involves investment risks including the possible loss of
principal.
This prospectus contains the information you should read and know
before you invest in Class F Shares. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for
Class F Shares dated October 31, 1997, with the Securities and
Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information or to make inquiries about
the Fund, contact your financial institution. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated October 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses.............................. 1
Financial Highlights.................................. 2
General Information................................... 3
Calling the Fund..................................... 3
Investment Information................................ 3
Investment Objective................................. 3
Investment Policies.................................. 3
New York Municipal Securities........................ 5
Investment Risks..................................... 6
Non-Diversification.................................. 6
Investment Limitations............................... 6
Net Asset Value....................................... 6
Investing in the Fund................................. 6
Purchasing Shares..................................... 7
Purchasing Shares through a Financial Intermediary... 7
Purchasing Shares by Wire............................ 7
Purchasing Shares by Check........................... 7
Systematic Investment Program........................ 7
Eliminating the Sales Charge......................... 7
Redeeming and Exchanging Shares....................... 8
Redeeming or Exchanging Shares Through
a Financial Intermediary............................. 8
Redeeming or Exchanging Shares by Telephone.......... 8
Redeeming or Exchanging Shares by Mail............... 9
Requirements for Redemption.......................... 9
Requirements for Exchange............................ 9
Systematic Withdrawal Program........................ 9
Contingent Deferred Sales Charge..................... 9
Account and Share Information.........................10
Confirmations and Account Statements.................10
Dividends and Distributions..........................10
Accounts with Low Balances...........................10
Trust Information.....................................10
Management of the Trust..............................10
Distribution of Shares...............................11
Administration of the Fund...........................12
Shareholder Information...............................12
Tax Information.......................................12
Federal Income Tax...................................12
New York Taxes.......................................13
State and Local Taxes................................13
Performance Information...............................13
Financial Statements..................................15
Independent Auditors' Report..........................23
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).... 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).............................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)(1).................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............... None
Exchange Fee..................................................................... None
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (after waiver)(2)................................................ 0.00%
12b-1 Fee (after waiver)(3)..................................................... 0.02%
Total Other Expenses (after expense reimbursement).............................. 0.68%
Shareholder Services Fee (after waiver)(4)..................................... 0.23%
Total Operating Expenses(5)*................................................. 0.70%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed
within four years of their purchase date. For a more complete
description see "Contingent Deferred Sales Charge."
(2) The management fee has been reduced to reflect the voluntary
waiver of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.40%.
(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of
a portion of the 12b-1 fee. The distributor can terminate the
voluntary waiver at any time at its sole discretion. The maximum
12b-1 fee is 0.50%.
(4) The shareholder services fee has been reduced to reflect the
voluntary waiver of a portion of the shareholders services fee.
The shareholder services provider can terminate the voluntary
waiver at any time at its sole discretion. The maximum shareholder
services fee is 0.25%.
(5) The total operating expenses in the table above are based on
expenses expected during the fiscal year ending August 31, 1998.
The total operating expenses were 0.66% for the fiscal year ended
August 31, 1997, and would have been 2.41% absent the voluntary
waivers of the management fee and portions of the 12b-1 fee and
the shareholder services fee and the voluntary reimbursement of
certain other operating expenses.
. Total Class F Shares operating expenses are estimated based on
average expenses expected to be incurred during the period ending
August 31, 1998. During the course of this period, expenses may be
more or less than the average amount shown.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of Class F Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in the
Fund" and "Trust Information." Wire- transferred redemptions of less
than $5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted under the rules of the
National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period;
and (3) payment of the
maximum sales charge..................................................................... $27 $43 $49 $96
You would pay the following expenses on the same investment,
assuming no redemption................................................................... $17 $32 $49 $96
</TABLE>
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those
shown.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 23.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
1997 1996 1995 1994 1993(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.17 $ 10.13 $ 10.10 $ 10.92 $ 10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56 0.58 0.57 0.57 0.44
Net realized and unrealized gain (loss) on
investments 0.45 0.04 0.03 (0.82) 0.88
------- ------- ------- ------- -------
Total from investment operations 1.01 0.62 0.60 (0.25) 1.32
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Distributions from net investment income (0.56) (0.58) (0.57) (0.57) (0.44)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.62 $ 10.17 $ 10.13 $ 10.10 $ 10.92
------- ------- ------- ------- -------
TOTAL RETURN(B) 10.13% 6.18% 6.41% (2.31%) 13.38%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.66% 0.60% 0.59% 0.39% 0.25%*
Net investment income 5.34% 5.62% 5.94% 5.49% 5.53%*
Expense waiver/reimbursement(C) 1.75% 1.93% 1.74% 2.07% 1.91%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $22,386 $21,932 $21,600 $23,152 $14,495
Portfolio turnover 59% 11% 55% 37% 0%
</TABLE>
*Computed on an annualized basis.
(a) Reflects operations for the period from December 2, 1992 (date of
initial public investment) to August 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust on August
6, 1990. Class F Shares of the Fund ("Shares") are designed for
customers of financial institutions such as broker/dealers, banks,
fiduciaries, and investment advisers as a convenient means of
accumulating an interest in a professionally managed, non-diversified
portfolio investing primarily in New York municipal securities. The
Fund is not likely to be a suitable investment for non-New York
taxpayers or retirement plans since New York municipal securities are
not likely to produce competitive after-tax yields for such persons
and entities when compared to other investments.
The Fund's current net asset value ("NAV") and offering price may be
found in the mutual funds section of local newspapers under
"Federated" and the appropriate class designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income
exempt from federal regular income tax (federal regular income tax
does not include the federal alternative minimum tax) and the personal
income taxes imposed by the state of New York and New York
municipalities. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of New York and New York
municipalities. Interest income of the Fund that is exempt from the
income taxes described above retains its exempt status when
distributed to the Fund's shareholders. Income distributed by the Fund
may not necessarily be exempt from state or municipal taxes in states
other than New York.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in
securities which are exempt from federal regular income tax and
personal income taxes imposed by the state of New York and New York
municipalities. At least 65% of the value of the Fund's total assets
will be invested in obligations issued by or on behalf of the state of
New York, its political subdivisions, or agencies. Unless indicated
otherwise, investment policies of the Fund may be changed by the
Trustees without approval of shareholders. Shareholders will be
notified before any material changes in these policies become
effective.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
. obligations issued by or on behalf of the state of New York, its political
subdivisions, or agencies;
. debt obligations of any state, territory, or possession of the United States,
including the District of Columbia, or any political subdivision of any of
these; and
. participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Fund
and/or the investment adviser to the Fund, exempt from both federal
regular income tax and the personal income tax imposed by the state
of New York and New York municipalities.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
CHARACTERISTICS
The New York municipal securities which the Fund buys are investment
grade bonds rated Aaa, Aa, A, or Baa by Moody's Investors Service,
Inc., ("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's Ratings
Services ("S&P") or by Fitch Investors Service, L.P. ("Fitch"). Bonds
rated BBB by S&P or Fitch or Baa by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and
interest payments than higher rated bonds. In certain cases the Fund's
adviser may choose bonds which are unrated if it judges the bonds to
have the same characteristics as the investment grade bonds described
above. If a bond is rated below investment grade according to the
characteristics set forth here after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will
consider appropriate action. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information.
PARTICIPATION INTERESTS
The Fund may purchase participation interests from financial
institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in New York municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or
guarantees to assure that the participation interests are of high
quality. The Trustees will determine that participation interests meet
the prescribed quality standards for the Fund. VARIABLE RATE
MUNICIPAL SECURITIES Some of the New York municipal securities which
the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate
index, or a similar standard, such as the 91-day U.S. Treasury bill
rate. Many variable rate municipal securities are subject to payment
of principal on demand by the Fund in not more than seven days. All
variable rate municipal securities will meet the quality standards for
the Fund. The Fund's investment adviser has been instructed by the
Trustees to monitor the pricing, quality, and liquidity of the
variable rate municipal securities, including participation interests
held by the Fund on the basis of published financial information and
reports of the rating agencies and other analytical services.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities
and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract
or a participation certificate on any of the above. Lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced,
it is unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities
are any securities in which the Fund may invest pursuant to its
investment objective and policies but which are subject to
restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are
determined to be liquid. To the extent that restricted securities are
not determined to be liquid, the Fund will limit their purchase,
together with other illiquid securities including repurchase
agreements providing for settlement in more than seven days after
notice, to 15% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS The Fund may purchase securities on a when-issued or
delayed delivery basis. These transactions are arrangements in which
the Fund purchases securities with payment and delivery scheduled for
a future time. The seller's failure to complete these transactions may
cause the Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may
vary from the purchase prices. The Fund may dispose of a
commitment prior to settlement if the adviser deems it appropriate to
do so. In addition, the Fund may enter into transactions to sell its
purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which
represent interests in municipal securities. The Fund intends to
purchase inverse floaters to assist in duration management and to seek
current income. These obligations pay interest rates that vary
inversely with changes in the interest rates of specified short-term
municipal securities or an index of short-term municipal securities.
The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term
market rates decline. Inverse floaters will generally respond to
changes in market interest rates more rapidly than fixed-rate
long-term securities (typically twice as fast). As a result, the
market values of inverse floaters will generally be more volatile than
the market values of fixed-rate municipal securities. Typically, the
portion of the portfolio invested in inverse floaters will be subject
to additional volatility.
FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial
futures contracts. These financial futures contracts may be used to
hedge all or a portion of its portfolio against changes in the market
value of portfolio securities and interest rates, provide additional
liquidity, and accomplish its current strategies in a more expeditious
fashion. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time. As a
matter of investment policy, which may be changed without shareholder
approval, the Fund may not purchase or sell futures contracts if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions would exceed 5% of the market value
of the Fund's total assets. When the Fund purchases futures contracts,
an amount of municipal securities, cash or cash equivalents, equal to
the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account
with the Fund's custodian (or the broker, if legally permitted) to
collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the prices
of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the futures
contract. It is not certain that a secondary market for positions in
futures contracts will exist at all times. Although the investment
adviser will consider liquidity before entering into futures
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract at any particular time. The Fund's ability to establish and
close out futures positions depends on this secondary market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of New York and New York
municipalities. This policy cannot change without shareholder
approval. However, from time to time, when the investment adviser
determines that market conditions call for a temporary defensive
posture, the Fund may invest in short-term, non-New York municipal
tax-exempt obligations or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of
municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling
the Fund a bond or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to
those rated within the investment grade categories described under
"Acceptable Investments -- Characteristics" (if rated) or (if unrated)
those which the investment adviser judges to have the same
characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax or personal income taxes imposed by the state of
New York or New York municipalities.
NEW YORK MUNICIPAL SECURITIES
New York municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works.
They are also issued to repay outstanding obligations, to raise funds
for general operating expenses, and to make loans to other public
institutions and facilities.
New York municipal securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid
to acquire sites or construct and equip facilities for privately or
publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. Interest on and principal
of revenue bonds, however, are payable only from the revenue generated
by the facility financed by the bond or other specified sources of
revenue. Revenue bonds do not represent a pledge of credit or create
any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on New York municipal securities depend on a variety of
factors, including, but not limited to: the general conditions of the
short-term municipal note market and the municipal bond market; the
size of the particular offering; the maturity of the obligations; and
the rating of the issue. Further, any adverse economic conditions or
developments affecting the state or city of New York could impact the
Fund's portfolio. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of New
York municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of
interest and principal when due. Investing in New York municipal
securities which meet the Fund's quality standards may not be possible
if the state and city of New York do not maintain their current credit
ratings.
A further discussion of the risks of a portfolio which invests largely
in New York municipal securities is contained in the Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is
no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified portfolio of securities
because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the Fund's
portfolio.
Any economic, political, or regulatory developments affecting the
value of the securities in the Fund's portfolio will have a greater
impact on the total value of the portfolio than would be the case if
the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). This undertaking requires that
at the end of each quarter of the taxable year: (a) with regard to at
least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer and (b) no
more than 25% of its total assets are invested in the securities of a
single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy
it back on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of those assets to
secure such borrowings. The above investment limitation cannot be
changed without shareholder approval.
NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund.
The NAV is determined as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers Class F Shares with the characteristics
described below.
<TABLE>
<CAPTION>
Class F
- ------------------------------------------------------
<S> <C>
Minimum and Subsequent
Investment Amount $1,500/$100
Minimum and Subsequent Investment
Amount for Retirement Plans NA
Maximum Sales Charge 1.00%*
Maximum Contingent Deferred
Sales Charge** 1.00%**
</TABLE>
* This is 1.01% of the net amount invested. There is no sales charge for
purchases of $1 million or more. In addition, no sales charge is imposed for
Shares purchased through certain entities or programs. Please see the section
entitled "Eliminating the Sales Charge."
** Computed on the lesser of the NAV of the redeemed Shares at the
time of purchase or the NAV of the redeemed Shares at the time of
redemption.
The following contingent deferred sales charge schedule applies to
Class F Shares:
<TABLE>
<CAPTION>
Contingent
Deferred
Amount of Purchase Shares Held Sales Charge
- ------------------ ------------------ ------------
<S> <C> <C>
Up to $1,999,999 Four Years or less 1.00%
$2,000,000 to $4,999,999 Two Years or less .50%
$5,000,000 or more One Year or less .25%
</TABLE>
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased as described
below, either through a financial intermediary (such as a bank or
broker/dealer) or by sending a wire or check directly to the Fund.
Financial intermediaries may impose different minimum investment
requirements on their customers. An account must be established with a
financial intermediary or by completing, signing, and returning the
new account form available from the Fund before Shares can be
purchased. Shareholders in Class F Shares of certain other funds
advised and distributed by affiliates of Federated Investors
("Federated Funds") may exchange their Shares for Class F Shares of
the Fund. The Fund reserves the right to reject any purchase or
exchange request.
In connection with any sale, Federated Securities Corp. may, from time
to time, offer certain items of nominal value to any shareholder or
investor.
PURCHASING SHARES THROUGH A
FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received
when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m.
(Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial intermediary's responsibility to
transmit orders promptly. Financial intermediaries may charge fees for
their services.
The financial intermediary which maintains investor accounts in Class
F Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the
contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial
intermediaries may be subject to reclaim by the distributor for
accounts transferred to financial intermediaries which do not maintain
investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund.
All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by
wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA
02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on
holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of
the Fund (designate class of Shares and account number) to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the
check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House
("ACH") member and invested in the Fund. Shareholders should contact
their financial intermediary or the Fund to participate in this
program.
ELIMINATING THE SALES CHARGE
Class F Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES
PURCHASED:
. through bank trust departments or investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients;
. by sales representatives, Trustees, and employees of the Fund, Federated
Advisers, Federated Securities Corp. or their affiliates and their immediate
family members; or
. by any investment dealer who has a sales agreement with Federated Securities
Corp. and their immediate family members, or by any trusts or pension or
profit-sharing plans for these persons.
In addition, the sales charge can be eliminated by:
. purchasing in quantity and accumulating purchases;
. combining concurrent purchases of two or more funds;
. signing a letter of intent to purchase a specific quantity of shares within
13 months; or
. using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for
details on these programs. In order to eliminate the sales charge or
receive sales charge reductions, Federated Securities Corp. must be
notified by the shareholder in writing or by a financial intermediary
at the time of purchase.
DEALER CONCESSION
For sales of Shares, the distributor will normally offer to pay
dealers up to 100% of the sales charge retained by it. Any portion of
the sales charge which is not paid to a dealer will be retained by the
distributor.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts and
purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for shares of
New York Municipal Cash Trust or Class F Shares of other Federated
Funds on days on which the Fund computes its NAV. Shares are redeemed
at NAV less any applicable contingent deferred sales charge. Exchanges
are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like Share class, in a pre-determined amount on a
monthly, quarterly, or annual basis may take advantage of a systematic
exchange privilege. Information on this privilege is available from
the Fund or your financial intermediary. Depending upon the
circumstances, a capital gain or loss may be realized when Shares are
redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A
FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your
financial intermediary before 4:00 p.m. (Eastern time). In order for
these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request
to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must
transmit the request to the Fund before 5:00 p.m. (Eastern time). The
financial intermediary is responsible for promptly submitting
transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY
TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount,
or exchanged, by calling 1-800-341-7400. Appropriate authorization
forms for these transactions must be on file with the Fund. Shares
held in certificate form must first be returned to the Fund as
described in the instructions under "Redeeming or Exchanging Shares by
Mail." Redemption proceeds will either be mailed in the form of a
check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System, normally within one business
day, but in no event more than seven days, after the redemption
request. The minimum amount for a wire transfer is $1,000. Proceeds
from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming or
Exchanging Shares By Mail" should be considered. The telephone
transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a
written request to: Federated Shareholder Services Company, Fund Name,
Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they must accompany the written
request. It is recommended that certificates be sent unendorsed by
registered or certified mail.
All written requests should state: Fund Name and the Share Class name;
the account name as registered with the Fund; the account number; and
the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the
Fund into which the exchange is to be made. All owners of the account
must sign the request exactly as the Shares are registered. A check
for redemption proceeds is normally mailed within one business day,
but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the
day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption
payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization
which is administered by the Federal Deposit Insurance Corporation; a
member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary
public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having a NAV equal to the minimum
investment requirements of the fund into which the exchange is being
made. Contact your financial intermediary directly or the Fund for
free information on, and prospectuses for, the Federated Funds into
which your Shares may be exchanged. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and proceeds invested in
the same class of shares of the other fund. Signature guarantees will
be required to exchange between fund accounts not having identical
shareholder registrations. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. To be
eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for
participation in this program through his financial intermediary or by
calling the Fund.
Because participation in this program may reduce, and eventually
deplete, the shareholder's investment in the Fund, payments under this
program should not be considered as yield or income. It is not
advisable for shareholders to continue to purchase Class F Shares
subject to a sales charge while participating in this program. A
contingent deferred sales charge will be imposed on Shares redeemed
through this program within four years of their purchase dates.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the distributor. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. The contingent deferred
sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term
capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares
received through an exchange will include the period for which your
original Shares were held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:
. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
. representing a total or partial distribution from an Individual Retirement
Account, Keogh Plan, or a custodial account to a shareholder who has attained
the age of 701U2;
. representing a total or partial distribution from a qualified plan, other
than an Individual Retirement Account, Keogh Plan, or a custodial account
following retirement;
. which are involuntary redemptions of shareholder accounts that do not comply
. with the minimum balance requirements;
. which are reinvested in the Fund under the reinvestment privilege;
. of Shares held by Trustees, employees and sales representatives of
the Fund, the distributor, or affiliates of the Fund or
distributor, employees of any financial intermediary that sells
Shares of the Fund pursuant to a sales agreement with the
distributor, and their immediate family members to the extent that
no payments were advanced for purchases made by these persons; and
. of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of
1940 or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp.
or its affiliates, or any other financial intermediary, to the
extent that no payments were advanced for purchases made through
such entities.
The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh plan, or a custodial account does not extend to
account transfers, rollovers, and other redemptions made for purposes
of reinvestment.
For more information regarding the contingent deferred sales charge or
any of the above provisions, contact your financial intermediary or
the Fund. The Fund reserves the right to discontinue or modify these
provisions. Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions
(except for systematic program transactions). In addition,
shareholders will receive periodic statements reporting all account
activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly to all shareholders
invested in the Fund on the record date. Net long-term capital gains
realized by the Fund, if any, will be distributed at least once every
twelve months. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the
ex-dividend date NAV without a sales charge, unless shareholders
request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may close an account by redeeming all Shares and paying the
proceeds to the shareholder if the account balance falls below the
applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes
will not be closed in this manner. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Board of Trustees are
responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for
the shareholders. The Executive Committee of the Board of Trustees
handles the Trustees' responsibilities between meetings of the Board.
INVESTMENT ADVISER
Pursuant to an investment advisory contract with the Trust, investment
decisions for the Fund are made by Federated Advisers (the "Adviser"),
the Fund's investment adviser, subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES
The Fund's Adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the
Fund for certain operating expenses. The Adviser can terminate this
voluntary waiver or reimbursement of expenses at any time in its sole
discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11,
1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All
of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and
trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's
son, J. Christopher Donahue, who is President and trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With
over $110 billion invested across over 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
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 management who founded the
company in 1955. Federated Funds are presently at work in and through
4,500 financial institutions nationwide.
J. Scott Albrecht has been a portfolio manager of the Fund since
March 1995. Mr. Albrecht joined Federated Investors in 1989 and has
been a Vice President of the Fund's investment adviser since 1994.
From 1992 to 1994, Mr. Albrecht served as an Assistant Vice President
of the Fund's investment adviser. Mr. Albrecht is a Chartered
Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
Mary Jo Ochson has been a portfolio manager of the Fund since April 1997. Ms.
Ochson joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. From 1988 through 1995,
Ms. Ochson served as a Vice President of the Fund's investment adviser. Ms.
Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from
the University of Pittsburgh.
Both the Trust and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests
of shareholders ahead of the employees' own interest. Among other
things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less
than sixty days. Violation of the codes are subject to review by the
Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), the Fund may pay to
the distributor an amount, computed at an annual rate of 0.50% of the
average daily NAV of Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution
related support services as agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no payments to the distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess
of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able
to recover such amount or may earn a profit from future payments made
by the Fund under the Distribution Plan. In addition, the Fund has
entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily NAV of
Shares, computed at an annual rate, to obtain certain personal
services for shareholders and for the maintenance of shareholder
accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon Shares owned by
their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services. SUPPLEMENTAL
PAYMENTS TO FINANCIAL INSTITUTIONS Federated Securities Corp. will pay
financial institutions, for distribution and/or administrative
services, an amount equal to 1.00% of the offering price of the Shares
acquired by their clients or customers on purchases up to $1,999,999,
0.50% of the offering price on purchases of $2,000,000 to $4,999,999,
and 0.25% of the offering price on purchases of $5,000,000 or more.
(This fee is in addition to the 1.00% sales charge on purchases of
less than $1 million.)
Furthermore, in addition to payments made pursuant to the Distribution
Plan and Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of
substantial sales services, distribution related support services, or
shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees at
recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell and/or upon the
type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Fund's Adviser or its affiliates, and not the Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund.
Federated Services Company provides these at an annual rate which
relates to the average aggregate daily net assets of all funds advised
by affiliates of Federated Investors as specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
- --------------------------------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
Shares of each portfolio or class in the Trust have equal voting
rights, except that in matters affecting only a particular portfolio
or class, only Shares of that portfolio or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of shareholders shall be called by
the Trustees upon the written request of shareholders owning at least
10% of the Trust's outstanding shares of all series entitled to vote.
As of October 6, 1997, the following shareholder of record owned 25%
or more of the outstanding Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith (as record owner holding Shares for its clients),
Jacksonville, FL, owned approximately 854,884 Shares (40.40%) and,
therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a
vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies
and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and
losses realized by the Trust's other portfolios will not be combined
for tax purposes with those realized by the Fund.
Shareholders are not required to pay federal regular income tax on any
dividends received from the Fund that represent net interest on
tax-exempt municipal bonds, although tax-exempt interest will increase
the taxable income of certain recipients of social security benefits.
However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum
taxable income is equal to the regular taxable income of the taxpayer
increased by certain "tax preference" items not included in regular
taxable income and reduced by only a portion of the deductions allowed
in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax preference item
for both individuals and corporations. Unlike traditional governmental
purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide
benefits to private parties. The Fund may purchase all types of
municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the
Fund which represent interest on municipal bonds will become subject
to the 20% corporate alternative minimum tax because the dividends are
included in a corporation's "adjusted current earnings." The corporate
alternative minimum tax treats 75% of the excess of a taxpayer's
pre-tax "adjusted current earnings" over the taxpayer's alternative
minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and
profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income
does not include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the difference
will be included in the calculation of the corporation's alternative
minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed
as ordinary income.
These tax consequences apply whether dividends are received in cash or
as additional Shares. Information on the tax status of dividends and
distributions is provided annually.
NEW YORK TAXES
Under existing New York laws, distributions made by the Fund will not
be subject to New York state or New York City personal income taxes to
the extent that such distributions qualify as "exempt-interest
dividends" under the Code, and represent interest income attributable
to obligations of the state of New York and its political
subdivisions, as well as certain other obligations, the interest on
which is exempt from New York state and New York City personal income
taxes, such as, for example, certain obligations of the Commonwealth
of Puerto Rico. Conversely, to the extent that distributions made by
the Fund are derived from other types of obligations, such
distributions will be subject to New York state and New York City
personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends
that will be exempt from New York state and New York City personal
income taxes. However, the Fund will report to shareholders at least
annually what percentage of the dividends it actually paid is exempt
from such taxes.
Dividends paid by the Fund are exempt from the New York City
unincorporated business tax to the extent that they are exempt from
the New York City personal income tax.
Dividends paid by the Fund are not excluded from net income in
determining New York state or New York City franchise taxes on
corporations or financial institutions.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states
other than New York. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return, yield, and
tax- equivalent yield for Shares.
Total return represents the change, over a specific period of time, in
the value of an investment in Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment
income per Share (as defined by the SEC earned by Shares over a
thirty-day period by the maximum offering price per Share of Shares on
the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal its actual
yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The performance information reflects the effect of the maximum sales
charge and other similar non-recurring changes, such as the contingent
deferred sales charge, which, if excluded, would increase the total
return, yield, and tax- equivalent yield.
From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications
and/or compare the Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------- -------- ------------
<S> <C> <C> <C>
(a) LONG-TERM MUNICIPALS_100.2%
NEW YORK_100.2%
$ 500,000 Albany County Airport Authority, NY, Airport Revenue Bonds
(Series 1997), 5.375% (FSA INS)/(Original Issue Yield: 5.72%),
12/15/2017 AAA $ 485,235
500,000 Essex County, NY IDA, PCR Refunding Revenue Bonds (Series
1997C), 5.70% (International Paper Co.), 7/1/2016 A- 513,555
500,000 Essex County, NY IDA, Solid Waste Disposal Revenue Bonds
(Series A), 5.80% (International Paper Co.), 12/1/2019 A- 507,010
305,000 Nassau County, NY IDA, Civic Facility Revenue Bonds, 6.85%
(Hofstra University), 1/1/2012 A 342,524
330,000 Nassau County, NY IDA, Civic Facility Revenue Bonds, 6.85%
(Hofstra University), 1/1/2013 A 369,518
1,000,000 Nassau County, NY, Refunding UT GO Bonds (Series 1997A), AAA 1,095,190
6.00% (FGIC INS), 7/1/2013
1,000,000 New York City Municipal Water Finance Authority, Water &
Sewer System Revenue Bonds (Series A), 5.125% (Original Issue
Yield: 5.50%), 6/15/2021 A- 942,900
1,000,000 New York City, NY IDA, (Series 1995)
Civic Facility Revenue Bonds, 6.30%
(College of New Rochelle)/(Original Issue
Yield:
6.45%), 9/1/2015 Baa 1,023,830
500,000 New York City, NY IDA, Civic Facility Revenue Bonds, 7.00%
(Mt. St. Vincent College, NY), 5/1/2008 NR 536,860
400,000 New York City, NY IDA, Civic Facilities Revenue Bonds,
5.80% (YMCA of Greater NY)/ (Original Issue Yield: 6.10%),
8/1/2016 Baa 404,004
750,000 New York City, NY IDA, Special Facilities Revenue Bonds,
6.90% (American Airlines), 8/1/2024 BBB- 822,675
500,000 New York City, NY, GO UT Bonds, 7.25% (Original Issue
Yield: 7.55%), 8/15/2019 BBB+ 568,985
900,000 New York State Dormitory Authority,
Revenue Bonds (Series A), 6.50%
(University of Rochester, NY)/(Original
Issue Yield:
6.582%), 7/1/2019 A+ 985,203
500,000 New York State Dormitory Authority, Revenue Bonds (Series
F), 5.375% (City University of New York)/(FGIC
INS)/(Original Issue Yield: 5.55%), 7/1/2007 AAA 523,500
1,000,000 New York State Dormitory Authority, Revenue Bonds, 5.50%
(Long Island University)/(Asset Guaranty INS)/(Original
Issue Yield: 5.75%), 9/1/2020 AA 972,040
500,000 New York State Dormitory Authority, Revenue Bonds, 6.25%
(Nyack Hospital)/(Original Issue Yield: 6.50%), 7/1/2013 Baa 521,920
1,000,000 New York State Environmental Facilities Corp., Solid Waste
Disposal Revenue Bonds, 6.10% (Occidental Petroleum
Corp.)/(Original Issue Yield: 6.214%), 11/1/2030 BBB+ 1,019,400
900,000 New York State Environmental Facilities Corp., Water
Facilities Revenue Refunding Bonds (Series A), 6.30%
(Spring Valley Water Co.)/(AMBAC INS), 8/1/2024 AAA 952,785
1,000,000 New York State HFA, (Series 1995A) Service Contract
Obligation Revenue Bonds, 6.375% (Original Issue Yield:
6.45%), 9/15/2015 BBB+ 1,074,800
$915,000 New York State Local Government Assistance Corp., Refunding
Revenue Bonds (Series A), 6.00% (AMBAC INS), 4/1/2008 AAA $ 1,006,070
1,000,000 New York State Medical Care Facilities Finance Agency,
FHA-Mortgage Revenue Bonds (Series A), 6.50% (Lockport
Memorial Hospital, NY)/(FHA GTD), 2/15/2035 AA 1,087,960
1,000,000 New York State Medical Care Facilities Finance Agency,
Revenue Bonds (Series B), 6.60% (FHA GTD)/(Original
Issue Yield: 6.625%), 8/15/2034 AA 1,089,950
2,000,000 New York State Mortgage Agency, Revenue Bonds (Series 40A), Aa 2,119,160
6.70%, 4/1/2025
1,000,000 New York State Thruway Authority, Local Highway and Bridge
Service Contract Revenue Bonds (Series 1995), 6.25% (Original
Issue Yield: 6.435%), 4/1/2014 BBB+ 1,063,680
500,000 Port Authority of New York and New
Jersey, Revenue Bonds (Series 96), 6.60%
(FGIC INS)/(Original Issue Yield:
6.65%), 10/1/2023 AAA 546,995
700,000 Port Authority of New York and New Jersey, Special Project
Bonds (Series 6), 6.00% (JFK International Air Terminal
LLC)/(MBIA INS), 12/1/2006 AAA 759,129
1,000,000 Suffolk County, NY IDA, Southwest Sewer System Revenue
Bonds, 6.00% (FGIC INS), 2/1/2007 AAA 1,086,109
-----------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $21,237,036) 22,420,987
-----------
SHORT-TERM MUNICIPALS_3.1%
PUERTO RICO_3.1%
700,000 Puerto Rico Government Development Bank Weekly VRDNs
(Credit Suisse, Zurich LOC) (at amortized cost) AA+ 700,000
-----------
TOTAL INVESTMENTS (IDENTIFIED COST $21,937,036)(b) $23,120,987
-----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
credit ratings are unaudited.
(a) At August 31, 1997, 29.3% of the total investments at market value
were subject to alternative minimum tax.
(b) The cost of investments for federal tax purposes amounts to
$21,937,036. The net unrealized appreciation of investments on a
federal tax basis amounts to $1,183,951 which is comprised of
$1,200,027 appreciation and $16,076 depreciation at August 31,
1997.
Note: The categories of investments are shown as a percentage of net assets
($22,386,472) at August 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC_American Municipal Bond Assurance Corporation FGIC_Financial
Guaranty Insurance Company FHA_Federal Housing Administration
FSA_Financial Security Assurance GO_General Obligation GTD_Guaranty
HFA_Housing Finance Authority IDA_Industrial Development Authority
INS_Insured LOC_Letter of Credit MBIA_Municipal Bond Investors
Assurance PCR_Pollution Control Revenue UT_Unlimited Tax
VRDNs_Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED NEW YORK MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $21,937,036) $23,120,987
Cash 34,370
Income receivable 344,333
Receivable for shares sold 126,949
Deferred expenses 599
-----------
Total assets 23,627,238
LIABILITIES:
Payable for investments purchased $ 1,110,170
Payable for shares redeemed 45,569
Income distribution payable 68,725
Accrued expenses 16,302
-----------
Total liabilities 1,240,766
-----------
NET ASSETS for 2,107,392 shares outstanding $22,386,472
-----------
NET ASSETS CONSIST OF:
Paid in capital $22,336,454
Net unrealized appreciation of investments 1,183,951
Accumulated net realized loss on investments (1,133,933)
-----------
Total Net Assets $22,386,472
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($22,386,472 O 2,107,392 shares outstanding) $ 10.62
-----------
Offering Price Per Share (100/99.00 of $10.62)* $ 10.73
-----------
Redemption Proceeds Per Share (99.00/100 of $10.62)** $ 10.51
-----------
</TABLE>
*See "Investing in the Fund" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $1,370,576
EXPENSES:
Investment advisory fee $ 91,304
Administrative personnel and services fee 125,000
Custodian fees 7,619
Transfer and dividend disbursing agent fees and expenses 27,692
Directors'/Trustees' fees 3,010
Auditing fees 15,004
Legal fees 4,016
Portfolio accounting fees 50,754
Distribution services fee 114,130
Shareholder services fee 57,065
Share registration costs 14,003
Printing and postage 15,229
Insurance premiums 2,714
Miscellaneous 22,233
---------
Total expenses 549,773
Waivers and reimbursements--
Waiver of investment advisory fee $ (91,304)
Waiver of distribution services fee (109,565)
Waiver of shareholder services fee (4,565)
Reimbursement of other operating expenses (193,364)
---------
Total waivers and reimbursements (398,798)
--------
Net expenses 150,975
----------
Net investment income 1,219,601
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 566,956
Net change in unrealized appreciation of investments 432,403
----------
Net realized and unrealized gain on investments 999,359
----------
Change in net assets resulting from operations $2,218,960
----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Federated New York Municipal Income Fund
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,219,601 $ 1,220,549
Net realized gain on investments ($566,956 and $983,796, respectively, as computed for
federal tax purposes) 566,956 56,947
Net change in unrealized appreciation/depreciation 432,403 69,892
----------- -----------
Change in net assets resulting from operations 2,218,960 1,347,388
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,219,601) (1,220,549)
Share Transactions--
Proceeds from sale of shares 3,711,284 3,274,016
Net asset value of shares issued to shareholders in payment of distributions declared 532,033 522,759
Cost of shares redeemed (4,787,869) (3,592,219)
------------ -----------
Change in net assets resulting from share transactions (544,552) 204,556
------------ -----------
Change in net assets 454,807 331,395
NET ASSETS:
Beginning of period 21,931,665 21,600,270
------------ -----------
End of period $22,386,472 $21,931,665
------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
AUGUST 31, 1997
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an
open-end, management investment company. The Trust consists of five
portfolios. The financial statements included herein are only those of
Federated New York Municipal Income Fund (the "Fund"), a
non-diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in
which shares are held. The investment objective of the Fund is to
provide current income exempt from federal regular income tax (federal
regular income tax does not include the federal alternative minimum
tax) and the personal income taxes imposed by the state of New York
and New York municipalities.
On June 2, 1997 the Fund acquired all the net assets of The William
Penn New York Tax-Free Income Fund ("Acquired Fund") pursuant to a
plan of reorganization approved by the Acquired Fund's shareholders.
The acquisition was accomplished by a tax-free exchange of 26,036
shares of the Fund (valued at $271,302) for the 26,795 shares of the
Acquired Fund outstanding on June 2, 1997. The Acquired Fund's net
assets of $270,336 which consisted of $268,620 of Paid in Capital and
$2,117 of unrealized appreciation, and $401 of net realized loss on
investments at that date were combined with those of the Fund. The
aggregate net assets of the Fund and the Acquired Fund immediately
before the acquisition were $22,867,645 and $270,336, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon,
maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the Internal
Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
At August 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $1,133,933, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- --------------- -----------------
<S> <C>
2003 $149,736
2004 $983,796
2005 $ 401
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions.
The Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid assets will
be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized
over a period not to exceed five years from the Fund's commencement
date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value).
Transactions in Class F Shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
1997 1996
-------- ---------
<S> <C> <C>
Shares sold 356,926 319,948
Shares issued to shareholders in payment of distributions declared 51,006 50,930
Shares redeemed (456,448) (348,051)
------- -------
Net change resulting from share transactions (48,516) 22,827
------- -------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee
and/or reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and reimbursement at any
time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Fund with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal
distributor, from the net assets of the Fund to finance activities
intended to result in the sale of the Fund's Class F Shares. The Plan
provides that the Fund may incur distribution expenses up to 0.50% of
the average daily net assets of the Fund shares, annually, to
compensate FSC.
The distributor may voluntarily choose to waive any portion of its
fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services, the Fund will pay FSS up to 0.25% of average
daily net assets of the Fund Class F Shares for the period. The fee
paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive
any portion of its fee. FSS can modify or terminate this voluntary
waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Trust's average daily net
assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational and/or start-up administrative service expenses of
$79,004 were borne initially by Adviser. The Fund has agreed to
reimburse Adviser for the organizational and/or start-up
administrative expenses during the five year period following
effective date. For the period ended August 31, 1997, the Fund paid
$21,068 pursuant to this agreement.
INTERFUND TRANSACTIONS
During the period ended August 31, 1997, the Trust engaged in purchase
and sale transactions with funds that have a common investment adviser
(or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at
current market value pursuant to Rule 17a-7 under the Act amounting to
$6,150,000 and $6,150,000, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended August 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $13,781,707
SALES $13,129,674
</TABLE>
6. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit
risk associated with such factors, at August 31, 1997, 45.0% of the
securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and
financial guaranty assurance agencies. The percentage of investments
insured by or supported (backed) by a letter of credit from any one
institution or agency did not exceed 14.06% of total investments.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Municipal Securities Income Trust and
Shareholders of Federated New York Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated New York
Municipal Income Funds as of August 31, 1997, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended August 31, 1997 and 1996, and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned at August 31, 1997, by
correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Federated New York Municipal Income Fund as of August 31, 1997, the
results of its operations, the changes in its net assets and its
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 13, 1997
NOTES
Federated New York Transfer Agent and
Municipal Income Fund Dividend
Class F Shares Disbursing Agent
Federated Investors Tower Federated Shareholder
Pittsburgh, PA 15222-3779 Services Company
P.O. Box 8600
Distributor Boston, MA 02266-8600
Federated Securities Corp.
Federated Investors Tower Independent Auditors
Pittsburgh, PA 15222-3779 Deloitte & Touche LLP
2500 One PPG Place
Investment Adviser Pittsburgh, PA 15222-5401
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Federated Securities Corp., Distributors [LOGO]
Cusip 625922208
2092919A-FS (10/97)
[LOGO] FEDERATED INVESTORS
Federated New York
Municipal Income Fund
(A Portfolio of Municipal Securities
Income Trust)
Class F Shares
Prospectus
October 31, 1997
A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End, Management
Investment Company
FEDERATED NEW YORK MUNICIPAL INCOME FUND
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated New York Municipal Income Fund (the "Fund"), a
portfolio of Municipal Securities Income Trust dated October 31, 1997.
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1997
[GRAPHIC OMITTED]
Cusip 625922208
2092919B (10/97)
<PAGE>
TABLE OF CONTENTS
<PAGE>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Futures Transactions 2
Temporary Investments 3
Portfolio Turnover 3
Investment Limitations 3
New York Investment Risks 5
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 5
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Adviser to the Fund 10
Advisory Fees 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 12
Quantity Discounts and Accumulated Purchases 12
Concurrent Purchases 12
Letter of Intent 13
Reinvestment Privilege 13
Distribution Plan and Shareholder Services Agreement 13
Conversion to Federal Funds 13
Purchases by Sales Representatives, Fund Trustees, and Employees 14
DETERMINING NET ASSET VALUE 14
Valuing Municipal Bonds 14
Use of Amortized Cost 14
REDEEMING SHARES 14
Redemption in Kind 14
Contingent Deferred Sales Charge 15
Massachusetts Partnership Law 15
TAX STATUS 15
The Fund's Tax Status 15
TOTAL RETURN 15
YIELD 16
TAX-EQUIVALENT YIELD 16
Tax-Equivalency Table 16
PERFORMANCE COMPARISONS 17
Economic and Market Information 18
ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 18
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank Broker/
Dealer Subsidiaries 19
APPENDIX 20
<PAGE>
20
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Municipal Securities Income Trust (the
"Trust"). The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated August 6, 1990. On February 26,
1996 (effective date March 31, 1996), the Trustees approved changing
the name of the Fund from New York Municipal Income Fund to Federated
New York Municipal Income Fund and also approved change the name of
the Fund's presently offered shares from Fortress Shares to Class F
Shares ("Shares").
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income exempt
from federal regular income tax (federal regular income tax does not
include the federal alternative minimum tax) and the personal income
taxes imposed by the state of New York and New York municipalities.
The investment objective cannot be changed without approval of
shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in New York municipal securities.
CHARACTERISTICS
The New York municipal securities in which the Fund invests
have the characteristics set forth in the prospectus. If
ratings made by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P") or Fitch Investors
Service, L.P. ("Fitch") change because of changes in those
organizations or in their rating systems, the Fund will try
to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of New York municipal securities include:
o governmental lease certificates of participation issued
by state or municipal authorities where payment is
secured by installment payments for equipment,
buildings, or other facilities being leased by the
state or municipality;
o municipal notes and tax-exempt commercial paper;
o serial bonds;
o tax anticipation notes sold to finance working capital
needs of municipalities in anticipation of receiving
taxes;
o bond anticipation notes sold in anticipation of the
issuance of long-term bonds;
o pre-refunded municipal bonds whose timely payment of
interest and principal is ensured by an escrow of U.S.
government obligations; and
o general obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from
another financial institution irrevocable letters of credit
or guarantees and give the Fund the right to demand payment
of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the
market value of municipal securities from their original
purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities
than for fixed-income obligations. Many municipal securities
with variable-interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days)
on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest
from the issuer of the municipal obligations, the issuer of
the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided
proportional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease
payments as they became due. In the event of a default or
failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities,
the investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery, if any, from a sale of the leased property
upon termination of the lease;
o the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
o the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
"event of non-appropriation"); and
o any credit enhancement or legal recourse provided upon an
event of non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
FUTURES TRANSACTIONS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future. In the
fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to purchase
securities in the future at a predetermined price (i.e., "go long") to
hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in municipal securities, cash or cash
equivalents with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value ("NAV"), the Fund will mark-to-market its open futures
positions.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of
unusual market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions
sell U.S. government securities or certificates of deposit to
the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price within one year from
the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase
agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund believes that under the regular procedures normally
in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may
only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers
which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the
Trustees.
From time to time, such as when suitable New York municipal
bonds are not available, the Fund may invest a portion of its
assets in cash. Any portion of the Fund's assets maintained
in cash will reduce the amount of assets in New York
municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of
the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to
be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets
of the Fund, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated on the
Fund's records at the trade date. These assets are marked to
market daily and are maintained until the transaction is
settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual
rate of portfolio turnover exceeding 100%. For the fiscal years ended
August 31, 1997 and 1996, the Fund's portfolio turnover rates were 59%
and 11%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amounts borrowed. The Fund will
not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management
of the portfolio by enabling the Fund to, for example, meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value
not exceeding 10% of the value of its total assets at the
time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except
as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including
limited partnership interests although it may invest in municipal
bonds secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity
contracts, or commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may
acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and
limitations or its Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would
be invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid
from revenues of similar types of projects. However, the Fund
may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation, or other
acquisition.
RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its
net assets in illiquid securities, including certain
restricted securities not determined to be liquid under
criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days
after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 ("bank cash
items") at the time of investment to be included in "cash items."
However, the Fund does not intend to exceed its concentration
limitation with respect to bank cash items.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York issuers which results in
the Fund's performance being subject to risks associated with the
overall conditions present within the state. The following information
is a brief summary of the recent prevailing economic conditions and a
general summary of the state's financial status. This information is
based on official statements relating to securities that have been
offered by New York issuers and from other sources believed to be
accurate but should not be relied upon as a complete description of
all relevant information.
This year, New York state was an improving credit and was awarded
with an upgrade from S&P. The state is currently rated A by both
Moody's and S&P.
The upgrade on New York state's bonds reflects improved financial
operations through fiscal 1997. The state has more conservatively
estimated revenues in recent years. In addition, New York's monitoring
and management of the budget during the fiscal year has improved,
thereby reducing the risk of budget imbalance. These factors, combined
with increased expenditure restraint and an improved economic climate
fueled by the financial services sector, have contributed to year-end
surpluses in five of the past six years.
Although the state has a diverse economy that continues to expand
modestly and relatively high income, further rating upgrades will be
precluded until significant financial and budgetary reform is
implemented. This would include on-time budget adoption, ongoing
structurally balanced financial operations, elimination of the state's
generally accepted accounting principals-based deficit, and continued
improvement in debt management policies.
The Fund's concentration in securities issued by the state and its
political subdivisions provides a greater level of risk than a fund
which is diversified across numerous states and municipal entities.
The ability of the state or its municipalities to meet their
obligations will depend on the availability of tax and other revenues;
economic, political, and demographic conditions within the state; and
the underlying fiscal condition of the state and its municipalities.
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Municipal Securities Income Trust, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President and Trustee of the
Company.
<PAGE>
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior
Vice-President, John R. Wood and Associates, Inc., Realtors; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds.
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Retired from the law firm of Miller, Ament, Henny & Kochuba; Director
or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica & Murray; Director or Trustee of the Funds.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or
Trustee of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman
and Director, Federated Securities Corp.; President or Vice President
of some of the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
<PAGE>
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
* This Trustee is deemed to be an "interested person" as
defined in the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive
Committee of the Board of Trustees handles the
responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 6, 1997, the following shareholders of record owned 5%
or more of the outstanding Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL, owned approximately 854,884 Shares
(40.40%); and North Fork Bank, Mattituck, NY, owned approximately
150,763 Shares (7.12%).
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>
John F. Donahue $ -0- $ -0- for the Trust and
Trustee and Chairman 54 other investment companies in the Fund Complex
Thomas G. Bigley $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Trust and
Trustee and Executive 18 other investment companies in the Fund Complex
Vice President
James E. Dowd $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended August 31, 1997.
# The aggregate compensation is provided for the Trust which is
comprised of five portfolios.
The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees
of which are John F. Donahue, his wife and his son, J. Christopher
Donahue.
The Adviser shall not be liable to the Trust, the Fund or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years
ended August 31, 1997, 1996 and 1995, the Adviser earned advisory fees
of $91,304, $86,941 and $87,317, respectively, all of which were
voluntarily waived.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
as described in the prospectus. From March 1, 1994, to March 1, 1996,
Federated Administrative Services a subsidiary of Federated Investors,
served as the Fund's Administrator. For purposes of this Statement,
Federated Services Company and Federated Administrative Services may
hereinafter collectively be referred to as the "Administrators". For
the fiscal years ended August 31, 1997, 1996 and 1995, the
Administrators earned $125,000, $125,000 and $125,000.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston, MA,
is custodian for the securities and cash of the Fund. Federated
Services Company, Pittsburgh, PA, provides certain accounting and
recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished
directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or by its
affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine
in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services
provided. During the fiscal years ended August 31, 1997, 1996 and
1995, the Fund paid no brokerage commissions. Although investment
decisions for the Fund are made independently from those of the other
accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest
in, or desire to dispose of, the same security, available investments
or opportunities for sales will be allocated in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares
are sold at their NAV plus a sales charge on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the prospectus under "Investing in the Fund" and
"Purchasing Shares."
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, there is no sales charge for
purchases of $1 million or more. The Fund will combine purchases made
on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge.
If an additional purchase of Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $900,000 and purchases $100,000 more at the current
public offering price, there will be no sales charge on the additional
purchase.
The Fund will also combine purchases for the purpose of reducing the
contingent deferred sales charge imposed on Share redemptions. For
example, if a shareholder already owns Shares having current value at
the public offering price of $1 million and purchases an additional $1
million at the current public offering price, the applicable
contingent deferred sales charge would be reduced to 0.50% of those
additional Shares.
To receive the sales charge elimination and/or contingent deferred
sales charge reduction, Federated Securities Corp. must be notified by
the shareholder in writing or by their financial intermediary at the
time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will eliminate the sales charge
and/or reduce the contingent deferred sales charge after it confirms
the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge elimination, a
shareholder has the privilege of combining concurrent purchases of
Class F Shares of two or more funds for which affiliates of Federated
Investors serve as investment adviser and principal underwriter, the
purchase prices of which include a sales charge. For example, if a
shareholder concurrently invested $400,000 in Class F Shares of one of
the other Federated Funds and $600,000 in Shares, the sales charge
would be eliminated.
To receive this sales charge elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by their financial
intermediary at the time the concurrent purchases are made. The Fund
will eliminate the sales charge after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $1 million of Class F
Shares of Federated Funds (excluding money market funds) over the next
13 months, the sales charge may be eliminated by signing a letter of
intent to that effect. This letter of intent includes a provision for
a sales charge elimination depending on the amount actually purchased
within the 13-month period and a provision for the custodian to hold
up to 1.00% of the total amount intended to be purchased in escrow (in
Shares) until such purchase is completed.
The 1.00% held in escrow will be applied to the shareholder's
account at the end of the 13-month period unless the amount specified
in the letter of intent, which must be $1 million or more of Shares,
is not purchased. In this event, an appropriate number of escrowed
Shares may be redeemed in order to realize the 1.00% sales charge.
The letter of intent also includes a provision for reductions in the
contingent deferred sales charge and holding period depending on the
amount actually purchased within the 13-month period.
While this letter of intent will not obligate the shareholder to
purchase Class F Shares, each purchase during the period will be at
the sales charge applicable to the total amount intended to be
purchased. At the time a letter of intent is established, current
balances in accounts in any Class F Shares of any Federated Funds,
excluding money market accounts, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. The
letter may be dated as of a prior date to include any purchase made
within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Shares have been redeemed, the shareholder has the privilege,
within 120 days, to reinvest the redemption proceeds at the
next-determined NAV without any sales charge and would not be entitled
to a reimbursement of the contingent deferred sales charge if paid at
the time of redemption. However, such reinvested shares would not be
subject to a contingent deferred sales charge upon later redemption.
In addition, if Shares were reinvested through a financial
intermediary, the financial intermediary would not be entitled to an
advanced payment from Federated Securities Corp. on the reinvested
Shares. Federated Securities Corp. must be notified by the shareholder
in writing or by their financial intermediary of the reinvestment in
order to eliminate a sales charge or a contingent deferred sales
charge. If the shareholder redeems Shares in the Fund, there may be
tax consequences.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial
institutions, the distributor, and Federated Shareholder Services, to
stimulate distribution activities and to cause services to be provided
to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, marketing efforts;
providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment
objectives. By identifying potential investors whose needs are served
by the Fund's objectives, and properly servicing these accounts, it
may be possible to curb sharp fluctuations in rates of redemptions and
sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal years ended August 31, 1997, 1996 and 1995, payments in
the amount of $114,130, $108,676 and $109,146, respectively, were made
pursuant to the Distribution Plan, of which $109,565, $104,329 and
$104,780, respectively, were waived. In addition, for the fiscal year
ended August 31, 1997, the Fund paid shareholder service fees in the
amount of $57,065, of which $4,565 were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal
funds before shareholders begin to earn dividends. State Street Bank
acts as the shareholder's agent in depositing checks and converting
them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
The following individuals and their immediate family members may buy
Shares at NAV without a sales charge:
o Trustees, employees, and sales representatives of the
Fund, Federated Advisers, and Federated Securities
Corp. and its affiliates; and
o any associated person of an investment dealer who has a
sales agreement with Federated Securities Corp. Shares
may also be sold without a sales charge to trusts,
pensions, or profit-sharing plans for these
individuals.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not
be resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund.
NAV is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its NAV
might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received;
or (iii) the following holidays: New Year's Day, Martin Luther King
Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the
market value of municipal bonds. The independent pricing service takes
into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors
or market data it considers relevant in determining valuations for
normal institutional size trading units of debt securities, and does
not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60
days or less at the time of purchase, shall be their amortized cost
value, unless the particular circumstances of the security indicate
otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium
or accumulation of discount rather than at current market value. The
Executive Committee continually assesses this method of valuation and
recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith
by the Trustees.
REDEEMING SHARES
The Fund redeems Shares at the next computed NAV after the Fund
receives the redemption request. Shareholder redemptions may be
subject to a contingent deferred sales charge. Redemption procedures
are explained in the prospectus under "Redeeming and Exchanging
Shares." Although the transfer agent does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000
or 1.00% of the respective class's NAV, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the
Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Trust
will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way that NAV is determined.
The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable. Redemption in kind is not as liquid
as a cash redemption. If redemption is made in kind, shareholders
receiving their securities and selling them before their maturity
could receive less than the redemption value of their securities and
could incur certain transactions costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable contingent deferred sales
charge for accounts with Shares subject to a single holding period, if
any, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Share purchases occurring prior to the
number of years necessary to satisfy the applicable holding period;
and (3) Share purchases occurring within the current holding period.
For accounts with Shares subject to multiple Share holding periods,
the redemption sequence will be determined first, with reinvested
dividends and long-term capital gains, and second on a first-in,
first-out basis.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for acts or obligations of
the Trust on behalf of the Fund. To protect shareholders of the Fund,
the Trust has filed legal documents with Massachusetts that expressly
disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Fund.
In the unlikely event a shareholder of the Fund is held personally
liable for the Trust's obligations on behalf of the Fund, the Trust is
required to use the property of the Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial
loss resulting from liability as a shareholder of the Fund will occur
only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the
Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive
the special tax treatment afforded to such companies. To qualify for
this treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the
sale of portfolio securities and as a result of discounts from par
value on securities held to maturity. Sales would generally be made
because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such,
whether they are taken in cash or reinvested, and regardless
of the length of time the shareholder has owned Shares. Any
loss by a shareholder on Shares held for less than six months
and sold after a capital gains distribution will be treated
as a long-term capital loss to the extent of the capital
gains distribution.
TOTAL RETURN
The Fund's average annual total returns for the one-year period ended
August 31, 1997, and for the period from December 2, 1992 (date of
initial public investment) to August 31, 1997 were 8.04% and 6.86%,
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of
Shares owned at the end of the period by the offering price per Share
at the end of the period. The number of Shares owned at the end of the
period is based on the number of Shares purchased at the beginning of
the period with $1,000, adjusted over the period by any additional
Shares, assuming the monthly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is
deducted from the ending value of the investment based on the lesser
of the original purchase price per Share of redeemed Shares at the
time of purchase or the offering price per Share of Shares redeemed.
YIELD
The Fund's yield for the thirty-day period ended August 31, 1997 was
4.62%.
The yield for the Fund is determined by dividing the net investment
income per Share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per Share of the Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a twelve-month period and
is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may
not correlate to the dividends or other distributions paid to
shareholders. To the extent that financial institutions and
broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended August
31, 1997 was 6.42%.
The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund
would have had to earn to equal its actual yield, assuming a tax rate
of 28% and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the
Fund's portfolio generally remains free from federal regular income
tax,* and the income taxes imposed by the state of New York. As the
table below indicates, a "tax-free" investment is an attractive choice
for investors, particularly in times of narrow spreads between
tax-free and taxable yields.
<TABLE>
<CAPTION>
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW YORK
<S> <C> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 21.850% 34.850% 37.850% 42.850% 46.450%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund Shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The performance of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation
of yield and total return.
Investors may use financial publications and/or indices to obtain a
more complete view of the Fund's performance. When comparing
performance, investors should consider all relevant factors such as
the composition of any index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may
include:
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond
market. Returns and attributes for the index are calculated
semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account
any change in offering price over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the
"New York Municipal Bond Funds" category in advertising and
sales literature.
o MORNINGSTAR, INC., an independent rating service, is the
publisher of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES
rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The
total returns represent the historic change in the value of an
investment in the Fund based on monthly reinvestment of dividends over
a specified period of time.
Advertisements may quote performance information which does not
reflect the effect of the sales charge.
Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in
general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their
views and analysis on how such developments could affect the Funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making -- structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual
funds in the industry and is now one of the largest institutional
buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers
Union regarding the tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
<PAGE>
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to theses institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major
brokerage firms nationwide -- we have over 2,200 broker/dealer and
bank broker/dealer relationships across the country -- supported by
more wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
* Source: Investment Company Institute
<PAGE>
TABLE OF CONTENTS
26
APPENDIX
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy. PLUS
(+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S INVESTORS SERVICE, INC., MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its generic rating category; the
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, L.P. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB--Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the AAA
category.
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity
support or demonstrated broad based access to the market for
refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS SERVICES COMMERCIAL PAPER RATINGS DEFINITIONS
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: Leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate
liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FEDERATED OHIO MUNICIPAL INCOME FUND
(A Portfolio of Municipal Securities Income Trust)
Class F Shares
PROSPECTUS
The Class F Shares of Federated Ohio Municipal Income Fund (the
"Fund") offered by this prospectus represent interests in a
non-diversified portfolio of securities which is one of a series of
investment portfolios in Municipal Securities Income Trust (the
"Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income
exempt from federal regular income tax and the personal income taxes
imposed by the state of Ohio and Ohio municipalities. The Fund invests
primarily in a portfolio of Ohio municipal securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Class F Shares. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for
Class F Shares dated October 31, 1997, with the Securities and
Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or to make inquiries
about the Fund, contact your financial institution. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated October 31, 1997
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES................................... 1
Financial Highlights....................................... 2
General Information........................................ 3
Calling the Fund........................................... 3
Investment Information..................................... 3
Investment Objective...................................... 3
Investment Policies....................................... 3
Ohio Municipal Securities................................. 5
Investment Risks.......................................... 6
Non-Diversification....................................... 6
Investment Limitations.................................... 6
Net Asset Value............................................ 6
Investing in the Fund...................................... 6
Purchasing Shares.......................................... 7
Purchasing Shares Through a
Financial Intermediary.................................... 7
Purchasing Shares By Wire................................. 7
Purchasing Shares By Check................................ 7
Systematic Investment Program............................. 7
Eliminating the Sales Charge.............................. 7
Redeeming and Exchanging Shares............................ 8
Redeeming and Exchanging Shares
Through a Financial Intermediary.......................... 8
Redeeming and Exchanging Shares By Telephone.............. 8
Redeeming and Exchanging Shares By Mail................... 9
Requirements for Redemption............................... 9
Requirements for Exchange................................. 9
Systematic Withdrawal Program............................. 9
Contingent Deferred Sales Charge.......................... 9
Account and Share Information..............................10
Confirmations and Account Statements......................10
Dividends and Distributions...............................10
Accounts with Low Balances................................10
Shareholder Information....................................10
Trust Information..........................................11
Management of the Trust...................................11
Administration of the Fund................................12
Shareholder Information....................................12
Voting Rights.............................................12
Tax Information............................................13
Federal Income Tax........................................13
State of Ohio Income Taxes................................13
State and Local Taxes.....................................14
Performance Information....................................14
Financial Statements.......................................15
Independent Auditors' Report...............................26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................. 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1).............................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................ None
Exchange Fee.................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................. 0.07%
12b-1 Fee (after waiver) (3).................................................................. 0.16%
Total Other Expenses.......................................................................... 0.67%
Shareholder Services Fee (after waiver) (4).......................................... 0.24%
Total Operating Expenses (5)............................................................... 0.90%
</TABLE>
(1) The contingent deferred sales charge is assessed 1.00% of the
lesser of the original purchase price or the net asset value of
shares redeemed within four years of their purchase date. For a
more complete description see "Contingent Deferred Sales Charge".
(2) The management fee has been reduced to reflect the voluntary
waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.
(3) The 12b-1 fee has been reduced to reflect the voluntary waiver of
a portion of the 12b-1 fee. The distributor can terminate this
voluntary waiver at any time at its sole discretion. The maximum
12b-1 fee is 0.40%.
(4) The shareholder services fee has been reduced to reflect the
voluntary waiver of a portion of the shareholder services fee.
The shareholder services provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(5) The total operating expenses would have been 1.48% absent the
voluntary waivers of portions of the management fee, the 12b-1
fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of Class F Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in the
Fund" and "Trust Information". Wire- transferred redemptions of less
than $5,000 may be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period; and
(3) payment of the maximum sales charge....................................... $29 $50 $59 $120
You would pay the following expenses on the same investment, assuming
no redemption................................................................. $19 $38 $59 $120
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Auditors' Report on page 26.
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996 1995 1994 1993 1992 1991(a)
-------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 11.21 $ 11.22 $ 11.01 $ 11.65 $ 10.89 $ 10.40 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.59 0.60 0.60 0.56 0.57 0.61 0.57
Net realized and
unrealized gain (loss)
on investments 0.32 (0.01) 0.20 (0.64) 0.77 0.49 0.41
------- ------- ------ ------ ------- ------ -------
Total from investment
operations 0.91 0.59 0.80 (0.08) 1.34 1.10 0.98
LESS DISTRIBUTIONS
Distributions from net
investment income (0.59) (0.60) (0.59) (0.56) (0.57) (0.61) (0.57)
Distributions in excess
of net investment income _ _ _ _ (0.01)(b) (0.01)(b)
------- ------- ------ ------ ------- ------ -------
Total distributions (0.59) (0.60) (0.59) (0.56) (0.58) (0.61) (0.58)
------- ------- ------ ------ ------- ------ -------
NET ASSET VALUE, END OF
PERIOD $ 11.53 $ 11.21 $ 11.22 $ 11.01 $ 11.65 $ 10.89 $ 10.40
------- ------- ------ ------ ------- ------ -------
TOTAL RETURN(C) 8.34% 5.34% 7.65% (0.72%) 12.69% 10.91% 10.01%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.90% 0.90% 0.90% 0.90% 0.87% 0.73% 0.28%*
Net investment income 5.19% 5.28% 5.53% 5.02% 5.13% 5.79% 6.35%*
Expense
waiver/reimbursement(d) 0.58% 0.58% 0.60% 0.55% 0.83% 1.35% 1.66%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $75,506 $70,568 $70,532 $81,566 $73,973 $28,924 $19,840
Portfolio turnover 38% 11% 33% 20% 0% 0% 11%
</TABLE>
*Computed on an annualized basis.
(a) Reflects operations for the period from October 12, 1990 (date of
initial public investment) to August 31, 1991.
(b) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust on August
6, 1990. Class F Shares of the Fund ("Shares") are designed for
customers of financial institutions such as broker/dealers, banks,
fiduciaries, and investment advisers as a convenient means of
accumulating an interest in a professionally managed, non-diversified
portfolio investing primarily in Ohio municipal securities. The Fund
is not likely to be a suitable investment for non-Ohio taxpayers or
retirement plans since Ohio municipal securities are not likely to
produce competitive after-tax yields for such persons and entities
when compared to other investments.
The Fund's current net asset value ("NAV") and offering price may be
found in the mutual funds section of local newspapers under
"Federated" and the appropriate class designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income
exempt from federal regular income tax (federal regular income tax
does not include the federal alternative minimum tax) and the personal
income taxes imposed by the state of Ohio and Ohio municipalities. The
investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio
municipalities. Interest income of the Fund that is exempt from the
income taxes described above retains its exempt status when
distributed to the Fund's shareholders. Income distributed by the Fund
may not necessarily be exempt from state or municipal taxes in states
other than Ohio.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in
Ohio municipal securities. Unless indicated otherwise, the investment
policies of the Fund may be changed by the Trustees without approval
of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
. obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;
. debt obligations of any state, territory, or possession of the United States,
including the District of Columbia, or any political subdivision of any of
these; and
. participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Fund
and/or the investment adviser to the Fund, exempt from both federal
regular income tax and the personal income tax imposed by the state
of Ohio and Ohio municipalities ("Ohio municipal securities"). At
least 80% of the value of the Fund's total assets will be invested
in Ohio municipal securities.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
CHARACTERISTICS
The municipal securities which the Fund buys are investment grade
bonds rated Aaa, Aa, A, or Baa by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA, A, or BBB by Standard & Poor's Ratings
Service ("S&P"), or Fitch Investors Service, L.P. ("Fitch"). In
certain cases the Fund's investment adviser may choose bonds which are
unrated if it determines such bonds are of comparable quality or have
similar characteristics to the investment grade bonds described above.
If a bond is rated below investment grade according to the
characteristics set forth here after the Fund has purchased it, the
Fund is not required to drop the bond from the portfolio, but will
consider appropriate action. Bonds rated "BBB" by S&P or Fitch or
"Baa" by Moody's have speculative characteristics. Changes in economic
or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. A
description of the rating categories is contained in the Appendix to
the Statement of Additional Information.
PARTICIPATION INTERESTS
The Fund may purchase participation interests from financial
institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or
guarantees to assure that the participation interests are of high
quality. The Trustees will determine that participation interests meet
the prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES
Some of the Ohio municipal securities which the Fund purchases may
have variable interest rates. Variable interest rates are ordinarily
based on a published interest rate, interest rate index, or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable
rate municipal securities are subject to payment of principal on
demand by the Fund in not more than seven days. All variable rate
municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to
monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the
Fund on the basis of published financial information and reports of
the rating agencies and other analytical services.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities
and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract
or a participation certificate on any of the above. Lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced,
it is unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
RESTRICTED AND ILLIQUID SECURITIES
As a matter of fundamental investment policy, the Fund may invest up
to 10% of its net assets in restricted securities. Restricted
securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies but which are
subject to restriction upon resale under federal securities laws. As a
matter of non-fundamental investment policy, the Fund will limit
investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, to 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause the Fund to
miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase
prices.
The Fund may dispose of a commitment prior to settlement if the
investment adviser deems it appropriate to do so. In addition, the
Fund may enter in transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire
other commitments to purchase similar securities at later dates. The
Fund may realize short-term profits or losses upon the sale of such
commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which
represent interests in municipal securities. The Fund intends to
purchase inverse floaters to assist in duration management and to seek
current income. These obligations pay interest rates that vary
inversely with changes in the interest rates of specified short-term
municipal securities or an index of short-term municipal securities.
The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term
market rates decline. Inverse floaters will generally respond to
changes in market interest rates more rapidly than fixed-rate
long-term securities (typically twice as fast). As a result, the
market values of inverse floaters will generally be more volatile than
the market values of fixed-rate municipal securities. Typically, the
portion of the portfolio invested in inverse floaters will be subject
to additional volatility.
FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial
futures contracts. These financial futures contracts may be used to
hedge all or a portion of its portfolio against changes in the market
value of portfolio securities and interest rates, provide additional
liquidity, and accomplish its current strategies in a more expeditious
fashion. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
As a matter of investment policy, which may be changed without
shareholder approval, the Fund may not purchase or sell futures
contracts if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5% of
the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of municipal securities, cash or cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if
legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the prices
of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the futures
contract. It is not certain that a secondary market for positions in
futures contracts will exist at all times. Although the investment
adviser will consider liquidity before entering into futures
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract at any particular time. The Fund's ability to establish and
close out futures positions depends on this secondary market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio
municipalities. However, from time to time, when the investment
adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Ohio
municipal tax-exempt obligations or taxable temporary investments.
These temporary investments include: notes issued by or on behalf of
municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and
repurchase agreements (arrangements in which the organization selling
the Fund, a bond, or temporary investment agrees at the time of sale
to repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to
those rated within the investment grade categories described under
"Acceptable Investments -- Characteristics" (if rated) or (if unrated)
those which the investment adviser judges to have the same
characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax or personal income taxes imposed by the state of
Ohio or Ohio municipalities.
OHIO MUNICIPAL SECURITIES
Ohio municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works.
They are also issued to repay outstanding obligations, to raise funds
for general operating expenses, and to make loans to other public
institutions and facilities.
Ohio municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to
acquire sites or construct and equip facilities for privately or
publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. However, interest on and
principal of revenue bonds are payable only from the revenue generated
by the facility financed by the bond or other specified sources of
revenue. Revenue bonds do not represent a pledge of credit or create
any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Ohio 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 state of Ohio or its
municipalities could impact the Fund's portfolio. The ability of the
Fund to achieve its investment objective also depends on the
continuing ability of the issuers of Ohio municipal securities and
participation interests, or the guarantors of either, to meet their
obligations for the payment of interest and principal when due.
Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the state of Ohio or its
municipalities do not maintain their current credit ratings. In
addition, certain Ohio constitutional amendments, legislative
measures, executive orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting Ohio
municipal securities.
A further discussion of the risks of a portfolio which invests largely
in Ohio municipal securities is contained in the Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is
no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified portfolio of securities
because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the Fund's
portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would
be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). This undertaking requires that
at the end of each quarter of the taxable year: (a) with regard to at
least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer and (b) no
more than 25% of its total assets are invested in the securities of a
single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy
it back on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of those assets to
secure such borrowings.
The above investment limitation cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund.
The NAV is determined as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers Class F Shares with the characteristics
described below.
<TABLE>
<CAPTION>
Class F
<S> <C>
Minimum and Subsequent
Investment Amount $1,500/$100
Minimum and Subsequent
Investment Amount
for Retirement Plans NA
Maximum Sales Charge 1.00%*
Maximum Contingent
Deferred Sales Charge** 1.00%**
</TABLE>
* This is 1.01% of the net amount invested. There is no sales charge for
purchases of $1 million or more. In addition, no sales charge is imposed for
Shares purchased through certain entities or programs. Please see the section
entitled "Eliminating the Sales Charge."
** Computed on the lesser of the NAV of the redeemed Shares at the
time of purchase or the NAV of the redeemed Shares at the time of
redemption.
The following contingent deferred sales charge schedule applies to
Class F Shares:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
- ----------------------------------------------------------------------------
<S> <C> <C>
Up to $1,999,999 Four Years or less 1.00%
$2,000,000 to $4,999,999 Two Years or less .50%
$5,000,000 or more One Year or less .25%
</TABLE>
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased as described
below, either through a financial intermediary (such as a bank or
broker/dealer) or by sending a wire or check directly to the Fund.
Financial intermediaries may impose different minimum investment
requirements on their customers. An account must be established with a
financial intermediary or by completing, signing, and returning the
new account form available from the Fund before Shares can be
purchased. Shareholders in Class F Shares of certain other funds
advised and distributed by affiliates of Federated Investors
("Federated Funds") may exchange their Shares for Class F Shares of
the Fund. The Fund reserves the right to reject any purchase or
exchange request.
In connection with any sale, Federated Securities Corp. may, from time
to time, offer certain items of nominal value to any shareholder or
investor.
PURCHASING SHARES THROUGH A
FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received
when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m.
(Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial intermediary's responsibility to
transmit orders promptly. Financial intermediaries may charge fees for
their services.
The financial intermediary which maintains investor accounts in Class
F Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the
contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial
intermediaries may be subject to reclaim by the distributor for
accounts transferred to financial intermediaries which do not maintain
investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund.
All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by
wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA
02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on
holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of
the Fund (designate class of Shares and account number) to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the
check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House
("ACH") member and invested in the Fund. Shareholders should contact
their financial intermediary or the Fund to participate in this
program.
ELIMINATING THE SALES CHARGE
Class F Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES
PURCHASED:
. through bank trust departments or investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients;
. by sales representatives, Trustees, and employees of the Fund, Federated
Advisers, Federated Securities Corp. or their affiliates and their immediate
family members;
. by any investment dealer who has a sales agreement with Federated Securities
Corp. and their immediate family members, or by any trusts or pension or
profit-sharing plans for these persons.
IN ADDITION, THE SALES CHARGE CAN BE ELIMINATED BY:
. purchasing in quantity and accumulating purchases;
. combining concurrent purchases of two or more funds;
. signing a letter of intent to purchase a specific quantity of shares within
13 months; or
. using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for
details on these programs. In order to eliminate the sales charge or
receive sales charge reductions, Federated Securities Corp. must be
notified by the shareholder in writing or by a financial intermediary
at the time of purchase.
DEALER CONCESSION
For sales of Shares, the distributor will normally offer to pay
dealers up to 100% of the sales charge retained by it. Any portion of
the sales charge which is not paid to a dealer will be retained by the
distributor.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts and
purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for shares of
Ohio Municipal Cash Trust or Class F Shares of other Federated Funds
on days on which the Fund computes its NAV. Shares are redeemed at NAV
less any applicable contingent deferred sales charge. Exchanges are
made at NAV. Shareholders who desire to automatically exchange Shares,
of a like Share class, in a pre-determined amount on a monthly,
quarterly, or annual basis may take advantage of a systematic exchange
privilege. Information on this privilege is available from the Fund or
your financial intermediary. Depending upon the circumstances, a
capital gain or loss may be realized when Shares are redeemed or
exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A
FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your
financial intermediary before 4:00 p.m. (Eastern time). In order for
these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request
to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must
transmit the request to the Fund before 5:00 p.m. (Eastern time). The
financial intermediary is responsible for promptly submitting
transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount,
or exchanged, by calling 1-800-341-7400. Appropriate authorization
forms for these transactions must be on file with the Fund. Shares
held in certificate form must first be returned to the Fund as
described in the instructions under "Redeeming or Exchanging Shares by
Mail." Redemption proceeds will either be mailed in the form of a
check to the shareholder's address of record or wire-transferred to
the share- holder's account at a domestic commercial bank that is a
member of the Federal Reserve System. The minimum amount for a wire
transfer is $1,000, normally within one business day, but in no event
more than seven days, after the redemption request. Proceeds from
redeemed Shares purchased by check or through ACH will not be wired
until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming or
Exchanging Shares By Mail" should be considered. The telephone
transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a
written request to: Federated Shareholder Services Company, Fund Name,
Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they must accompany the written
request. It is recommended that certificates be sent unendorsed by
registered or certified mail.
All written requests should state: Fund Name and the Share Class name;
the account name as registered with the Fund; the account number; and
the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the
Fund into which the exchange is to be made. All owners of the account
must sign the request exactly as the Shares are registered. A check
for redemption proceeds is normally mailed within one business day,
but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the
day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption
payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization
which is administered by the Federal Deposit Insurance Corporation; a
member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary
public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having a NAV equal to the minimum
investment requirements of the fund into which the exchange is being
made. Contact your financial intermediary directly or the Fund for
free information on, and prospectuses for, the Federated Funds into
which your Shares may be exchanged. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and proceeds invested in
the same class of shares of the other fund. Signature guarantees will
be required to exchange between fund accounts not having identical
shareholder registrations. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. To be
eligible to participate in this program, a share- holder must have an
account value of at least $10,000. A shareholder may apply for
participation in this program through his financial intermediary or by
calling the Fund.
Because participation in this program may reduce, and eventually
deplete, the shareholder's investment in the Fund, payments under this
program should not be considered as yield or income. It is not
advisable for shareholders to continue to purchase Class F Shares
subject to a sales charge while participating in this program. A
contingent deferred sales charge will be imposed on Shares redeemed
through this program within four years of their purchase dates.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the distributor. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. The contingent deferred
sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term
capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares
received through an exchange will include the period for which your
original Shares were held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:
. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
. representing a total or partial distribution from an Individual Retirement
Account, Keogh Plan, or a custodial account to a shareholder who has attained
the age of 701/2;
. representing a total or partial distribution from a qualified plan, other
than an Individual Retirement Account, Keogh Plan, or a custodial account
following retirement;
. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
. which are reinvested in the Fund under the reinvestment privilege;
. of Shares held by Trustees, employees and sales representatives of
the Fund, the distributor, or affiliates of the Fund or distributor,
employees of any financial intermediary that sells Shares of the
Fund pursuant to a sales agreement with the distributor, and their
immediate family members to the extent that no payments were
advanced for purchases made by these persons; and
. of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of
1940 or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or
its affiliates, or any other financial intermediary, to the extent
that no payments were advanced for purchases made through such
entities.
The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh plan, or a custodial account does not extend to
account transfers, rollovers, and other redemptions made for purposes
of reinvestment.
For more information regarding the contingent deferred sales charge or
any of the above provisions, contact your financial intermediary or
the Fund. The Fund reserves the right to discontinue or modify these
provisions. Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions
(except for systematic program transactions). In addition,
shareholders will receive periodic statements reporting all account
activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested
in the Fund on the record date. Net long-term capital gains realized
by the Fund, if any, will be distributed at least once every twelve
months. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date
NAV without a sales charge, unless shareholders request cash payments
on the new account form or by contacting the transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may close an account by redeeming all Shares and paying the
proceeds to the shareholder if the account balance falls below the
applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes
will not be closed in this manner. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
shares of each portfolio or class in the Trust have equal voting
rights, except that in matters affecting only a particular portfolio
or class, only shares of that portfolio or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of shareholders shall be called by
the Trustees upon the written request of shareholders owning at least
10% of the Trust's outstanding shares of all series entitled to vote.
As of October 6, 1997, the following shareholder of record owned 25%
or more of the outstanding Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, FL (as record owner holding Shares for
its clients), owned approximately 2,074,679 Shares (31.84%) and,
therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a
vote of shareholders.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for
the shareholders. The Executive Committee of the Board of Trustees
handles the Trustees' responsibilities between meetings of the Board.
INVESTMENT ADVISER
Pursuant to an investment advisory contract with the Trust, investment
decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale
of portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES
The Fund's Adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the
Fund for certain operating expenses. The Adviser can terminate this
voluntary waiver or reimbursement of expenses at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11,
1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and
Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's
son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With
over $110 billion invested across more than 300 funds under
management and/or administration by its subsidiaries, as of December
31, 1996, 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 management who
founded the company in 1955. Federated funds are presently at work in
and through 4,500 financial institutions nationwide.
J. Scott Albrecht has been a portfolio manager of the Fund since
March 1995. Mr. Albrecht joined Federated Investors in 1989 and has
been a Vice President of the Fund's investment adviser since 1994.
From 1992 to 1994, Mr. Albrecht served as an Assistant Vice President
of the Fund's investment adviser. Mr. Albrecht is a Chartered
Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
Mary Jo Ochson has been a portfolio manager of the Fund since April 1997. Ms.
Ochson joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. From 1988 through 1995,
Ms. Ochson served as a Vice President of the Fund's investment adviser. Ms.
Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from
the University of Pittsburgh.
Both the Fund and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests
of shareholders ahead of the employees' own interest. Among other
things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less
than sixty days. Violation of the codes are subject to review by the
Trustees, and could result in severe penalties.
DISTRIBUTION OF CLASS F SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), the Fund may pay to
the distributor an amount, computed at an annual rate of 0.40% of the
average daily NAV of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution
related support services as agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no payments to the distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess
of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able
to recover such amount or may earn a profit from future payments made
by the Fund under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which the Fund may make payments up to
0.25% of the average daily NAV of its Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to
maintain shareholder accounts. Under the Shareholder Services
Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules
of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, for
distribution and/or administrative services, an amount equal to 1.00%
of the offering price of the Shares acquired by their clients or
customers on purchases up to $1,999,999, 0.50% of the offering price
on purchases of $2,000,000 to $4,999,999, and 0.25% of the offering
price on purchases of $5,000,000 or more. (This fee is in addition to
the 1.00% sales charge on purchases of less than $1 million.)
Furthermore, in addition to payments made pursuant to the Distribution
Plan and Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of
substantial sales services, distribution related support services, or
shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees at
recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell and/or upon the
type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Fund's Adviser or its affiliates, and not the Fund.
ADMINISTRATION OF THE FUND
Administrative Services. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary
to operate the Fund. Federated Services Company provides these at an
annual rate which relates to the average aggregate daily net assets of
all funds advised by affiliates of Federated Investors as specified
below:
Maximum Average Aggregate
Administrative Fee Daily Net Assets
- -----------------------------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights except
that in matters affecting only a particular fund, only shares of that
fund are entitled to vote. As of October 6, 1997, Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida owned 31.84% of the voting
securities of the Fund, and therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the
election of Trustees under certain circumstances. Trustees may be
removed by the Trustees or by shareholders at a special meeting. A
special meeting of the shareholders for this purpose shall be called
by the Trustees upon the written request of shareholders owning at
least 10% of the outstanding shares of all series of the Trust
entitled to vote.
TAX INFORMATION
Federal Income Tax
The Fund does not expect to pay federal income tax because it expects
to meet requirements of the Code, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded
to such companies. The Fund will be treated as a single, separate
entity for federal income tax purposes so that income (including
capital gains) and losses realized by the Trust's other portfolios
will not be combined for tax purposes with those realized by the Fund.
Shareholders are not required to pay federal regular income tax on any
dividends received from the Fund that represent net interest on
tax-exempt municipal bonds, although tax exempt interest will increase
the taxable income of certain recipients of social security benefits.
However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum
taxable income is equal to the regular taxable income of the taxpayer
increased by certain "tax preference" items not included in regular
taxable income and reduced by only a portion of the deductions allowed
in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax preference item
for both individuals and corporations. Unlike traditional governmental
purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide
benefits to private parties. The Fund may purchase all types of
municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the
Fund which represent interest on municipal bonds will become subject
to the 20% corporate alternative minimum tax because the dividends are
included in a corporation's "adjusted current earnings." The corporate
alternative minimum tax treats 75% of the excess of a taxpayer's
pre-tax "adjusted current earnings" over the taxpayer's alternative
minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and
profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income
does not include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the difference
will be included in the calculation of the corporation's alternative
minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed
as ordinary income.
These tax consequences apply whether dividends are received in cash or
as additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE OF OHIO INCOME TAXES
Under existing Ohio laws, distributions made by the Fund will not be
subject to Ohio individual income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Code
and represent (i) interest from obligations of Ohio or its
subdivisions which is exempt from federal income tax; or (ii) interest
or dividends from obligations issued by the United States and its
territories or possessions or by any authority, commission or
instrumentality of the United States, which are exempt from state
income tax under federal laws. Conversely, to the extent that
distributions made by the Fund are derived from other types of
obligations, such distributions will be subject to Ohio individual
income taxes.
Distributions made by the Fund will not be subject to Ohio corporate
franchise tax to the extent that such distributions qualify as
"exempt-interest dividends" under the Code and represent (i) interest
from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) net interest income from obligations
issued by the United States and its territories or possessions or by
any authority, commission or instrumentality of the United States,
which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations
held by the Fund which are issued by Ohio or its political
subdivisions will be exempt from any Ohio municipal income tax (even
if the municipality is permitted under Ohio law to levy a tax on
intangible income).
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states
other than Ohio. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return, yield, and
tax- equivalent yield for shares.
Total return represents the change, over a specific period of time, in
the value of an investment in shares after reinvesting all income and
capital gains distributions. it is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of shares is calculated by dividing the net investment
income per Share (as defined by the SEC) earned by Shares over a
thirty-day period by the maximum offering price per Share of Shares on
the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal its actual
yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by Shares and,
therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The performance information reflects the effect of the maximum sales
charge and other similar non-recurring charges, such as the contingent
deferred sales charge, which, if excluded, would increase the total
return, yield, and tax- equivalent yield.
From time to time, advertisements for the Fund may refer to ratings,
rankings and other information in certain financial publications
and/or compare the fund's performance to certain indices.
<PAGE>
PORTFOLIO OF INVESTMENTS
FEDERATED OHIO MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- -------------- -------- -------
<S> <C> <C> <C>
LONG-TERM MUNICIPALS--99.4%
OHIO--93.2%
$ 200,000 Akron, OH, Various Purpose LT GO, 5.50% (MBIA Insurance Corporation INS),
12/1/2005 AAA $ 211,670
300,000 Bellefontaine, OH, Storm Water Utility LT GO Bonds, 7.05%, 6/1/2011 A 324,030
2,000,000 Brecksville-Broadview Heights CSD, OH, UT GO Bonds, 5.25% (FGIC INS)/
(Original Issue Yield: 5.825%), 12/1/2021 1,943,720
500,000 Brunswick, OH, UT GO Bonds, 7.35% (Original Issue Yield: 7.446%), 12/1/2010 A 552,915
1,000,000 Clermont County, OH, Hospital Facilities Refunding & Revenue Bonds (Series B),
5.625% (Mercy Health Systems)/(AMBAC INS)/(Original Issue Yield: 5.80%), 9/1/2021 AAA 1,010,000
200,000 Cleveland, OH Airport System, Revenue Bonds (Series A), 5.40% (FGIC INS)/
(Original Issue Yield: 5.55%), 1/1/2004 AAA 208,474
2,500,000 Cleveland, OH Airport System, Revenue Bonds (Series A), 6.00% (FGIC INS)/
(Original Issue Yield: 6.378%), 1/1/2024 AAA 2,565,675
2,000,000 Cleveland, OH Public Power System, Revenue Bonds, First Mortgage (Series A),
7.00% (MBIA Insurance Corporation INS)/(United States Treasury PRF)/(Original
Issue Yield: 7.15%), 11/15/2024 AAA 2,323,740
1,000,000 Cleveland, OH, LT GO Bonds, 5.75% (MBIA Insurance Corporation INS), 8/1/2014 AAA 1,064,260
1,255,000 Cleveland, OH, LT GO Bonds, 5.75% (MBIA Insurance Corporation INS), 8/1/2015 AAA 1,331,003
250,000 Cleveland, OH, LT GO Bonds, 6.00% (MBIA Insurance Corporation INS)/(Original
Issue Yield: 6.10%), 11/15/2004 AAA 271,413
2,600,000 Columbus, OH Municipal Airport Authority, Improvement Revenue Bonds, 6.25%
(Port Columbus Intl Airport )/(MBIA Insurance Corporation INS)/(Original Issue
Yield: 6.35%), 1/1/2024 AAA 2,743,026
500,000 Columbus, OH Municipal Airport Authority, Revenue Bonds, 5.55% (Port Columbus
Intl Airport )/(MBIA Insurance Corporation INS)/(Original Issue Yield: 5.65%),
1/1/2004 AAA 523,030
100,000 Columbus, OH Water System, Revenue Refunding Bonds, 6.375%, 11/1/2010 AA- 106,974
150,000 Columbus, OH, LT GO Bonds, 5.50% (Original Issue Yield: 5.55%), 5/15/2004 AAA 158,684
1,500,000 Cuyahoga County, OH Hospital Authority, Improvement & Refunding Revenue Bonds
(Series A), 5.625% (University Hospitals Health System, Inc.)/(MBIA Insurance
Corporation LOC)/(Original Issue Yield: 5.90%), 1/15/2026 AAA 1,513,395
1,000,000 Cuyahoga County, OH Hospital Authority, Revenue Bonds, 6.25% (Fairview
General Hospital)/(Original Issue Yield: 6.321%), 8/15/2010 A+ 1,059,150
1,500,000 Cuyahoga County, OH Hospital Authority, Revenue Bonds, 6.25% (Meridia Health
System)/(Original Issue Yield: 6.80%), 8/15/2024 A 1,572,465
500,000 Cuyahoga County, OH Hospital Authority, Revenue Refunding Bonds, 8.00%
(Cleveland Clinic)/(Original Issue Yield: 8.067%), 12/1/2015 AA- 511,935
2,000,000 Forest Hills, OH Local School District, UT GO Bonds, 5.70% (MBIA Insurance
Corporation INS), 12/1/2016 AAA 2,061,840
$500,000 Franklin County, OH Hospital Facility Authority, Hospital Revenue Refunding &
Improvement Bonds, 7.25% (Riverside United Methodist Hospital)/(MBIA Insurance
Corporation INS)/(Original Issue Yield: 7.29%), 5/15/2020 AAA $ 547,245
2,000,000 Franklin County, OH Hospital Facility Authority, Revenue Refunding Bonds
(Series A), 5.75% (Riverside United Methodist Hospital)/(Original Issue Yield:
6.10%), 5/15/2020 Aa3 2,018,380
250,000 Franklin County, OH Mortgage Revenue, Mortgage Revenue Bonds, 5.875%
(Seton Square North, OH)/(FHA GTD)/(Original Issue Yield: 6.00%),
10/1/2004 Aa 260,788
300,000 Franklin County, OH, Hospital Refunding & Improvement Revenue Bonds
(1996 Series A), 5.20% (Children's Hospital)/(Original Issue
Yield: 5.30%), 11/1/2004 Aa3 310,407
1,300,000 Hamilton County, OH Health System, Revenue Refunding Bonds, Providence Hospital,
6.875% (Franciscan Sisters of Christian Charity HealthCare Ministry, Inc.)/
(Original Issue Yield: 7.05%), 7/1/2015 BBB 1,382,628
700,000 Hamilton County, OH Hospital Facilities Authority, Revenue Refunding & Improvement
Bonds, 7.00% (Deaconess Hospital)/(Original Issue Yield: 7.046%), 1/1/2012 A- 754,467
2,000,000 Hamilton County, OH Hospital Facilities Authority, Revenue Refunding Bonds
(Series A), 6.25% (Bethesda Hospital, OH)/(Original Issue Yield: 6.55%),
1/1/2012 A 2,114,100
1,580,000 Hancock County, OH, LT GO Bonds (Series 1997), 5.45%, 12/1/2017 AA- 1,574,091
100,000 Kings Local School District, OH, UT GO Bonds, 6.25%, 12/1/2001 A+ 107,100
100,000 Kings Local School District, OH, UT GO Bonds, 6.50%, 12/1/2003 A+ 110,161
440,000 Lakewood, OH Hospital Improvement Authority, Revenue Refunding Bonds
(Series One), 6.00% (Lakewood Hospital, OH)/(MBIA Insurance Corporation INS)/
(Original Issue Yield: 6.90%), 2/15/2010 AAA 445,927
3,000,000 Lorain County, OH, Hospital Facilities Revenue Bonds (Series 1997B), 5.625%
(Catholic Healthcare Partners)/(MBIA Insurance Corporation INS)/(Original
Issue Yield: 5.825%), 9/1/2016 AAA 3,061,710
1,000,000 Mahoning County, OH Hospital Facilities, Revenue Bonds, 5.50% (Western
Reserve Care System)/(MBIA Insurance Corporation INS)/(Original Issue Yield:
5.75%), 10/15/2025 AAA 990,040
1,000,000 Marion County, OH Hospital Authority, Hospital Refunding & Improvement
Revenue Bonds (Series 1996), 6.375% (Community Hospital of Springfield)/
(Original Issue Yield: 6.52%), 5/15/2011 BBB+ 1,042,130
420,000 Marysville, OH, LT Sewer System GO Bonds, 7.15%, 12/1/2011 A 456,968
1,000,000 Miami County, OH, Hospital Facilities Revenue Refunding & Improvement Bonds
(Series 1996A), 6.375% (Upper Valley Medical Center, OH)/(Original Issue
Yield: 6.62%), 5/15/2026 BBB 1,037,770
300,000 Miami County, OH, Hospital Facilities Revenue Refunding & Improvement Bonds
(Series 1996B), 5.20% (Upper Valley Medical Center, OH)/(MBIA Insurance
Corporation INS)/(Original Issue Yield: 5.30%), 5/15/2004 AAA 309,921
150,000 Miami Valley Regional Transit Authority, OH, LT GO Bonds, 5.40%, 12/1/2004 A2 157,133
$1,000,000 Moraine, OH Solid Waste Disposal Authority, Revenue Bonds, 6.75% (General
Motors Corp.)/(Original Issue Yield: 6.80%), 7/1/2014 A- $ 1,159,500
300,000 Muskingum County, OH, (Series 1995) Hospital Facilities Refunding Revenue Bonds,
5.10% (Franciscan Sisters of Christian Charity HealthCare Ministry, Inc.)/(Connie
Lee INS)/(Original Issue Yield: 5.30%), 2/15/2006 AAA 305,565
150,000 North Canton OH City School District, LT GO Energy Conservation Bonds, 5.50%,
12/1/2003 A1 156,840
280,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic Development Revenue
Bonds, 5.60% (Smith Steelite), 12/1/2003 A- 290,427
10,195,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series B-2), 6.70% (GNMA COL),
3/1/2025 AAA 10,780,295
580,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series B-1), 5.80% (GNMA COL),
9/1/2005 AAA 599,598
1,930,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65% (GNMA COL)/(Original Issue
Yield: 7.670%), 3/1/2029 AAA 2,029,221
230,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80% (GNMA COL), 3/1/2030 AAA 241,654
500,000 Ohio State Air Quality Development Authority, PCR Refunding Bonds (Series A),
7.45% (Ohio Edison Co.)/(FGIC INS), 3/1/2016 AAA 543,105
3,000,000 Ohio State Air Quality Development Authority, Revenue Refunding Bonds, 6.375%
(JMG Funding Limited Partnership)/(AMBAC INS)/(Original Issue Yield: 6.493%),
1/1/2029 AAA 3,203,310
3,000,000 Ohio State Turnpike Commission, Revenue Bonds, Series A, 5.75%, 2/15/2024 AA- 3,064,350
1,500,000 Ohio State, Education Loan Revenue Bonds (Series 1997A), 5.85% (AMBAC INS),
12/1/2019 AAA 1,509,990
250,000 Olentangy, OH Local School District, UT GO Bonds (Series A), 5.60% (Original
Issue Yield: 5.70%), 12/1/2004 AA- 265,098
2,250,000 Olentangy, OH Local School District, UT GO Bonds, 5.25% (Original Issue Yield:
5.46%), 12/1/2017 AA- 2,224,935
730,000 Reynoldsburg, OH City School District, UT GO Capital Appreciation Refunding
Bonds (FGIC INS)/(Original Issue Yield: 5.30%), 12/1/2011 AAA 345,348
195,000 Stow, OH, LT GO Safety Center Construction Bonds, 7.75%, 12/1/2003 A1 229,107
260,000 Summit County, OH, LT Various Purpose GO Bonds, 5.75% (AMBAC INS), 12/1/2005 AAA 279,955
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 544,185
200,000 Toledo, OH Sewer System, Revenue Bonds, 5.75% (AMBAC INS)/(Original Issue
Yield: 5.85%), 11/15/2005 AAA 215,850
3,500,000 Toledo-Lucas County, OH Port Authority, Port Facilities Revenue Refunding Bonds,
5.90% (Cargill, Inc.)/(Original Issue Yield: 5.981%), 12/1/2015 Aa3 3,655,084
-----------
Total 70,381,782
-----------
PUERTO RICO -- 3.5%
$2,400,000 Puerto Rico Electric Power Authority, Revenue Bonds (Series T), 6.375% (Original
Issue Yield: 6.58%), 7/1/2024 BBB+ $ 2,614,440
-----------
VIRGIN ISLANDS -- 2.7%
200,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A), 5.70% (GNMA COL),
3/1/2004 AAA 205,270
1,750,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A), 6.523% (GNMA COL)/
(Original Issue Yield: 6.523%), 3/1/2025 AAA 1,826,860
-----------
Total 2,032,130
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $70,775,104)(a) 75,028,352
-----------
SHORT-TERM MUNICIPALS--1.2%
PUERTO RICO--1.2%
900,000 Puerto Rico Government Development Bank Weekly VRDNs (Credit Suisse,
Zurich LOC) AA+ 900,000
TOTAL INVESTMENTS (IDENTIFIED COST $71,675,104)(a) $ 75,928,352
-----------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 36.7%
of the portfolio as calculated based upon total portfolio market
value.
(a) The cost of investments for federal tax purposes amounts to
$71,675,104. The net unrealized appreciation of investments on a
federal tax basis amounts to $4,253,248 which is comprised of
$4,337,244 appreciation and $83,996 depreciation at August 31,
1997.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($75,506,340) at August 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
CSD -- Central School District
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
INS -- Insured
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control
Revenue PRF -- Prerefunded SFM -- Single Family Mortgage UT --
Unlimited Tax VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED OHIO MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $71,675,104) $75,928,352
Cash 121,599
Income receivable 1,199,727
Receivable for shares sold 10,316
-----------
Total assets 77,259,994
LIABILITIES:
Payable for investments purchased $ 1,580,718
Payable for shares redeemed 2,519
Income distribution payable 125,927
Accrued expenses 44,490
-----------
Total liabilities 1,753,654
-----------
NET ASSETS for 6,548,899 shares outstanding $75,506,340
-----------
NET ASSETS CONSIST OF:
Paid in capital $71,410,424
Net unrealized appreciation of investments*** 4,253,248
Accumulated net realized loss on investments (161,966)
Undistributed net investment income 4,634
-----------
Total Net Assets $75,506,340
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($75,506,340 / 6,548,899 shares outstanding) $ 11.53
-----------
Offering Price Per Share (100 / 99.00 of $11.53)* $ 11.65
-----------
Redemption Proceeds Per Share (99.00 / 100 of $11.53)** $ 11.41
-----------
</TABLE>
* See "Purchasing Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
*** Includes $384,016 of unrealized appreciation at July 14, 1997
related to the Acquired Fund.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED OHIO MUNICIPAL INCOME FUND
YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $4,217,476
EXPENSES:
Investment advisory fee $ 277,606
Administrative personnel and services fee 125,000
Custodian fees 11,246
Transfer and dividend disbursing agent fees and expenses 49,619
Directors'/Trustees' fees 3,255
Auditing fees 13,838
Legal fees 2,977
Portfolio accounting fees 53,603
Distribution services fee 277,606
Shareholder services fee 173,504
Share registration costs 14,396
Printing and postage 21,526
Insurance premiums 3,095
Taxes 432
Miscellaneous 3,755
---------
Total expenses 1,031,458
Waivers --
Waiver of investment advisory fee $ (230,268)
Waiver of distribution services fee (166,564)
Waiver of shareholder services fee (6,940)
----------
Total waivers (403,772)
---------
Net expenses 627,686
----------
Net investment income 3,589,790
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 627,060
Net change in unrealized appreciation of investments 1,642,169
----------
Net realized and unrealized gain on investments 2,269,229
----------
Change in net assets resulting from operations $5,859,019
----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,589,790 $ 3,765,876
Net realized gain (loss) on investments ($627,060 net gain and $230,283 net gain, respectively,
as computed for federal tax purposes) 627,060 415,434
Net change in unrealized appreciation/depreciation 1,642,169 (528,504)
------------ -----------
Change in net assets resulting from operations 5,859,019 3,652,806
------------ -----------
NET EQUALIZATION CREDITS (DEBITS)-- 13,748 (4,115)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (3,614,135) (3,771,215)
------------ -----------
Change in net assets resulting from distributions to shareholders (3,614,135) (3,771,215)
------------ -----------
SHARE TRANSACTIONS--
Proceeds from sale of shares 4,590,738 7,290,549
Proceeds from shares issued in connection with the acquisition 9,320,692(a)
Net asset value of shares issued to shareholders in payment of distributions declared 2,243,948 2,308,433
Cost of shares redeemed (13,475,385) (9,440,266)
------------ -----------
Change in net assets resulting from share transactions 2,679,993 158,716
------------ -----------
Change in net assets 4,938,625 36,192
NET ASSETS:
Beginning of period 70,567,715 70,531,523
------------ -----------
End of period (including undistributed net investment income of $12,505 and $55,769, respectively) $ 75,506,340 $70,567,715
------------ -----------
</TABLE>
(a) Includes $384,016 of unrealized appreciation.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED OHIO MUNICIPAL INCOME FUND
AUGUST 31, 1997
1. ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an
open-end, management investment company. The Trust consists of five
portfolios. The financial statements included herein are only those of
Federated Ohio Municipal Income Fund (the "Fund"), a non-diversified
portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and
a shareholder's interest is limited to the portfolio in which shares
are held. The investment objective of the Fund is to provide current
income exempt from federal regular income tax and the personal income
taxes imposed by the state of Ohio and Ohio municipalities.
On July 14, 1997, the Fund acquired all the net assets of Federated
Ohio Intermediate Municipal Trust ("Acquired Fund") pursuant to a plan
of reorganization approved by the Acquired Fund's shareholders. The
acquisition was accomplished by a tax-free exchange of 804,896 shares
of the Fund (valued at $9,320,692) for the 928,818 shares of the
Acquired Fund outstanding on July 14, 1997. The Acquired Fund's net
assets of $9,320,894 which consisted of $9,163,409 of Paid in Capital,
$384,016 of Unrealized Appreciation on investments, and $226,531 of
Net Realized Loss on investments at that date were combined with those
of the Fund. The aggregate net assets of the Fund and the Acquired
Fund immediately before the acquisition were $66,554,852 and
$9,320,894, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon,
maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the Internal
Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date. These distributions from net
investment income do not represent a return of capital for federal tax
purposes.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for capital loss carryforwards acquired through a
merger and accumulated equalization. The following reclassifications
have been made to the financial statements.
<TABLE>
<CAPTION>
UNDISTRIBUTED NET
INVESTMENT
ACCUMULATED INCOME/ACCUMULATED
NET REALIZED DISTRIBUTIONS IN EXCESS OF
PAID-IN CAPITAL GAIN/LOSS NET INVESTMENT INCOME
- --------------------------------------------------------------------
<S> <C> <C>
$267,069 ($226,531) ($40,538)
Net investment income, net realized gains/losses, and net assets were
not affected by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
At August 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $195,499 which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- --------------------------------------
<S> <C>
2002 $148,031
2003 $ 14,757
2004 $ 32,711
</TABLE>
EQUALIZATION
The Fund follows the accounting practice known as equalization. With
equalization, a portion of the proceeds from sales and costs of
redemptions of fund shares (equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment
income. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions.
The Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid assets will
be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------
1997 1996
------------ ----------
<S> <C> <C>
Shares sold 438,606 641,518
Shares issued in connection with the acquisition 804,896 --
Shares issued to shareholders in payment of distributions declared 197,577 204,123
Shares redeemed (1,187,600) (835,151)
------------ --------
Net change resulting from share transactions 253,479 10,490
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Fund with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities
intended to result in the sale of the Fund's shares. The Plan provides
that the Fund may incur distribution expenses up to 0.40% of the
average daily net assets of the Fund, annually, to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee.
The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services, ("FSS"), the Fund will pay FSS up to 0.25% of
average daily net assets of the Fund for the period. The fee paid to
FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the year ended August 31, 1997, the Fund engaged in purchase
and sale transactions with funds that have a common investment adviser
(or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at
current market value pursuant to Rule 17a-7 under the Act amounting to
16,150,000 and 15,750,000 respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended August 31, 1997, were as follows:
Purchases $33,867,993
Sales $31,502,719
6. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit
risk associated with such factors, at August 31, 1997, 39.23% of the
securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and
financial guaranty assurance agencies. The value of investments
insured by or supported (backed) by a letter of credit from any one
institution or agency did not exceed 22.91% of total investments.
INDEPENDENT AUDITORS' REPORT
To the Board of
TRUSTEES OF MUNICIPAL SECURITIES INCOME TRUST and Shareholders of
FEDERATED OHIO MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Ohio Municipal
Income Fund as of August 31, 1997, the related statement of operations
for the year then ended, the statements of changes in net assets for
the years ended august 31, 1997 and 1996, and the financial highlights
for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned at august 31, 1997, by
correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Federated Ohio Municipal Income Fund as of August 31, 1997, the
results of its operations, the changes in its net assets and its
financial highlights for the respective stated periods in confirmity
with generally accepted accounting principles.
Pittsburgh, Pennsylvania
October 13, 1997
FEDERATED OHIO MUNICIPAL TRANSFER AGENT AND
INCOME FUND DIVIDEND DISBURSING AGENT
CLASS F SHARES Federated Shareholder
Federated Investors Tower Services Company
Pittsburgh, Pennsylvania P.O. Box 8600
15222-3779 Boston, Massachusetts
02266-8600
DISTRIBUTOR
Federated Securities Corp. INDEPENDENT AUDITORS
Federated Investors Tower Deloitte & Touche LLP
Pittsburgh, Pennsylvania 2500 One PPG Place
15222-3779 Pittsburgh, Pennsylvania
15222-5401
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, Massachusetts
02266-8600
[logo] FEDERATED INVESTORS
Federated Ohio
Municipal Income Fund
(A Portfolio of Municipal Securities
Income Trust)
Class F Shares
Prospectus
October 31, 1997
A Non-Diversified Portfolio of
Municipal Securities Income Trust,
An Open-End Management
Investment Company
Federated Securities Corp., Distributor [LOGO]
RECYCLED
Cusip 625922307 PAPER
0090702A-F (10/97)
FEDERATED OHIO MUNICIPAL INCOME FUND
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with
the prospectus of Federated Ohio Municipal Income Fund (the
"Fund"), a portfolio of Municipal Securities Income Trust
dated October 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free
of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1997
[GRAPHIC OMITTED]
Cusip 625922307
0090702B (10/97)
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Futures Transactions 2
Temporary Investments 3
Portfolio Turnover 3
Investment Limitations 3
Ohio Investment Risks 5
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 6
Fund Ownership 10
Trustees Compensation 10
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11
Adviser to the Fund 11
Advisory Fees 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 12
Quality Discounts and Accumulated Purchases 12
Concurrent Purchases 12
Letter of Intent 13
Reinvestment Privilege 13
Purchases by Sales Representatives, Fund
Trustees, and Employees 13
DETERMINING NET ASSET VALUE 13
Valuing Municipal Bonds 14
Use of Amortized Cost 14
REDEEMING SHARES 14
Redemption in Kind 14
Contingent Deferred Sales Charge 14
Massachusetts Partnership Law 14
TAX STATUS 15
The Fund's Tax Status 15
Shareholders' Tax Status 15
TOTAL RETURN 15
YIELD 15
TAX-EQUIVALENT YIELD 16
Tax-Equivalency Table 16
PERFORMANCE COMPARISONS 17
Economic and Market Information 17
ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 18
Institutional Clients 18
Bank Marketing 18
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 18
APPENDIX 19
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Municipal Securities Income Trust (the
"Trust"). The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated August 6, 1990. On February 26,
1996 (effective date March 31, 1996), the Board of Trustees
("Trustees") approved changing the name of the Fund from Ohio
Municipal Income Fund to Federated Ohio Municipal Income Fund and also
approved changing the name of the Fund's presently offered shares from
Fortress Shares to Class F Shares ("Shares").
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income exempt
from federal regular income and the personal income taxes imposed by
the state of Ohio and Ohio municipalities. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in Ohio municipal securities.
CHARACTERISTICS
The Ohio municipal securities in which the Fund invests
have the characteristics set forth in the prospectus. If a
rated bond loses its rating or has its rating reduced after
the Fund has purchased it, the Fund is not required to drop
the bond from the portfolio, but will consider doing so. If
ratings made by Moody's Investors Service, Inc., Standard &
Poor's Ratings Services or Fitch Investors Service, L.P.
change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings
as standards in accordance with the investment policies
described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Ohio municipal securities are: governmental lease
certificates of participation issued by state or municipal
authorities where payment is secured by installment payments
for equipment, buildings, or other facilities being leased by
the state or municipality. Government lease certificates
purchased by the Fund will not contain non-appropriation
clauses; municipal notes and tax-exempt commercial paper;
serial bonds; tax anticipation notes sold to finance working
capital needs of municipalities; bond anticipation notes sold
in anticipation of the issuance of long-term bonds;
pre-refunded municipal bonds whose timely payment of interest
and principal is ensured by an escrow of U.S. government
obligations; and general obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from
another financial institution irrevocable letters of credit
or guarantees and give the Fund the right to demand payment
of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the
market value of municipal securities from their original
purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities
than for fixed income obligations. Many municipal securities
with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days)
on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest
from the issuer of the municipal obligations, the issuer of
the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided
proportional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease
payments as they became due. In the event of a default or
failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of
payment. In determining the liquidity of municipal lease
securities, the investment adviser, under the authority
delegated by the Trustees, will base its determination on the
following factors:
o whether the lease can be terminated by the lessee:
the potential recovery, if any, from a sale of the leased
property upon termination of the lease;
o the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics
and prospects);
o the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for
an "event of non-appropriation "); and
o any credit enhancement or legal recourse provided upon an
event of non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
FUTURES TRANSACTIONS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future. In the
fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to purchase
securities in the future at a predetermined price (i.e., "go long") to
hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in MUNICIPAL SECURITIES, cash or cash
equivalents with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value ("NAV"), the Fund will mark-to-market its open futures
positions.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of
unusual market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions
sell U.S. government securities or certificates of deposit to
the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price within one year from
the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase
agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund believes that under the regular procedures normally
in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may
only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers
which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the
Trustees.
From time to time, such as when suitable Ohio municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount
of assets in Ohio municipal bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of
the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to
be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets
of the Fund, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated on the
Fund's records at the trade date. These assets are marked to
market daily and are maintained until the transaction is
settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual
portfolio turnover rate exceeding 100%. For the fiscal years ended
August 31, 1997 and 1996, the portfolio turnover rates were 38% and
11%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, but
only to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value
not exceeding 10% of the value of its total assets at the
time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except
as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate although it may
invest in municipal bonds secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity
contracts, or commodities futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
net assets in securities subject to restrictions on resale under the
Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may
acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and
limitations or its Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would
be invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid
from revenues of similar types of projects. However, the Fund
may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be
changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation, or other
acquisition.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, and certain
restricted securities.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restrictions.
For purposes of its policies and limitations, the Fund
considers certificates of deposit and demand and time deposits
issued by a U.S. branch of a domestic bank or savings
association having capital, surplus, and undivided profits in
excess of $100,000,000 ("bank cash items") at the time of
investment to be included in "cash items." However, the Fund
does not intend to exceed its concentration limitation with
respect to bank cash items.
OHIO INVESTMENT RISKS
The economy of the state of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment,
steel, rubber products and household appliances. During the past
decade, competition in various industries in the state of Ohio has
changed from being domestic to international in nature. In addition,
these industries may be characterized as having excess capacity in
particular product segments. The steel industry, in particular, and
the automobile industry, to a lesser extent, share these
characteristics. Because the state of Ohio and certain underlying
municipalities have large exposure to these industries and their
respective aftermarkets, trends in these industries may, over the long
term, impact the demographic and financial position of the state of
Ohio and its municipalities. To the degree that domestic manufacturers
in industries to which Ohio municipalities have exposure fail to make
competitive adjustments, employment statistics and disposable income
of residents in Ohio may deteriorate, possibly leading to population
declines and erosion of municipality tax bases. Both the economic
trends above and the political climate in various municipalities may
have contributed to the decisions of various businesses and
individuals to relocate outside the state. A municipality's political
climate, in particular, may affect its own credit standing. For both
the state of Ohio and underlying Ohio municipalities, adjustment of
credit ratings by the rating agencies may affect the ability to issue
securities and thereby affect the supply of obligations meeting the
quality standards for investment by the Fund. As a result of the most
recent recession, the state fully depleted the budget stabilization
fund that exceeded $300 million. The state acted promptly in
addressing the fall in revenue with an expansion of the sales tax and
cuts in appropriations. As a result of prudent financial management,
the state restored the budget stabilization fund in fiscal 1993.
Strong performance in fiscal 1994, 1995, and 1996 resulted in reserve
levels that were well above the levels of 1990. Ohio's budget
stabilization fund is now above $828 million. The state has relatively
modest debt outstanding as compared to its economic base. Economic
restructuring continues as the state's traditional manufacturing
sectors are gradually replaced by trade and service sectors. This
transformation will reduce the state's sensitivity to economic cycles.
The state has established procedures for municipal fiscal emergencies
under which joint state/local commissions are established to monitor
the fiscal affairs of a financially troubled municipality. When these
procedures are invoked, the municipality must develop a financial plan
to eliminate deficits and cure any defaults. Since their adoption in
1979, these procedures have been applied to approximately twenty-one
cities and villages, including the City of Cleveland; in sixteen of
these communities, the fiscal situation has been resolved and the
procedures terminated. The foregoing discussion only highlights some
of the significant financial trends and problems affecting the state
of Ohio and underlying municipalities.
Municipal Securities Income Trust Management
Officers and Trustees are listed with their addresses, birthdates,
present positions with Municipal Securities Income Trust, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President and Trustee of the
Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior
Vice-President, John R. Wood and Associates, Inc., Realtors; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.
<PAGE>
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.
<PAGE>
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Retired from the law firm of Miller, Ament, Henny & Kochuba; Director
or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica & Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or
Trustee of the Funds.
<PAGE>
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman
and Director, Federated Securities Corp.; President or Vice President
of some of the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
<PAGE>
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 6, 1997, the following shareholder of record owned 5% or
more of the outstanding Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, owned approximately 2,074,679
Shares (31.84%).
TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>
John F. Donahue $ -0- $ -0- for the Trust and
Trustee and Chairman 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Trust and
Trustee and Executive 18 other investment companies in the Fund Complex
Vice President
James E. Dowd $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended August 31, 1997.
# The aggregate compensation is provided for the Trust which is
comprised of five portfolios.
The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees
of which are John F. Donahue, his wife, and his son, J. Christopher
Donahue.
The Adviser shall not be liable to the Trust, the Fund or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years
ended August 31, 1997, 1996, and 1995, the Adviser earned $277,606,
$285,381, and $291,144, respectively, of which $230,268, $233,662, and
$256,279, were voluntarily waived.
Other Services
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
as described in the prospectus. From March 1, 1994, to March 1, 1996,
Federated Administrative Services served as the Fund's Administrator.
For purposes of this Statement of Additional Information, Federated
Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal
years ended August 31, 1997, 1996, and 1995, the Administrators
collectively earned $125,000, $125,000, and $125,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston, MA,
is custodian for the securities and cash of the Fund. Federated
Services Company, Pittsburgh, PA, provides certain accounting and
recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished
directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or by its
affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine
in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services
provided. During the fiscal years ended August 31, 1997, 1996, and
1995, the Fund paid no brokerage commissions. Although investment
decisions for the Fund are made independently from those of the other
accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest
in, or desire to dispose of, the same security, available investments
or opportunities for sales will be allocated in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares
are sold at their NAV plus a sales charge on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the prospectus under "Investing in the Fund" and
"Purchasing Shares."
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, there is no sales charge for
purchases of $1 million or more. The Fund will combine purchases made
on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge.
If an additional purchase of Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $900,000 and purchases $100,000 more at the current
public offering price, there will be no sales charge on the additional
purchase.
The Fund will also combine purchases for the purpose of reducing the
contingent deferred sales charge imposed on Share redemptions. For
example, if a shareholder already owns Shares having current value at
the public offering price of $1 million and purchases an additional $1
million at the current public offering price, the applicable
contingent deferred sales charge would be reduced to 0.50% of those
additional Shares.
To receive the sales charge elimination and/or contingent deferred
sales charge reduction, Federated Securities Corp. must be notified by
the shareholder in writing or by their financial intermediary at the
time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will eliminate the sales charge
and/or reduce the contingent deferred sales charge after it confirms
the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge elimination, a
shareholder has the privilege of combining concurrent purchases of
Class F Shares of two or more funds for which affiliates of Federated
Investors serve as investment adviser and principal underwriter, the
purchase prices of which include a sales charge. For example, if a
shareholder concurrently invested $400,000 in Class F Shares of one of
the other Federated Funds and $600,000 in Shares, the sales charge
would be eliminated.
To receive this sales charge elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by their financial
intermediary at the time the concurrent purchases are made. The Fund
will eliminate the sales charge after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $1 million of Class F
Shares of Federated Funds (excluding money market funds) over the next
13 months, the sales charge may be eliminated by signing a letter of
intent to that effect. This letter of intent includes a provision for
a sales charge elimination depending on the amount actually purchased
within the 13-month period and a provision for the custodian to hold
up to 1.00% of the total amount intended to be purchased in escrow (in
Shares) until such purchase is completed.
The 1.00% held in escrow will be applied to the shareholder's
account at the end of the 13-month period unless the amount specified
in the letter of intent, which must be $1 million or more of Shares,
is not purchased. In this event, an appropriate number of escrowed
Shares may be redeemed in order to realize the 1.00% sales charge.
The letter of intent also includes a provision for reductions in the
contingent deferred sales charge and holding period depending on the
amount actually purchased within the 13-month period.
While this letter of intent will not obligate the shareholder to
purchase Class F Shares, each purchase during the period will be at
the sales charge applicable to the total amount intended to be
purchased. At the time a letter of intent is established, current
balances in accounts in any Class F Shares of any Federated Funds,
excluding money market accounts, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. The
letter may be dated as of a prior date to include any purchase made
within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Shares have been redeemed, the shareholder has the privilege,
within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge and would not
be entitled to a reimbursement of the contingent deferred sales charge
if paid at the time of redemption. However, such reinvested shares
would not be subject to a contingent deferred sales charge upon later
redemption. In addition, if Shares were reinvested through a financial
intermediary, the financial intermediary would not be entitled to an
advanced payment from Federated Securities Corp. on the reinvested
Shares. Federated Securities Corp. must be notified by the shareholder
in writing or by their financial intermediary of the reinvestment in
order to eliminate a sales charge or a contingent deferred sales
charge. If the shareholder redeems Shares in the Fund, there may be
tax consequences.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
The following individuals and their immediate family members may buy
Shares at net asset value without a sales charge:
o Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. and its affiliates; and
o any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp. Shares may also be sold without a
sales charge to trusts, pensions, or profit-sharing plans for these
individuals.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not
be resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
The Fund's net asset value per Share fluctuates and is based on the
market value of all securities and other assets of the Fund.
Net asset value is not determined on (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities
that its net asset value might be materially affected; (ii) days
during which no Shares are tendered for redemption and no orders to
purchase Shares are received; or (iii) the following holidays: New
Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the
market value of municipal bonds. The independent pricing service takes
into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors
or market data it considers relevant in determining valuations for
normal institutional size trading units of debt securities, and does
not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60
days or less at the time of purchase, shall be their amortized cost
value, unless the particular circumstances of the security indicate
otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium
or accumulation of discount rather than at current market value. The
Executive Committee continually assesses this method of valuation and
recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith
by the Trustees.
REDEEMING SHARES
The Fund redeems Shares at the next computed NAV after the Fund
receives the redemption request. Shareholder redemptions may be
subject to a contingent deferred sales charge. Redemption procedures
are explained in the prospectus under "Redeeming and Exchanging
Shares." Although the transfer agent does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire- transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000
or 1% of the NAV of the respective class, NAV whichever is less, for
any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the
Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Trust
will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way that NAV is determined.
The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their securities
and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain
transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable contingent deferred sales
charge for accounts with Shares subject to a single holding period, if
any, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Share purchases occurring prior to the
number of years necessary to satisfy the applicable holding period;
and (3) Share purchases occurring within the current holding period.
For accounts with Shares subject to multiple Share holding periods,
the redemption sequence will be determined first, with reinvested
dividends and long-term capital gains, and second on a first-in,
first-out basis.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for acts or obligations of
the Trust on behalf of the Fund. To protect shareholders of the Fund,
the Trust has filed legal documents with Massachusetts that expressly
disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Fund.
In the unlikely event a shareholder of the Fund is held personally
liable for the Trust's obligations on behalf of the Fund, the Trust is
required to use the property of the Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial
loss resulting from liability as a shareholder of the Fund will occur
only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the
Fund.
<PAGE>
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive
the special tax treatment afforded to such companies. To qualify for
this treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the
sale of portfolio securities and as a result of discounts from par
value on securities held to maturity. Sales would generally be made
because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned Shares. Any loss by a shareholder on
Shares held for less than six months and sold after a capital gains
distribution will be treated as a long-term capital loss to the extent
of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for the one-year and
five-year periods ended August 31, 1997, and for the period from
October 12, 1990 (date of initial public investment) to August 31,
1997, were 6.27%, 6.35%, and 7.64%, respectively.
The average annual total return for the Shares of the Fund is the
average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of shares owned at the end of the period by the offering price
per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional Shares, assuming a monthly
reinvestment of all dividends and distributions. Any applicable
contingent deferred sales charge will be deducted from the ending
value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed.
<PAGE>
YIELD
The Fund's yield for the 30-day period ended August 31, 1997 was
4.46%.
The yield for the Fund is determined by dividing the net investment
income per Share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share of the Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty day period
is assumed to be generated each month over a twelve-month period and
is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may
not correlate to the dividends or other distributions paid to
shareholders. To the extent that financial institutions and
broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Fund, performance will be
reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the 30-day period ended August 31,
1997 was 6.19%.
The tax-equivalent yield for Shares of the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield
that either class would have had to earn to equal its actual yield,
assuming a 28% tax rate and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the
Fund's portfolio generally remains free from federal regular income
tax* and is free from the income taxes imposed by the state of Ohio.
As the table below indicates, a "tax-free" investment is an attractive
choice for investors, particularly in times of narrow spreads between
"tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF OHIO 10.53%
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C> <C>
COMBINED FEDERAL AND STATE TAX BRACKET:
19.857% 34.444% 37.444% 43.004% 46.604%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.87% 2.29% 2.40% 2.63% 2.81%
2.00% 2.50% 3.05% 3.20% 3.51% 3.75%
2.50% 3.12% 3.81% 4.00% 4.39% 4.68%
3.00% 3.74% 4.58% 4.80% 5.26% 5.62%
3.50% 4.37% 5.34% 5.59% 6.14% 6.55%
4.00% 4.99% 6.10% 6.39% 7.02% 7.49%
4.50% 5.61% 6.86% 7.19% 7.90% 8.43%
5.00% 6.24% 7.63% 7.99% 8.77% 9.36%
5.50% 6.86% 8.39% 8.79% 9.65% 10.30%
6.00% 7.49% 9.15% 9.59% 10.53% 11.24%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were
not used to increase federal deductions. The chart above is for
illustrative purposes only. It is not an indicator of past or
future performance of Fund Shares.
*Some portion of the Fund's income may be subject to the
federal alternative minimum tax and state and local income taxes.
<PAGE>
PERFORMANCE COMPARISONS
The performance of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation
of yield and total return.
Investors may use financial publications and/or indices to obtain a
more complete view of the Fund's performance. When comparing
performance, investors should consider all relevant factors such as
the composition of any index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may
include:
o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance
benchmark for the long-term, investment grade, revenue bond
market. Returns and attributes for the index are calculated
semi-monthly.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in offering price over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "general
municipal bond funds" category in advertising and sales
literature.
o MORNINGSTAR, INC., an independent rating service, is the
publisher of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES
rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These
total returns represent the historic change in the value of an
investment in shares based on monthly reinvestment of dividends over a
specified period of time.
Advertisements may quote performance information which does not
reflect the effect of the sales charge.
Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in
general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their
views and analysis on how such developments could affect the Funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.
<PAGE>
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making--structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual
funds in the industry and is now one of the largest institutional
buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers
Union regarding the tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through it subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance companies, and
investment and financial advisors.
The marketing effort to theses institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide - we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country - supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
rankings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
*source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS SERVICES ("S&P") MUNICIPAL BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small
degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
Plus (+) OR minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2
and 3 in each generic rating classification from Aa through B in its
generic rating category; the modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, L.P. ("FITCH") LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB--Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) OR minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "AAA"
category.
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity
support or demonstrated broad based access to the market for
refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the F-1+ and F-1 categories.
STANDARD & POOR'S RATINGS SERVICES COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
for issues designated "A-1."
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate
liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Federated Pennsylvania Municipal Income Fund
(A Portfolio of Municipal Securities Income Trust)
Class A Shares, Class B Shares
PROSPECTUS
The shares of Federated Pennsylvania Municipal Income Fund (the
"Fund") offered by this prospectus represent interests in a
non-diversified portfolio of securities which is one of a series of
investment portfolios in Municipal Securities Income Trust (the
"Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income
which is exempt from federal regular income tax and the personal
income taxes imposed by the Commonwealth of Pennsylvania. The Fund
invests primarily in a portfolio of municipal securities which are
exempt from federal regular income tax and Pennsylvania state and
local income tax ("Pennsylvania Municipal Securities"). These
securities include those issued by or on behalf of the Commonwealth of
Pennsylvania and Pennsylvania municipalities, as well as those issued
by states, territories and possessions of the United States which are
exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania and Pennsylvania
municipalities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN CLASS A
SHARES OR CLASS B SHARES INVOLVES INVESTMENT RISKS INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information, dated
October 31, 1997, with the Securities and Exchange Commission ("SEC").
The information contained in the Statement of Additional Information
is incorporated by reference into this prospectus. You may request a
copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically,
free of charge by calling 1-800-341-7400. To obtain other information
or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated October 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses-- Class A Shares................................... 1
Summary of Fund Expenses-- Class B Shares................................... 2
Financial Highlights -- Class A Shares...................................... 3
General Information......................................................... 4
Call the Fund.............................................................. 4
Investment Information...................................................... 4
Investment Objective....................................................... 4
Investment Policies........................................................ 4
Pennsylvania Municipal Securities.......................................... 6
Investment Risks........................................................... 7
Non-Diversification........................................................ 7
Investment Limitations..................................................... 7
Expenses of the Fund........................................................ 7
Net Asset Value............................................................. 8
Investing in the Fund....................................................... 8
Purchasing Shares........................................................... 9
Purchasing Shares through a
Financial Intermediary..................................................... 9
Purchasing Shares by Wire.................................................. 9
Purchasing Shares by Check................................................. 9
Systematic Investment Program.............................................. 9
Class A Shares............................................................. 9
Class B Shares............................................................. 10
Redeeming and Exchanging Shares............................................. 10
Redeeming or Exchanging Shares Through a
Financial Intermediary..................................................... 10
Redeeming or Exchanging Shares by Telephone................................ 10
Redeeming or Exchanging Shares by Mail..................................... 11
Requirements for Redemption................................................ 11
Requirements for Exchange.................................................. 11
Systematic Withdrawal Program.............................................. 11
Contingent Deferred Sales Charge........................................... 11
Account and Share Information............................................... 12
Confirmations and Account Statements....................................... 12
Dividends and Distributions................................................ 12
Accounts with Low Balances................................................. 12
Shareholder Information..................................................... 12
Trust Information........................................................... 13
Management of the Trust.................................................... 13
Distribution of Shares..................................................... 13
Administration of the Fund................................................. 14
Shareholder Information..................................................... 15
Voting Rights.............................................................. 15
Tax Information............................................................. 15
Federal Income Tax......................................................... 15
State and Local Taxes...................................................... 15
Performance Information..................................................... 16
Financial Highlights -- Class B Shares...................................... 17
Financial Statements........................................................ 18
Independent Auditors' Report................................................ 33
Addresses.............................................................Back Cover
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................... 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)............................................................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)........................................................................... 0.20%
12b-1 Fee (2)............................................................................................... 0.00%
Total Other Expenses........................................................................................ 0.55%
Shareholder Services Fee (after waiver) (3)....................................................... 0.23%
Total Operating Expenses (4)............................................................................ 0.75%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary
waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%
(2) The Class A Shares has no present intention of paying or accruing
the 12b-1 fee during the fiscal year ending August 31, 1998. 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. For more information, see "Trust Information."
(3) The shareholder services fee has been reduced to reflect the
voluntary waiver of a portion of the shareholder services fee. The
shareholder services provider can terminate this voluntary waiver
at any time at its sole discretion. The maximum shareholder
services fee is 0.25%
(4) The total operating expenses would have been 0.97% absent the
voluntary waivers of portions of the management fee and
shareholder services fee.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of Class A Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in
Class A Shares" and "Trust Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return; (2) redemption at the end of each time period;
and (3) payment of the maximum sales charge:
<TABLE>
<S> <C>
1 year.............. $ 52%
3 years............. $ 68%
5 years............. $ 85%
10 years............ $134%
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)............................................................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................ 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
<S> <C> <C>
Management Fee (after waiver) (2)........................................................................... 0.20%
12b-1 Fee................................................................................................... 0.75%
Total Other Expenses........................................................................................ 0.57%
Shareholder Services Fee......................................................................... 0.25%
Total Operating Expenses (3) (4)........................................................................ 1.52%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (For more information, see
"Contingent Deferred Sales Charge.")
(2) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee.
The advisor can terminate this voluntary waiver at any time at its
sole discretion. The maximum management fee is 0.40%.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4) The total operating expenses in the table above are based on
expenses expected during the fiscal year ending August 31, 1998.
The total operating expenses were 1.25% for the fiscal year ended
August 31, 1997, and would have been 1.72% absent the anticipated
voluntary waivers of portions of the management fee, 12b-1 fee,
and shareholder services fee.
. Total Class B Shares operating expenses are estimated based on
average expenses expected to be incurred during the period ending
August 31, 1998. During the course of this period, expenses may be
more or less than the average amount shown.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of Class B Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in
Class B Shares" and "Trust Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period;
and
(3) payment of the maximum sales charge....................................... $72 $92 $107 $160
You would pay the following expenses on the same investment,
assuming no redemption........................................................ $15 $48 $ 83 $160
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 11.35 $ 11.23 $ 10.94 $ 11.68 $ 10.93 $ 10.44 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.62 0.65 0.65 0.60 0.60 0.627 0.588
Net realized and
unrealized gain
(loss) on investments 0.39 0.12 0.27 (0.75) 0.75 0.493 0.456
Total from investment
operations 1.01 0.77 0.92 (0.15) 1.35 1.120 1.044
LESS DISTRIBUTIONS
Distributions from net
investment
income (0.65) (0.65) (0.63) (0.59) (0.60) (0.627) (0.588)
Distributions in excess
of net
investment income -- -- -- -- -- (0.003)(b) (0.016)(b)
Total distributions (0.65) (0.65) (0.63) (0.59) (0.60) (0.630) (0.604)
NET ASSET VALUE, END OF
PERIOD $ 11.71 $ 11.35 $ 11.23 $ 10.94 $ 11.68 $ 10.93 $ 10.44
TOTAL RETURN (C) 9.12% 6.99% 8.76% (1.34%) 12.71% 11.06% 10.60%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.75% 0.75% 0.75% 0.75% 0.83% 0.73% 0.26%*
Net investment income 5.34% 5.73% 5.92% 5.27% 5.33% 5.88% 6.45%*
Expense
waiver/reimbursement (d) 0.22% 0.25% 0.28% 0.45% 0.70% 0.97% 1.24%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $212,792 $84,116 $83,722 $85,860 $69,947 $48,261 $31,067
Portfolio turnover 30% 23% 59% 17% 0% 0% 10%
</TABLE>
. Computed on an annualized basis.
(a) Reflects operations for the period from October 11, 1990 (date of
initial public investment) to August 31, 1991.
(b) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust on August
6, 1990. Class A Shares and Class B Shares of the Fund ("Shares") are
designed for customers of financial institutions such as
broker/dealers, banks, fiduciaries, and investment advisers as a
convenient means of accumulating an interest in a professionally
managed, non-diversified portfolio of Pennsylvania Municipal
Securities. The Fund is not likely to be a suitable investment for
non- Pennsylvania taxpayers or retirement plans since Pennsylvania
Municipal Securities are not likely to produce competitive after-tax
yields for such persons and entities when compared to other
investments.
The Fund's current net asset value ("NAV") and offering price may be
found in the mutual funds section of newspapers under "Federated" and
the appropriate class designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income
which is exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax) and
the personal income taxes imposed by the Commonwealth of Pennsylvania.
The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
The Fund invests its assets so at least 80% of its annual interest
income is exempt from federal regular income tax and the Commonwealth
of Pennsylvania personal income taxes. Interest income of the Fund
that is exempt from the income taxes described above retains its
exempt status when distributed to the Fund's shareholders. However,
income distributed by the Fund may not necessarily be exempt from
state or municipal taxes in states other than Pennsylvania.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio
of Pennsylvania Municipal Securities. Unless indicated otherwise, the
investment policies of the Fund may be changed by the Trustees without
approval of shareholders. Shareholders will be notified before any
material changes in these policies become effective.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include:
. obligations issued by or on behalf of the Commonwealth of Pennsylvania, its
political subdivisions, or agencies;
. debt obligations of any state, territory, or possession of the United States,
or any political subdivision of any of these; and
. participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Fund
and/or the investment adviser to the Fund, exempt from both federal
regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania. At least 80% of the value of the
Fund's total assets will be invested in Pennsylvania Municipal
Securities.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
CHARACTERISTICS
The municipal securities which the Fund buys are investment grade
bonds rated Aaa, Aa, A, or Baa by Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A, or BBB by Standard & Poor's Ratings
Services ("S&P") or Fitch Investors Service, L.P. ("Fitch"). In
certain cases the Fund's investment adviser may choose bonds which are
unrated if it determines that such bonds are of comparable quality or
have similar characteristics to the investment grade bonds described
above. If the Fund purchases an investment grade bond, and the rating
of such bond is subsequently downgraded so that the bond is no longer
classified as investment grade, the Fund is not required to drop the
bond from the portfolio, but will consider whether such action is
appropriate. Bonds rated "BBB" by S&P or Fitch or "Baa" by Moody's
have speculative characteristics. Changes in economic or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than higher rated bonds. A description
of the rating categories is contained in the Appendix to the Statement
of Additional Information.
PARTICIPATION INTERESTS
The Fund may purchase participation interests from financial
institutions such as commercial banks, savings associations, and
insurance companies. These participation interests give the Fund an
undivided interest in Pennsylvania Municipal Securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or
guarantees to assure that the participation interests are of high
quality. The Trustees will determine that participation interests meet
the prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES
Some of the Pennsylvania Municipal Securities which the Fund purchases
may have variable interest rates. Variable interest rates are
ordinarily based on a published interest rate, interest rate index, or
a similar standard, such as the 91-day U.S. Treasury bill rate. Many
variable rate municipal securities are subject to payment of principal
on demand by the Fund in not more than seven days. All variable rate
municipal securities will meet the quality standards for the Fund. The
Fund's investment adviser has been instructed by the Trustees to
monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the
Fund on the basis of published financial information and reports of
the rating agencies and other analytical services.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities
and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract
or a participation certificate on any of the above. Lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced,
it is unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
RESTRICTED AND ILLIQUID SECURITIES
As a matter of fundamental investment policy, the Fund may invest up
to 10% of its total assets in restricted securities. Restricted
securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies but which are
subject to restriction upon resale under federal securities laws. As a
matter of non-fundamental investment policy, the Fund will limit
investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, to 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete the transaction may cause the Fund to
miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase
prices.
The Fund may dispose of a commitment prior to settlement if the
investment adviser deems it appropriate to do so. In addition, the
Fund may enter in transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire
other commitments to purchase similar securities at later dates. The
Fund may realize short-term profits or losses upon the sale of such
commitments.
INVERSE FLOATERS
The Fund may invest in securities known as "inverse floaters" which
represent interests in municipal securities. The Fund intends to
purchase inverse floaters to assist in duration management and to seek
current income. These obligations pay interest rates that vary
inversely with changes in the interest rates of specified short-term
municipal securities or an index of short-term municipal securities.
The interest rates on inverse floaters will typically decline as
short-term market interest rates increase and increase as short-term
market rates decline. Inverse floaters will generally respond to
changes in market interest rates more rapidly than fixed-rate
long-term securities (typically twice as fast). As a result, the
market values of inverse floaters will generally be more volatile than
the market values of fixed-rate municipal securities. Typically, the
portion of the portfolio invested in inverse floaters will be subject
to additional volatility.
FINANCIAL FUTURES
The Fund may purchase and sell interest rate and index financial
futures contracts. These financial futures contracts may be used to
hedge all or a portion of its portfolio against changes in the market
value of portfolio securities and interest rates, provide additional
liquidity, and accomplish its current strategies in a more expeditious
fashion. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
As a matter of investment policy, which may be changed without
shareholder approval, the Fund may not purchase or sell futures
contracts if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5% of
the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of municipal securities, cash or cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if
legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures, there is a risk that the prices
of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the futures
contract. It is not certain that a secondary market for positions in
futures contracts will exist at all times. Although the investment
adviser will consider liquidity before entering into futures
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract at any particular time. The Fund's ability to establish and
close out futures positions depends on this secondary market.
TEMPORARY INVESTMENTS
The Fund invests its assets so that at least 80% of its annual
interest income is exempt from federal regular income tax and the
Commonwealth of Pennsylvania personal income taxes. However, from time
to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in
short-term non-Pennsylvania municipal tax-exempt obligations or
taxable temporary investments. These temporary investments include:
notes issued by or on behalf of municipal or corporate issuers;
obligations issued or guaranteed by the U.S. government, its agencies,
or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements
(arrangements in which the organization selling the Fund, a bond or
temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments.
However, the investment adviser will limit temporary investments to
those rated within the investment grade categories described under
"Acceptable Investments -- Characteristics" (if rated) or those which
the investment adviser judges to have the same characteristics as such
investment grade securities (if unrated).
Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
regular income tax or the Commonwealth of Pennsylvania personal income
taxes.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania Municipal Securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and sewer
works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other
public institutions and facilities.
Pennsylvania Municipal Securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid
to acquire sites or construct and equip facilities for privately or
publicly owned corporations. The availability of this financing
encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. However, interest on and
principal of revenue bonds are payable only from the revenue generated
by the facility financed by the bond or other specified sources of
revenue. Revenue bonds do not represent a pledge of credit or create
any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of
factors, including, but not limited to: the general conditions of the
municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any
adverse economic conditions or developments affecting the Commonwealth
of Pennsylvania or its municipalities could impact the Fund's
portfolio. The ability of the Fund to achieve its investment objective
also depends on the continuing ability of the issuers of Pennsylvania
Municipal Securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and
principal when due. Investing in Pennsylvania Municipal Securities
which meet the Fund's quality standards may not be possible if the
Commonwealth of Pennsylvania or its municipalities do not maintain
their current credit ratings. In addition, certain Pennsylvania
constitutional amendments, legislative measures, executive orders,
administrative regulations, and voter initiatives could result in
adverse consequences affecting Pennsylvania Municipal Securities.
A further discussion of the risks of a portfolio which invests largely
in Pennsylvania Municipal Securities is contained in the Statement of
Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is
no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified portfolio of securities
because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the Fund's
portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would
be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). This undertaking requires that
at the end of each quarter of the taxable year: (a) with regard to at
least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the
sxsecurities of a single issuer and (b) no more than 25% of its total
assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy
it back on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of total assets to
secure such borrowings.
The above investment limitations cannot be changed without shareholder approval.
EXPENSES OF THE FUND
Holders of Shares pay their allocable portion of Trust and portfolio
expenses.
The Trust expenses for which holders of Shares pay their allocable
portion include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust with federal
and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association
membership dues; and such non-recurring and extraordinary items as may
arise from time to time.
The portfolio expenses for which holders of Shares pay their allocable
portion include, but are not limited to: registering the portfolio and
Shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and
such non-recurring and extra-ordinary items as may arise from time to
time.
At present, the only expenses which are allocated specifically to
Class A Shares as a class are expenses under the Trust's Shareholder
Services Agreement, and the only expenses which are allocated
specifically to Class B Shares as a class are expenses under the
Trust's Shareholder Services Agreement and Distribution Plan. However,
the Trustees reserve the right to allocate certain other expenses to
holders of Shares as they deem appropriate ("Class Expenses"). In any
case, Class Expenses would be limited to: distribution fees; transfer
agent fees as identified by the transfer agent as attributable to
holders of Shares; fees under the Trust's Shareholder Services
Agreement; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and
proxies to current shareholders; registration fees paid to the SEC and
to state securities commissions; expenses related to administrative
personnel and services as required to support holders of Shares; legal
fees relating solely to Shares; and Trustees' fees incurred as a
result of issues relating solely to Shares. NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The NAV for each class
of Shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund.
The NAV is determined as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers two classes of Shares each with the
characteristics described below.
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Minimum and Subsequent $500/$100 $1500/$100
Investment Amounts
Minimum and Subsequent Investment $50 $50
Amount for Retirement Plans
Maximum Sales Charge 4.50%* None
Maximum Contingent Deferred None 5.50%+
Sales Charge**
Conversion Feature No Yes++
</TABLE>
* Class A Shares are sold at NAV, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Public Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>
** Computed on the lesser of the NAV of the redeemed Shares at the
time of purchase or the NAV of the redeemed Shares at the time of
redemption.
+ The following contingent deferred sales charge schedule applies to
Class B Shares:
<TABLE>
<CAPTION>
Year of Redemption Contingent Deferred
After Purchase Sales Charge
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
++ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B
Shares."
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased as described
below, either through a financial intermediary (such as a bank or
broker/dealer) or by sending a wire or check directly to the Fund.
Financial intermediaries may impose different minimum investment
requirements on their customers. An account must be established with a
financial intermediary or by completing, signing, and returning the
new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed
by affiliates of Federated Investors ("Federated Funds") may exchange
their shares for Shares of the corresponding class of the Fund. The
Fund reserves the right to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time
to time, offer certain items of nominal value to any shareholder or
investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received
when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m.
(Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial intermediary's responsibility to
transmit orders promptly. Financial intermediaries may charge fees for
their services.
The financial intermediary which maintains investor accounts in Class
B Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the
contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial
intermediaries may be subject to reclaim by the distributor for
accounts transferred to financial intermediaries which do not maintain
investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund.
All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by
wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA
02266-8600; Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund
Class); (Fund Number -- this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on
holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of
the Fund (designate class of Shares and account number) to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the
check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House
("ACH") member and invested in the Fund. Shareholders should contact
their financial intermediary or the Fund to participate in this
program.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
. through financial intermediaries that do not receive sales charge dealer
concessions;
. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or
. through "wrap accounts" or similar programs under which clients pay a fee for
services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";
. combining concurrent purchases of two or more funds;
. signing a letter of intent to purchase a specific quantity of shares within
13 months; or
. using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for
details on these programs. In order to eliminate the sales charge or
receive sales charge reductions, Federated Securities Corp. must be
notified by the shareholder in writing or by a financial intermediary
at the time of purchase.
DEALER CONCESSION
For sales of Class A Shares, the distributor will normally offer to
pay a dealer up to 90% of the applicable sales charge. Any portion of
the sales charge which is not paid to a dealer will be retained by the
distributor. However, the distributor may offer to pay dealers up to
100% of the sales charge retained by it. Such payments may take the
form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers
whose employees have sold or may sell a significant amount of Class A
Shares. On purchases of $1 million or more, the investor pays no sales
charge; however, the distributor will make twelve monthly payments to
the dealer totaling 0.25% of the public offering price over the first
year following the purchase. Such payments are based on the original
purchase price of Class A Shares outstanding at each month end.
Federated Securities Corp. may pay fees to banks out of the sales
charge in exchange for sales and/or administrative services performed
on behalf of the bank's customers in connection with the establishment
of customer accounts and purchases of Class A Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a
contingent deferred sales charge will be assessed at the time of a
redemption. Orders for $250,000 or more of Class B Shares will
automatically be invested in Class A Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after
eight full years from the purchase date. Such conversion will be on
the basis of the relative NAVs per Share, without the imposition of
any charges. Class B Shares acquired by exchange from Class B Shares
of another Federated Fund will convert into Class A Shares based on
the time of the initial purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of
the same class of other Federated Funds on days on which the Fund
computes its NAV. Shares are redeemed at NAV less any applicable
contingent deferred sales charge. Exchanges are made at NAV.
Shareholders who desire to automatically exchange Shares, of a like
class, in a pre-determined amount on a monthly, quarterly, or annual
basis may take advantage of a systematic exchange privilege.
Information on this privilege is available from the Fund or your
financial intermediary. Depending upon the circumstances, a capital
gain or loss may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your
financial intermediary before 4:00 p.m. (Eastern time). In order for
these transactions to be processed at that day's NAV, financial
intermediaries (other than broker/dealers) must transmit the request
to the Fund before 4:00 p.m. (Eastern time), while broker/dealers must
transmit the request to the Fund before 5:00 p.m. (Eastern time). The
financial intermediary is responsible for promptly submitting
transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial
intermediary for this service. Appropriate authorization forms for
these transactions must be on file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount,
or exchanged, by calling 1-800-341-7400. Appropriate authorization
forms for these transactions must be on file with the Fund. Shares
held in certificate form must first be returned to the Fund as
described in the instructions under "Redeeming or Exchanging Shares by
Mail." Redemption proceeds will either be mailed in the form of a
check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. The minimum amount for a wire
transfer is $1,000, normally within one business day, but in no event
more than seven days, after the redemption request. Proceeds from
redeemed Shares purchased by check or through ACH will not be wired
until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming or
Exchanging Shares By Mail" should be considered. The telephone
transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a
written request to: Federated Shareholder Services Company, Fund Name,
Share Class, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they must accompany the written
request. It is recommended that certificates be sent unendorsed by
registered or certified mail.
All written requests should state: Fund Name and the Share Class name;
the account name as registered with the Fund; the account number; and
the number of Shares to be redeemed or the dollar amount of the
transaction. An exchange request should also state the name of the
Fund into which the exchange is to be made. All owners of the account
must sign the request exactly as the Shares are registered. A check
for redemption proceeds is normally mailed within one business day,
but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the
day that a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption
payable other than to the shareholder of record, must have their
signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization
which is administered by the Federal Deposit Insurance Corporation; a
member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary
public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum
investment requirements of the fund into which the exchange is being
made. Contact your financial intermediary directly or the Fund for
free information on, and prospectuses for, the Federated Funds into
which your Shares may be exchanged. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and proceeds invested in
the same class of shares of the other fund. Signature guarantees will
be required to exchange between fund accounts not having identical
shareholder registrations. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder. To be
eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for
participation in this program through his financial intermediary or by
calling the Fund.
Because participation in this program may reduce, and eventually
deplete the shareholder's investment in the Fund, payments under this
program should not be considered as yield or income. It is not
advisable for shareholders to continue to purchase Class A Shares
subject to a sales charge while participating in this program. A
contingent deferred sales charge may be imposed on Class B Shares.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the distributor. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. The contingent deferred
sales charge will not be imposed with respect to Shares acquired
through the reinvestment of dividends or distributions of long-term
capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares
received through an exchange will include the period for which your
original Shares were held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:
. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. which are reinvested in the Fund under the reinvestment privilege;
. of Shares held by Trustees, employees and sales representatives of
the Fund, the distributor, or affiliates of the Fund or
distributor, employees of any financial intermediary that sells
Shares of the Fund pursuant to a sales agreement with the
distributor, and their immediate family members to the extent that
no payments were advanced for purchases made by these persons; and
. of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of
1940 or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp.
or its affiliates, or any other financial intermediary, to the
extent that no payments were advanced for purchases made through
such entities.
For more information regarding the elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, or any
of the above provisions, contact your financial intermediary or the
Fund. The Fund reserves the right to discontinue or modify these
provisions. Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions
(except for systematic program transactions). In addition,
shareholders will receive periodic statements reporting all account
activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested
in the Fund on the record date. Net long-term capital gains realized
by the Fund, if any, will be distributed at least once every twelve
months. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date
without a sales charge, unless shareholders request cash payments on
the new account form or by contacting the transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may close an account by redeeming all Shares and paying the
proceeds to the shareholder if the account balance falls below the
applicable minimum investment amount. Retirement plan accounts and
accounts where the balance falls below the minimum due to NAV changes
will not be closed in this manner. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
Shares of each portfolio or class in the Fund have equal voting
rights, except that in matters affecting only a particular portfolio
or class, only Shares of that portfolio or class are entitled to vote.
Trustees may be removed by the Trustees or shareholders at a special
meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10%
of the Fund's outstanding Shares of all series entitled to vote.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the business affairs of the Trust and for
exercising all of the powers of the Trust except those reserved for
the shareholders. The Executive Committee of the Board of Trustees
handles the Trustees' responsibilities between meetings of the Board.
INVESTMENT ADVISER
Pursuant to an investment advisory contract with the Trust, investment
decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale
of portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES
The Fund's Adviser receives an annual investment advisory fee equal to
.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund
for certain operating expenses. The Adviser can terminate this
voluntary waiver or reimbursement of expenses at any time in its sole
discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11,
1989, is a registered investment adviser under the Investment Advisers
Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust,
the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Advisers and other subsidiaries of Federated Investors serve
as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $110 billion
invested across over 300 funds under management and/or administration
by its subsidiaries, as of December 31, 1996, 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 management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions
nationwide.
J. Scott Albrecht has been a portfolio manager of the Fund since March
1995. Mr. Albrecht joined Federated Investors in 1989 and has been a
Vice President of the Fund's investment adviser since 1994. From 1992
to 1994, Mr. Albrecht served as an Assistant Vice President of the
Fund's investment adviser. Mr. Albrecht is a Chartered Financial
Analyst and received his M.S. in Public Management from Carnegie
Mellon University.
Mary Jo Ochson has been a portfolio manager of the Fund since April 1997. Ms.
Ochson joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. From 1988 through 1995, Ms.
Ochson served as a Vice President of the Fund's investment adviser. Ms. Ochson
is a Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.
Both the Trust and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests
of shareholders ahead of the employees' own interest. Among other
things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less
than sixty days. Violation of the codes are subject to review by the
Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.50% of the NAV
of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and
will not be made from the assets of the Fund. Dealers may voluntarily
waive receipt of all or any portion of these payments. The distributor
may pay a portion of the distribution fee discussed below to financial
institutions that waive all or any portion of the advance
payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), the Fund may pay to
the distributor an amount, computed at an annual rate of 0.40% of the
average daily NAV of Class A Shares and 0.75% of the average daily NAV
of Class B Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution
Plan. The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution related
support services as agents for their clients or customers. With
respect to Class B Shares, because distribution fees to be paid by the
Fund to the distributor may not exceed an annual rate of 0.75% of
Class B Shares' average daily net assets, it will take the distributor
a number of years to recoup the expenses it has incurred for its sales
services and distribution-related support services pursuant to the
Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no payments to the distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess
of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able
to recover such amount or may earn a profit from future payments made
by the Fund under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which the Fund may make payments up to
0.25% of the average daily NAV of both Class A Shares and Class B
Shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. Under
the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by
the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. may pay financial institutions, at the time
of purchase of Class A Shares, an amount equal to 0.50% of the NAV of
Class A Shares purchased by their clients or customers under certain
qualified retirement plans as approved by Federated Securities Corp.
(Such payments are subject to a reclaim from the financial institution
should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to both Class A Shares and Class B Shares,
in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize
the attributes of the Fund. Such assistance may be predicated upon the
amount of Shares the financial institution sells or may sell, and/or
upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the
Trust. Federated Services Company provides these at an annual rate
which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate
Administrative Fee Daily Net Assets
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights except
that in matters affecting only a particular fund, only shares of that
fund are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the
election of Trustees under certain circumstances. Trustees may be
removed by the Trustees or by shareholders at a special meeting. A
special meeting of shareholders for this purpose shall be called by
the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares of all series of the Trust entitled to
vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded
to such companies. The Fund will be treated as a single, separate
entity for federal income tax purposes so that income (including
capital gains) and losses realized by the Trust's other portfolios
will not be combined for tax purposes with those realized by the Fund.
Shareholders are not required to pay federal regular income tax on any
dividends received from the Fund that represent net interest on
tax-exempt municipal bonds, although tax-exempt interest will increase
the taxable income of certain recipients of social security benefits.
However, under the Tax Reform Act of 1986, dividends representing net
interest earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it
exceeds the regular tax for the taxable year. Alternative minimum
taxable income is equal to the regular taxable income of the taxpayer
increased by certain "tax preference" items not included in regular
taxable income and reduced by only a portion of the deductions allowed
in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax preference item
for both individuals and corporations. Unlike traditional governmental
purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide
benefits to private parties. The Fund may purchase all types of
municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be
treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the
Fund which represent interest on municipal bonds will become subject
to the 20% corporate alternative minimum tax because the dividends are
included in a corporation's "adjusted current earnings." The corporate
alternative minimum tax treats 75% of the excess of a taxpayer's
pre-tax "adjusted current earnings" over the taxpayer's alternative
minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and
profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income
does not include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the difference
will be included in the calculation of the corporation's alternative
minimum tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed
as ordinary income.
These tax consequences apply whether dividends are received in cash or
as additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES
In the opinion of Houston, Donnelly & Meck, counsel to the Fund, Fund
Shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent
that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PENNSYLVANIA TAXES
Under existing Pennsylvania laws, distributions made by the Fund
derived from interest on obligations free from state taxation in
Pennsylvania are not subject to Pennsylvania personal income taxes.
Distributions made by the Fund will be subject to Pennsylvania
personal income taxes to the extent that they are derived from gain
realized by the Fund from the sale or exchange of otherwise tax-exempt
obligations.
PERFORMANCE INFORMATION
From time to time, the Fund advertises the total return, yield, and
tax- equivalent yield for each class of Shares.
Total return represents the change, over a specific period of time, in
the value of an investment in Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment
income per Share (as defined by the SEC) earned by each class of
Shares over a thirty-day period by the maximum offering price per
Share of each class of Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The
tax-equivalent yield of each class of Shares is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that each
class of Shares would have had to earn to equal its actual yield,
assuming a specific tax rate. The yield and the tax-equivalent yield
do not necessarily reflect income actually earned by each class of
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales
charge and other similar non-recurring charges, such as the contingent
deferred sales charge, which, if excluded, would increase the total
return, yield, and tax- equivalent yield.
Total return and yield will be calculated separately for Class A
Shares and Class B Shares.
From time to time, advertisements for Class A Shares and Class B
Shares of the Fund may refer to ratings, rankings and other
information in certain financial publications and/or compare the
performance of Class A Shares and Class B Shares to certain indices.
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(For a share outstanding throughout the period)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
Period Ended
August 31, 1997 (a)
<S> <C>
Net asset value, beginning of period $ 11.52
Income from investment operations
Net investment income 0.30
Net realized and unrealized gain on investments 0.20
Total from investment operations 0.50
Less distributions
Distributions from net investment income (0.31)
Total distributions (0.31)
Net asset value, end of period $ 11.71
Total return (b) 4.41%
Ratios to average net assets
Expenses 1.25%*
Net investment income 4.62%*
Expense waiver/reimbursement (C) 0.47%*
Supplemental data
Net assets, end of period (000 omitted) $ 7,906
Portfolio turnover 30%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 4, 1997 (date of
initial public investment) to August 31, 1997.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
Long-Term Municipal Securities -- 103.7%
Pennsylvania--103.7%
<S> <C> <C> <C>
$590,000 Allegheny County Sanitation Authority, Revenue Bonds
(Series B), 7.25%
(FGIC INS), 6/1/1999 (@100) AAA $ 621,782
2,000,000 Allegheny County, PA HDA, Health & Education Revenue Bonds,
7.00%
(Rehabilitation Institute of Pittsburgh)/(Original Issue BBB 2,135,200
Yield: 7.132%), 6/1/2022
1,500,000 Allegheny County, PA HDA, Hospital Revenue Bonds, Series
1997, 5.75%
(St. Francis Medical Center, PA)/(Original Issue Yield: NR 1,503,660
6.00%), 5/15/2017
1,500,000 Allegheny County, PA HDA, Revenue Bonds, 5.30% (Children's
Hospital of
Pittsburgh)/(MBIA INS)/(Original Issue Yield: 5.70%), AAA 1,450,440
7/1/2026
2,050,000 Allegheny County, PA HDA, Revenue Bonds, 6.00% (University
of Pittsburgh
Medical Center)/(MBIA INS), 4/1/2006 AAA 2,224,393
4,000,000 Allegheny County, PA HDA, Revenue Bonds, Series 1997A,
5.60% (University of
Pittsburgh Medical Center)/(MBIA INS)/(Original Issue AAA 4,059,760
Yield: 5.85%), 4/1/2017
3,225,000 Allegheny County, PA Housing Development Authority,
Refunding Revenue
Bonds, 6.625% (Allegheny General Hospital), 7/1/2009 AAA 3,555,079
325,000 Allegheny County, PA Housing Development Authority, Revenue
Bonds, 7.60%
(Presbyterian University Hospital)/(MBIA INS), 3/1/1998 AAA 337,594
(@102)
500,000 Allegheny County, PA Institution District, GO UT Bonds,
7.30% (MBIA INS)/
(Original Issue Yield: 7.375%), 4/1/2009 AAA 534,835
430,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds
(Series K), 7.75% (GNMA COL), 12/1/2022 NR 449,393
720,000 Allegheny County, PA Residential Finance Agency, SFM
Revenue Bonds
(Series Q), 7.40% (GNMA COL), 12/1/2022 NR 763,135
3,000,000 Allegheny County, PA, Airport Revenue Refunding Bonds
(Series 1997A-1), 5.75%
(Pittsburgh International Airport)/(MBIA INS), 1/1/2011 AAA 3,151,170
6,000,000 Allegheny County, PA, Airport Revenue Refunding Bonds
(Series 1997A-1), 5.75%
(Pittsburgh International Airport)/(MBIA INS), 1/1/2014 AAA 6,245,460
2,060,000 Allentown, PA Area Hospital Authority, Revenue Bonds
(Series B), 6.75%
(Sacred Heart Hospital of Allentown), 11/15/2015 BBB 2,199,626
3,500,000 Berks County, PA Municipal Authority, Refunding Revenue
Bonds, 5.50%
(Reading Hospital & Medical Center)/(MBIA INS)/(Original
Issue Yield: 5.573%),
10/1/2008 AAA 3,687,040
1,170,000 Bethlehem, PA, General Obligation Unlimited, 6.15% (MBIA AAA 1,255,866
INS), 6/1/2002
4,250,000 Bradford County, PA IDA, Solid Waste Disposal Revenue Bonds
(Series A), 6.60%
(International Paper Co.), 3/1/2019 A- 4,607,298
1,000,000 Bucks County, PA Community College Authority, College
Building Revenue Bonds
(Series 1996), 5.50% (Original Issue Yield: 5.70%), NR 1,005,930
6/15/2017
$595,000 Bucks County, PA Water & Sewer Authority, Special
Obligations Bonds,
5.50%, 2/1/2008 NR $ 625,327
2,150,000 Chartiers Valley, PA, Refunding Revenue Bonds, 6.15%, AAA 2,202,503
3/1/2007
1,035,000 Chester County, PA, General Obligation Unlimited, 6.40%, NR 1,106,280
12/15/2001
745,000 Cocalico Lancaster County, PA School District, GO UT Bonds,
6.40%
(MBIA INS), 3/1/2001 AAA 794,163
500,000 Commonwealth of Pennsylvania, GO UT Bonds (Second Series
A), 6.875%
(United States Treasury PRF), 11/1/1999 (@101.5) AAA 535,655
1,700,000 Commonwealth of Pennsylvania, GO UT Bonds, 5.375% (FGIC AAA 1,778,659
INS), 5/15/2006
1,575,000 Commonwealth of Pennsylvania, GO UT Bonds, 6.00% (Original
Issue Yield: 6.15%), 7/1/2007 AA- 1,717,837
1,100,000 Dauphin County, PA General Authority, Hospital Revenue
Bonds (Series A1),
5.50% (Hapsco-Western PA Hospital)/(MBIA INS)/(Original
Issue Yield: 5.85%), 7/1/2023 AAA 1,077,626
1,000,000 Delaware County Authority, PA, Revenue Bonds (Series 1996),
5.50
(Elwyn, Inc.)/(Connie Lee INS)/(Original Issue Yield: AAA 983,340
5.69%), 6/1/2020
1,750,000 Delaware County, PA Authority, Hospital Revenue Bonds,
5.30% (Crozer-
Chester Medical Center)/(MBIA INS)/(Original Issue Yield: AAA 1,688,610
5.55%), 12/15/2020
200,000 Delaware River Joint Toll Bridge, Revenue Bonds, 7.40%, NR 209,694
7/1/2002
10,000,000 Delaware Valley, PA Regional Finance Authority, Local
Government Revenue
Bonds (Series 1997B), 5.60% (AMBAC INS), 7/1/2017 AAA 10,228,600
500,000 Erie County, PA Prison Authority, Lease Revenue Bonds,
6.45% (MBIA INS)/
(Original Issue Yield: 6.50%), 11/1/2001 AAA 540,125
1,000,000 Fayette County, PA Hospital Authority, Healthcare Facility
Revenue Bonds
(Series 1996A), 6.00% (Mount Macrina Manor)/(National City,
Pennsylvania LOC),
9/1/2018 NR 1,013,810
2,000,000 Fayette County, PA Hospital Authority, Hospital Revenue
Bonds (Series 1996A),
5.75% (Uniontown Hospital)/(Connie Lee INS)/(Original Issue
Yield: 6.05%),
6/15/2015 AAA 2,008,580
1,000,000 Geisinger Authority, PA Health System, Revenue Bonds,
7.625% (United States
Treasury PRF)/(Original Issue Yield: 7.697%), 7/1/1999 AA 1,080,400
(@102)
2,750,000 Harrisburg, PA Authority, Pooled Bond Program Revenue Bonds
(Series I),
5.625% (MBIA INS)/(Original Issue Yield: 5.98%), 4/1/2015 AAA 2,803,708
750,000 Harrisburg, PA Water Authority, Revenue Bonds, 6.65% (FGIC AAA 811,590
LOC), 7/15/2001
800,000 Jeannette Health Services Authority, PA, Hospital Revenue
Bonds (Series A of
1996), 6.00% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 6.15%),
11/1/2018 BBB+ 817,632
2,915,000 Jim Thorpe Area School District, PA, UT GO Bonds (Series
A), 5.75% (MBIA INS),
3/15/2017 AAA 2,993,209
$1,000,000 Lackawanna Trail School District, PA, UT GO Refunding
Bonds, 6.90%
(AMBAC INS), 3/15/2010 AAA $ 1,085,130
3,000,000 Lancaster, PA School District, GO Bonds (Series 1997),
5.40% (FGIC INS)/
(Original Issue Yield: 5.50%), 2/15/2014 AAA 3,007,410
1,380,000 Latrobe, PA Industrial Development Authority, College
Revenue Bonds, 6.75%
(St. Vincent College, PA)/(Original Issue Yield: 7.00%), NR 1,482,299
5/1/2024
1,500,000 Lebanon County, PA Good Samaritan Hospital Authority,
Hospital Revenue Bonds,
6.00% (Good Samaritan Hospital)/(Original Issue Yield: BBB+ 1,521,765
6.10%), 11/15/2018
1,000,000 Lehigh County, PA General Purpose Authority, Hospital
Refunding Revenue Bonds
(Series 1996A), 5.75% (Muhlenberg Hospital
Center)/(Original Issue Yield: 5.85%),
7/15/2010 A 1,003,540
2,500,000 Lehigh County, PA General Purpose Authority, Hospital
Revenue Bonds
(Series B), 5.625% (Lehigh Valley Hospital Inc.)/(MBIA
INS)/(Original Issue Yield:
5.775%), 7/1/2025 AAA 2,505,050
1,000,000 Luzerne Co, PA, UT GO Bonds, 5.625% (FGIC INS)/(Original
Issue Yield: 5.78%),
12/15/2021 AAA 1,009,630
2,500,000 Luzerne County, PA IDA, Revenue Refunding Bonds (Series A),
7.00%
(Pennsylvania Gas & Water Co.)/(AMBAC INS), 12/1/2017 AAA 2,807,325
4,000,000 Lycoming County PA Authority, Hospital Lease Revenue Bonds
(Series B), 6.50%
(Divine Providence Hospital, PA)/(Original Issue Yield: A- 4,277,280
6.70%), 7/1/2022
1,000,000 Lycoming County PA Authority, Hospital Revenue Bonds, 5.50%
(Divine
Providence Hospital, PA)/(Connie Lee INS)/(Original Issue AAA 972,020
Yield: 5.90%), 11/15/2022
1,000,000 Manheim, PA Central School District, GO UT Bonds, 6.40% AAA 1,066,990
(FGIC INS), 3/1/2001
1,200,000 McKeesport, PA Area School District, GO UT Bonds (FSA
INS)/(Original Issue
Yield: 6.30%), 10/1/2017 AAA 397,212
1,375,000 McKeesport, PA Area School District, GO UT Bonds (FSA
INS)/(Original Issue
Yield: 6.35%), 10/1/2021 AAA 360,443
1,000,000 McKeesport, PA Area School District, GO UT Bonds, 6.25%
accrual (FSA INS)/
(Original Issue Yield: 6.25%), 10/1/2016 AAA 353,000
1,440,000 McKeesport, PA Area School District, GO UT, 6.30% accrual
(FSA INS)/(Original
Issue Yield: 6.30%), 10/1/2018 AAA 451,123
2,000,000 McKeesport, PA Area School District, GO UT, 6.30% accrual
(FSA INS)/(Original
Issue Yield: 6.30%), 10/1/2019 AAA 593,020
1,000,000 McKeesport, PA Area School District, GO UT, 6.35% accrual
(FSA INS)/(Original
Issue Yield: 6.35%), 10/1/2020 AAA 277,500
2,360,000 Monroe County, PA Hospital Authority, Hospital Revenue
Bonds, 5.125% (Pocono
Medical Center)/(AMBAC INS)/(Original Issue Yield: 5.40%), AAA 2,265,222
7/1/2015
3,250,000 Montgomery County, PA IDA, Retirement Community Revenue
Bonds (Series
1996B), 5.75% (Adult Communities Total Services,
Inc)/(Original Issue Yield: 5.98%),
11/15/2017 A- 3,263,000
$1,000,000 Montgomery County, PA IDA, Retirement Community Revenue
Refunding Bonds
(Series 1996A), 5.875% (Adult Communities Total Services,
Inc)/(Original Issue
Yield: 6.125%), 11/15/2022 A- $ 1,014,250
1,250,000 North Penn, PA School District, Refunding Revenue Bonds, NR 1,327,213
6.20%, 3/1/2007
500,000 Northern Cambria, PA School District, GO UT Bonds, 7.10%
(AMBAC INS),
1/15/2000 (@100) AAA 534,020
500,000 Pennsylvania Convention Center Authority, Refunding Revenue
Bonds (Series A),
6.25%, 9/1/2004 BBB 529,145
1,000,000 Pennsylvania Convention Center Authority, Revenue Bonds,
6.70% (FGIC INS)/
(Original Issue Yield: 6.843%), 9/1/2016 AAA 1,150,950
4,000,000 Pennsylvania EDFA, Resource Recovery Revenue Bonds (Series
A), 6.40%
(Northampton Generating), 1/1/2009 NR 4,104,680
2,000,000 Pennsylvania EDFA, Revenue Bonds, 7.60% (Macmillan Bloedel
LTD Partnership)/
(Original Issue Yield: 7.65%), 12/1/2020 BBB- 2,306,060
1,750,000 Pennsylvania Housing Finance Authority, Refunding Revenue
Bonds, 5.35%,
10/1/2008 AA+ 1,790,110
875,000 Pennsylvania Housing Finance Authority, Refunding Revenue
Bonds, 5.375%
(FHA INS), 10/1/2028 887,740
1,000,000 Pennsylvania Housing Finance Authority, Revenue Bonds, AA+ 1,015,280
5.375%, 10/1/2016
1,000,000 Pennsylvania Housing Finance Authority, Revenue Bonds, AA+ 1,011,600
5.40%, 10/1/2027
580,000 Pennsylvania Housing Finance Authority, Revenue Bonds,
5.55% (FHA/VA mtgs
GTD), 10/1/2012 AA+ 590,191
1,000,000 Pennsylvania Housing Finance Authority, Revenue Bonds, AA+ 1,022,740
5.65%, 4/1/2020
1,000,000 Pennsylvania Housing Finance Authority, SFM Revenue Bond
Bonds
(Series 39B), 6.875%, 10/1/2024 AA+ 1,078,680
625,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds
(Series 33), 6.90%,
4/1/2017 AA+ 662,444
1,000,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds
(Series 34-B),
7.00% (FHA GTD), 4/1/2024 AA+ 1,059,730
3,685,000 Pennsylvania Housing Finance Authority, SFM Revenue Bonds
(Series 28), 7.65%
(FHA GTD), 10/1/2023 AA+ 3,885,353
450,000 Pennsylvania Housing Finance Authority, Single Family
Mortgage Revenue
Bonds, 7.90% (FHA/VA mtgs COL), 10/1/2007 AA+ 459,441
750,000 Pennsylvania Intergovernmental Coop Authority, City of
Philadelphia Funding
Program, 6.00% (FGIC LOC)/(Original Issue Yield: 6.125%), AAA 797,145
6/15/2002
2,000,000 Pennsylvania Intergovernmental Coop Authority, Special Tax
Revenue Bonds,
5.625% (MBIA INS)/(Original Issue Yield: 97.245%), 6/15/2023 AAA 2,012,080
850,000 Pennsylvania Intergovernmental Coop Authority, Special Tax,
7.00% (FGIC INS),
6/15/2005 AAA 979,574
$3,000,000 Pennsylvania State Higher Education Facilities Authority,
Health Services
Revenue Bonds (Series A of 1996), 5.75% (University of
Pennsylvania)/(Original
Issue Yield: 6.035%), 1/1/2022 AA $ 3,044,100
1,000,000 Pennsylvania State Higher Education Facilities Authority,
Hospital Revenue
Bonds (Series A), 7.25% (Allegheny General
Hospital)/(Original Issue Yield:
7.40%), 9/1/2017 A+ 1,100,620
500,000 Pennsylvania State Higher Education Facilities Authority,
Refunding Revenue
Bonds (Series A), 6.00% (University of Pennsylvania), AA 541,510
1/1/2006
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds
(Series 1996), 7.20% (Thiel College ), 5/15/2026 NR 2,056,800
4,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds
(Series A), 7.375% (Medical College of
Pennsylvania)/(United States Treasury
PRF)/(Original Issue Yield: 7.45%), 3/1/2021 AAA 4,464,400
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds
(Series N), 5.875% (MBIA INS)/(Original Issue Yield: AAA 2,055,760
5.913%), 6/15/2021
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds, 6.375%
(Drexel University)/(Original Issue Yield: 6.415%), 5/1/2017 A- 2,117,120
750,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds, 6.80%
(MBIA LOC)/(Original Issue Yield: 6.85%), 6/15/2001 AAA 800,340
500,000 Pennsylvania State IDA, Economic Development Revenue Bonds
(Series A),
6.80% (Original Issue Yield: 6.85%), 1/1/2001 NR 536,605
1,105,000 Pennsylvania State School Finance Authority, Refunding
Revenue Bonds
(Series A), 6.00% (Cornell School District), 9/1/2002 A 1,177,278
1,000,000 Pennsylvania State Turnpike Commission, Refunding Revenue
Bonds (Series L),
6.00% (MBIA INS)/(Original Issue Yield: 6.85%), 6/1/2015 AAA 1,031,240
1,000,000 Pennsylvania State Turnpike Commission, Turnpike Revenue
Bonds (Series P),
5.45%, 12/1/2002 A 1,043,950
460,000 Pennsylvania State University, Refunding Revenue Bonds
(Series A), 4.80%
(Original Issue Yield: 4.90%), 3/1/2003 AA- 465,768
1,000,000 Pennsylvania State University, Refunding Revenue Bonds,
5.20% (Original
Issue Yield: 5.30%), 8/15/2002 AA- 1,033,490
505,000 Pennsylvania State University, Revenue Bonds (Series B),
5.20% (Original Issue
Yield: 5.30%), 8/15/2002 AA- 521,912
500,000 Pennsylvania State University, Series A Revenue Bonds,
4.70% (Go of University
LOC)/(Original Issue Yield: 4.80%), 3/1/2002 505,255
1,500,000 Philadelphia, PA Gas Works, Revenue Bonds, 5.80% (Original
Issue Yield: 5.90%),
7/1/2001 BBB 1,557,240
500,000 Philadelphia, PA Gas Works, Revenue Bonds, 7.40%, 6/15/2000 BBB 536,405
$2,565,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital
Revenue Bonds (Series 1997), 5.50% (Temple University
Hospital )/(Original Issue
Yield: 5.85%), 11/15/2015 A- $ 2,518,497
1,655,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital
Revenue Bonds (Series 1997), 5.75% (Jeanes Hospital,
PA)/(Original Issue Yield:
5.80%), 7/1/2008 BBB 1,680,868
1,700,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital
Revenue Bonds (Series 1997), 5.875% (Jeanes Hospital,
PA)/(Original Issue Yield:
6.10%), 7/1/2017 BBB 1,710,370
325,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Refunding
Revenue Bonds, 6.15% (Pennsylvania Hospital)/(Original
Issue Yield: 6.25%),
7/1/2005 BBB+ 341,549
1,375,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Revenue
Bonds (Series B), 5.00% (Nazareth Hospital)/(MBIA
INS)/(Original Issue Yield:
5.25%), 7/1/2006 AAA 1,386,646
250,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Revenue
Bonds, 7.75% (Children's Seashore House, PA)/(AMBAC INS), AAA 274,135
8/15/2000 (@100)
150,000 Philadelphia, PA Municipal Authority, Refunding Revenue
Bonds, 7.50%
(FGIC INS), 4/1/1998 (@102) AAA 156,180
905,000 Philadelphia, PA Municipal Authority, Refunding Revenue
Bonds, 7.80%
(FGIC INS), 4/1/2000 (@100) AAA 980,387
1,300,000 Philadelphia, PA School District, GO UT Bonds, 5.20% (MBIA
INS)/(Original Issue
Yield: 5.35%), 7/1/2003 AAA 1,338,792
1,000,000 Philadelphia, PA Water & Sewer, Revenue Bonds, 7.40%, BBB 1,054,480
8/1/1999
1,500,000 Philadelphia, PA Water & Wastewater System, Refunding
Revenue Bonds, 5.20%
(FGIC INS), 6/15/2005 AAA 1,549,350
4,000,000 Philadelphia, PA, (Series 1995A) Airport Revenue Bonds,
6.10% (Philadelphia
Airport System)/(AMBAC INS)/(Original Issue Yield: 6.40%), AAA 4,151,880
6/15/2025
9,500,000 Philadelphia, PA, Airport Revenue Bonds (Series 1997B),
5.50% (Philadelphia
Airport System)/(AMBAC INS)/(Original Issue Yield: 5.65%), AAA 9,453,830
6/15/2017
800,000 Philadelphia, PA, GO UT Bonds, 5.125% (FGIC INS)/(Original
Issue Yield: 5.25%),
5/15/2003 AAA 822,848
300,000 Philadelphia, PA, GO UT Bonds, 6.25% (FGIC INS), 11/15/2004 AAA 329,289
1,860,000 Philadelphia, PA, GO UT Refunding Bonds, 5.40% (FGIC
INS)/(Original Issue Yield:
5.50%), 11/15/2003 AAA 1,944,574
960,000 Philadelphia, PA, Revenue Bonds, 10.875%, 7/1/2008 NR 1,243,440
265,000 Pittsburgh, PA Staduim Authority, Lease Revenue Bonds, AAA 287,703
6.50%, 4/1/2011
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, Mortgage
Revenue Bonds
(Series 1997A) , 6.15%, 10/1/2016 AAA 1,031,730
$1,500,000 Pittsburgh, PA Urban Redevelopment Authority, Mortgage
Revenue Bonds
(Series 1997C), 5.90%, 10/1/2022 AAA $ 1,503,765
1,000,000 Pittsburgh, PA Water & Sewer Authority, Series A Revenue
Bonds, 6.50%
(FGIC LOC)/(Original Issue Yield: 6.60%), 9/1/2001 AAA 1,079,210
80,000 Ringgold, PA School District, GO UT Bonds, 7.20% (MBIA AAA 80,119
INS), 8/1/2006
1,000,000 Schuylkill, PA Redevelopment Authority, Revenue Bonds,
6.75% (FGIC LOC),
6/1/2002 AAA 1,096,700
2,500,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue
Bonds
(Series 1994-A), 7.60% (Allied Services Rehabilitation NR 2,727,350
Hospitals, PA), 7/15/2020
85,000 Scranton-Lackawanna, PA Health & Welfare Authority, Revenue
Bonds, 7.25%
(Community Medical Center)/(BIG LOC)/(Original Issue Yield: AAA 88,779
7.384%), 7/1/1999
2,245,000 Shaler, PA School District Authority, GO UT Bonds, 6.25%, AAA 2,404,934
4/15/2008
2,650,000 Sharon, PA General Hospital Authority, Hospital Revenue
Bonds, 6.875%
(Sharon Regional Health System), 12/1/2022 BBB+ 2,820,740
2,000,000 Southeastern, PA Transportation Authority, Special Revenue
Bonds, 5.375%
(FGIC INS)/(Original Issue Yield: 5.70%), 3/1/2017 AAA 1,982,120
8,000,000 Southeastern, PA Transportation Authority, Special Revenue
Bonds, 5.375%
(FGIC INS)/(Original Issue Yield: 5.75%), 3/1/2022 AAA 7,876,800
500,000 State Public School Building Authority, PA, College Revenue
Bonds, 6.50%
(Harrisburg Area Community College-D)/(MBIA INS LOC), AAA 542,745
4/1/2002
1,000,000 University of Pittsburgh, Higher Education Refunding
Revenue Bonds (Series A),
6.40% (MBIA INS), 4/1/2000 AAA 1,052,390
9,000,000 University of Pittsburgh, University Refunding Revenue
Bonds (Series 1997B),
5.00% (MBIA INS)/(Original Issue Yield: 5.287%), 6/1/2017 AAA 8,565,300
1,000,000 Warren County, PA Hospital Authority, Revenue Bonds (Series
A), 7.00% (Warren
General Hospital, PA)/(Original Issue Yield: 7.101%), BBB+ 1,076,030
4/1/2019
680,000 Washington County, PA Authority, Lease Revenue Bonds, 7.00%
(AMBAC INS),
6/15/2000 (@103) AAA 737,412
400,000 Washington County, PA Authority, Lease Revenue Bonds, AAA 526,784
7.875%, 12/15/2018
2,850,000 Washington County, PA IDA Pollution Control, Refunding
Revenue Bonds, 4.95%
(West Penn Power Co.), 3/1/2003 A 2,886,281
1,000,000 West View, PA Municipal Authority, Special Obligation AAA 1,408,940
Bonds, 9.50%, 11/15/2014
1,000,000 Westmoreland County, PA Municipal Authority, Refunding
Revenue Bonds
(Series K), 2.00% (FGIC INS)/(Original Issue Yield: 8.50%), AAA 768,730
7/1/2007
890,000 Westmoreland County, PA Municipal Authority, Special
Obligation Bonds,
9.125%, 7/1/2010 AAA 1,085,124
Total Long-Term Municipal Securities (identified cost
$218,727,466) 228,878,988
<CAPTION>
Principal Credit
Amount Rating* Value
<S> <C> <C> <C>
Short-Term Municipal Securities -- 0.9%
Pennsylvania--0.8%
500,000 New Castle, PA Area Hospital Authority, (Series 1996)
Weekly VRDNs (Jameson Memorial Hospital)/(FSA INS)/
(PNC Bank, N.A. LIQ) AAA $ 500,000
1,200,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series A of 1996) Daily
VRDNs (Children's Hospital of Philadelphia)/(Morgan
Guaranty Trust Co., New York LIQ) AA 1,200,000
Total 1,700,000
Puerto Rico -- 0.1%
200,000 Puerto Rico Government Development Bank Weekly VRDNs
(Credit Suisse, Zurich LOC) AA+ 200,000
Total Short-Term Municipal Securities (at amortized cost) 1,900,000
Total Investments (identified cost $220,627,466) (a) $230,778,988
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 16.8%
of the portfolio as calculated based upon total portfolio market
value.
(a) The cost of investments for federal tax purposes amounts to
$220,627,466. The net unrealized appreciation of investments on a
federal tax basis amounts to $10,151,522 which is comprised of
$10,427,549 appreciation and $276,027 depreciation at August 31,
1997.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($220,697,861) at August 31, 1997.
The following acronyms are used throughout this portfolio: AMBAC
- --American Municipal Bond Assurance Corporation BIG --Bond Investors
Guaranty COL --Collateralized EDFA --Economic Development Financing
Authority FGIC --Financial Guaranty Insurance Company FHA --Federal
Housing Administration FHA/VA --Federal Housing
Administration/Veterans Administration FSA --Financial Security
Assurance GNMA --Government National Mortgage Association GO --General
Obligation GTD --Guaranty HDA --Hospital Development Authority IDA
- --Industrial Development Authority INS --Insured LIQ --Liquidity
Agreement LOC --Letter of Credit MBIA --Municipal Bond Investors
Assurance PRF --Prerefunded SFM --Single Family Mortgage UT
- --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
AUGUST 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax
cost $220,627,466) $230,778,988
Cash 120,228
Income receivable 3,552,718
Receivable for investments sold 40,000
Receivable for shares sold 601,239
------------
Total assets 235,093,173
LIABILITIES:
Payable for investments purchased $13,802,528
Payable for shares redeemed 65,405
Income distribution payable 424,658
Accrued expenses 102,721
-----------
Total liabilities 14,395,312
------------
NET ASSETS for 18,853,507 shares outstanding $220,697,861
------------
NET ASSETS CONSIST OF:
Paid in capital $210,266,286
Net unrealized appreciation of investments 10,151,522
Accumulated net realized gain on investments 280,530
Distributions in excess of net investment income (477)
------------
Total Net Assets $220,697,861
------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Assets Value Per Share ($212,791,813 O 18,178,135 shares
outstanding) $11.71
------------
Offering Price Per Share (100 O 95.50 of $11.71) $12.26
------------
Redemption Proceeds Per Share $11.71
------------
CLASS B SHARES:
Net Asset Value Per Share ($7,906,048 O 675,372 shares
outstanding) $11.71
------------
Offering Price Per Share $11.71
------------
Redemption Proceeds Per Share (94.50 O 100 of $11.71)** $11.07
------------
</TABLE>
* See "Investing in the Fund".
** See "Contingent Deferred Sales Charge".
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
YEAR ENDED AUGUST 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,163,487
EXPENSES:
Investment advisory fee $ 470,040
Administrative personnel and services fee 141,863
Custodian fees 14,264
Transfer and dividend disbursing agent fees and expenses 51,423
Directors'/Trustees' fees 3,026
-----------
Auditing fees 16,504
Legal fees 3,019
Portfolio accounting fees 67,340
Distribution services fee -- Class B Shares 12,001
Shareholder services fee -- Class A Shares 289,775
Shareholder services fee -- Class B Shares 3,995
Share registration costs 54,584
Printing and postage 28,181
Insurance premiums 3,216
Miscellaneous 2,670
Total expenses 1,161,901
-----------
Waivers --
Waiver of investment advisory fee $ (239,908)
Waiver of distribution services fee -- Class B Shares (4,390)
Waiver of shareholder services fee -- Class A Shares (23,182)
Waiver of shareholder services fee -- Class B Shares (64)
-----------
Total waivers (267,544)
-----------
Net expenses 894,357
-----------
Net investment income 6,269,130
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,211,019
Net change in unrealized appreciation of investments 5,539,761
-----------
Net realized and unrealized gain on investments 7,750,780
-----------
Change in net assets resulting from operations $14,019,910
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Year Ended August 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,269,130 $ 4,887,004
Net realized gain on investments ($2,211,019 and $881,533, respectively,
as computed for federal tax purposes) 2,211,019 556,055
Net change in unrealized appreciation/depreciation 5,539,761 353,374
------------ ------------
Change in net assets resulting from operations 14,019,910 5,796,433
------------ ------------
NET EQUALIZATION CREDITS (DEBITS) -- 126,956 (6,300)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (6,501,486) (4,846,944)
Class B Shares (91,906) --
------------ ------------
Change in net assets resulting from distributions to shareholders (6,593,392) (4,846,944)
------------ ------------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME) --
Proceeds from sale of shares 29,680,851 10,957,322
Net asset value of shares issued to shareholders in payment of distributions declared 4,035,972 3,064,941
Net asset value of shares issued in connection with the acquisition of William Penn
Interest Income PATax Free fund 115,985,657 --
Cost of shares redeemed (20,673,623) (14,571,991)
------------ ------------
Change in net assets resulting from share transactions 129,028,857 (549,728)
------------ ------------
Change in net assets 136,582,331 393,461
NET ASSETS:
Beginning of period 84,115,530 83,722,069
------------ ------------
End of period (including undistributed net investment income of $0 and $196,829, respectively) $220,697,861 $ 84,115,530
------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
AUGUST 31, 1997
ORGANIZATION
Municipal Securites Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios.
The financial statements included herein are only those of Federated
Pennsylvania Municipal Income Fund (the "Fund"), a non-diversified
portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and
a shareholder's interest is limited to the portfolio in which shares
are held. The investment objective of the Fund is to provide current
income which is exempt from federal regular income tax and the
personal income taxes imposed by the Commonwealth of Pennsylvania.
The Fund offers two classes of shares: Class A Shares and Class B Shares.
Effective March 4, 1997 the Fund added Class B Shares.
On June 2, 1997 the Fund acquired all the net assets of The William
Penn Interest Income PA Tax Free Fund ("Acquired Fund") pursuant to a
plan of reorganization approved by the Acquired Fund's shareholders.
The acquisition was accomplished by a tax-free exchange of 10,059,467
Class A shares of the Fund (valued at $115,985,657) for the 10,553,874
shares of the Acquired Fund outstanding on June 2, 1997. The Acquired
Fund's net assets of $115,986,881 which consisted of $113,185,261 of
Paid in Capital and $2,906,467 of unrealized appreciation, and
$104,847 of net realized loss on investments at that date were
combined with those of the Fund. The aggregate net assets of the Fund
and the Acquired Fund immediately before the acquisition were
$93,222,578 and $115,986,881, respectively. Immediatley after the
acquisition, the combined aggregate net assets of the Fund were
$209,209,459.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon,
maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at
the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which
approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the Internal
Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
At August 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $109,853, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2004 $37,020(a)
2004 $72,833
</TABLE>
(a) Capital loss carryforward is attributable to the acquisiiton of
the assets of The William Penn Interest Income PA Tax Free Fund.
EQUALIZATION
The Fund follows the accounting practice known as equalization. With
equalization, a portion of the proceeds from sales and costs of
redemptions of fund shares (equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment
income. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions.
The Fund records when-issued securities on the trade date and
maintains security positions such that sufficient liquid assets will
be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value).
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,145,449 $ 21,789,555 965,079 $ 10,957,322
Shares issued to shareholders in payment
of distributions declared 343,918 3,979,801 270,041 3,064,941
Shares issued in connection with the acquisition of
William Penn Interest Income PA Tax Free Fund 10,059,467 115,985,657
Shares redeemed (1,779,292) (20,583,883) (1,284,868) (14,571,991)
------------------------------------------------------
Net change resulting from Class A share transactions 10,769,542 $121,171,130 (49,748) $ (549,728)
----------- ------------ --------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997 (A)
CLASS B SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 678,264 $ 7,891,296
Shares issued to shareholders in payment of distributions declared 4,825 56,171
Shares redeemed (7,717) (89,740)
---------- ------------
Net change resulting from Class B share transactions 675,372 $ 7,857,727
---------- ------------
Net change resulting from share transactions 11,444,914 $129,028,857
---------- ------------
</TABLE>
(a) For the period from March 4, 1997 (date of initial public
offering) to August 31, 1997.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative
Services Agreement, provides the Fund with administrative personnel
and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities
intended to result in the sale of the Fund's Class A and Class B
shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate
FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares 0.40%
Class B Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its
fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discrection.
Class A Shares did not incur a distribution services fee for the
period ended August 31, 1997, and has no present intention of paying
or accruing a distribution service fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of
average daily net assets of the Fund shares for the period. The fee
paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive
any portion of its fee. FSS can modify or terminate this voluntary
waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended August 31, 1997, the Fund engaged in purchase
and sale transactions with funds that have a common investment adviser
(or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at
current market value pursuant to Rule 17a-7 under the Act amounting to
$43,650,000 and $47,364,062, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended August 31, 1997, were as follows:
<TABLE>
<S> <C>
Purchases $98,632,135
-----------
Sales $28,806,668
-----------
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit
risk associated with such factors, at August 31, 1997, 59.8% of the
securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and
financial guaranty assurance agencies. The percentage of investments
insured by or supported (backed) by a letter of credit from any one
institution or agency did not exceed 22.8% of total investments.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustee of
MUNICIPAL SECURITIES INCOME TRUST
and shareholders of
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Pennsylvania
Municipal Income Fund as of August 31, 1997, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended August 31, 1997 and 1996, and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibilty of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned at August 31, 1997, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Federated Pennsylvania Municipal Income Fund as of August 31, 1997,
the results of its operations, the changes in its net assets and its
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Pittsburgh, Pennsylvania
October 13, 1997
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND Class A Shares Class B
Shares Federated Investors Tower Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
BOSTON, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 625922505
Cusip 625922836
G00577-02 (10/97)
[LOGO OF RECYCLED PAPER]
[LOGO] FEDERATED INVESTORS
FEDERATED PENNSYLVANIA
MUNICIPAL INCOME FUND
(A Portfolio of Municipal Securities
Income Trust)
Class A Shares, Class B Shares
Prospectus
October 31, 1997
A Non-Diversified Portfolio of Municipal Securities
Income Trust, an Open-End, Management
Investment Company
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
(A PORTFOLIO OF MUNICIPAL SECURITIES INCOME TRUST)
CLASS A SHARES
CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with
the prospectus of Federated Pennsylvania Municipal Income Fund
(the "Fund"), a portfolio of Municipal Securities Income Trust
dated October 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of
charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1997
[GRAPHIC OMITTED]
Cusip 625922036
Cusip 625922836
0090702B (10/97)
<PAGE>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Futures Transactions 2
Temporary Investments 3
Portfolio Turnover 3
Investment Limitations 3
Pennsylvania Investment Risks 5
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT 5
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Adviser to the Fund 11
Advisory Fees 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
BROKERAGE TRANSACTIONS 11
PURCHASING SHARES 12
Quality Discounts and Accumulated Purchases 12
Concurrent Purchases 12
Letter of Intent 12
Reinvestment Privilege 13
Conversion of Class B Shares 13
Purchases by Sales Representatives, Fund
Trustees, and Employees 13
DETERMINING NET ASSET VALUE 13
Valuing Municipal Bonds 13
Use of Amortized Cost 14
REDEEMING SHARES 14
Redemption in Kind 14
Contingent Deferred Sales Charge
Class B Shares 14
Massachusetts Partnership Law 15
TAX STATUS 15
The Fund's Tax Status 15
Shareholders' Tax Status 15
TOTAL RETURN 15
YIELD 16
TAX-EQUIVALENT YIELD 16
Tax-Equivalency Table 17
PERFORMANCE COMPARISONS 18
Economic and Market Information 18
ABOUT FEDERATED INVESTORS 19
Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 19
APPENDIX 20
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in Municipal Securities Income Trust (the
"Trust"). The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated August 6, 1990. On February 26,
1996 (effective date March 31, 1996), the Board of Trustees
("Trustees") approved changing the name of the Fund from Pennsylvania
Municipal Income Fund to Federated Pennsylvania Municipal Income Fund.
Shares of the Fund are presently offered in two classes known as Class
A Shares and Class B Shares (individually and collectively referred to
as "Shares" as the context may require). This Statement of Additional
Information relates to both classes of Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania. The investment objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities
which are exempt from federal regular income tax and Pennsylvania
state and local tax ("Pennsylvania Municipal Securities"). These
securities include those issued by or on behalf of the Commonwealth of
Pennsylvania and Pennsylvania municipalities, and those issued by
states, territories and possessions of the United States which are
exempt from federal regular income tax and the personal income taxes
imposed by the Commonwealth of Pennsylvania and Pennsylvania
municipalities.
CHARACTERISTICS
The Pennsylvania Municipal Securities in which the Fund
invests have the characteristics set forth in the prospectus.
If a rated bond loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to
drop the bond from the portfolio, but will consider doing so.
If ratings made by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P") or
Fitch Investors Service, L.P. ("Fitch") change because of
changes in those organizations or in their rating systems,
the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the
Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Pennsylvania Municipal Securities are:
o municipal notes and municipal commercial paper;
o serial bonds sold with differing maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities;
o bond anticipation notes sold prior to the issuance of longer-term
bonds;
o pre-refunded municipal bonds; and
o general obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from
another financial institution irrevocable letters of credit
or guarantees and give the Fund the right to demand payment
of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the
market value of municipal securities from their original
purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities
than for fixed income obligations. Many municipal securities
with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days)
on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest
from the issuer of the municipal obligations, the issuer of
the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided
proportional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease
payments as they became due. In the event of default or
failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities,
the investment adviser, under the authority delegated by the Trustees,
will base its determination on the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery, if any, from a sale of the leased
property upon termination of the lease;
o the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
o the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
"event of non-appropriation"); and
o any credit enhancement or legal recourse provided upon an event
of non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
FUTURES TRANSACTIONS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery
of the security ("going long") at a certain time in the future. In the
fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund
could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to purchase
securities in the future at a predetermined price (i.e., "go long") to
hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in municipal securities, cash or cash
equivalents with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value ("NAV"), the Fund will mark-to-market its open futures
positions.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of
unusual market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions
sell U.S. government securities or certificates of deposit to
the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price within one year from
the date of acquisition. The Fund or its custodian will take
possession of the securities subject to repurchase
agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund believes that under the regular procedures normally
in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers,
which are deemed by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the
Trustees.
From time to time, such as when suitable Pennsylvania
municipal bonds are not available, the Fund may invest a
portion of its assets in cash. Any portion of the Fund's
assets maintained in cash will reduce the amount of assets in
Pennsylvania municipal bonds and thereby reduce the Fund's
yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial
institution, broker, or dealer in return for a percentage of
the instrument's market value in cash and agrees that on a
stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to
be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets
of the Fund, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated at the
trade date. These securities are marked to market daily and
maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual
rate of portfolio turnover exceeding 100%. For the fiscal years ended
August 31, 1997 and 1996, the portfolio turnover rates were 30% and
23%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, but
only to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value
not exceeding 10% of the value of its total assets at the
time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except
as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate although it may
invest in municipal bonds secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity
contracts, or commodities futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
assets in securities subject to restrictions on resale under the
Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may
acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and
limitations or its Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would
be invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid
from revenues of similar types of projects. However, the Fund
may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued
or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation, or other
acquisition.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in
illiquid obligations, including certain restricted securities
determined to be liquid under criteria established by the
Trustees and repurchase agreements providing for settlement
in more than seven days after notice, and certain restricted
securities.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction. The Fund did not borrow
money or pledge securities in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so
in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 ("bank cash
items") at the time of investment to be included in "cash items."
However, the Fund does not intend to exceed its concentration
limitation with respect to bank cash items.
PENNSYLVANIA INVESTMENT RISKS
The Fund invests in obligations of Pennsylvania issuers which result
in the Fund's performance being subject to risks associated with the
overall conditions present within the Commonwealth. The following
information is a brief summary of the prevailing economic and
financial conditions of the Commonwealth. The information is based on
official statements relating to securities and from other sources
believed to be reliable. This should not be considered a complete
description of all relevant information.
Pennsylvania's economy performed below the national average and is
expected to continue this pattern over the next several years. While
job growth has improved since the early 1990's, it still continues to
lag well behind the national growth levels. Manufacturing is still an
important industry in the Commonwealth, but has been exceeded by
employment in both services and trade. Growth in personal income has
also lagged behind the national growth rate, but Pennsylvania per
capita income exceeds the national average and ranks 19th among the
states. Despite the economic challenges, the Commonwealth's financial
position remained stable due to improved spending controls and strong
fiscal management. In addition, Pennsylvania continued to maintain a
moderate debt level.
The overall credit quality of the Commonwealth is demonstrated by its
debt ratings. Pennsylvania was recently upgraded to a Aa3 rating by
Moody's. S&P rates the Commonwealth AA-.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions, provides a greater level of risk than a fund whose
assets are diversified across numerous states and municipalities.
The ability of the Commonwealth or its municipalities to meet their
obligations will depend on the availability of tax and other revenues,
economic, political, and demographic conditions within the
Commonwealth, and the underlying fiscal condition of the Commonwealth,
its counties, and municipalities..
MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Municipal Securities Income Trust, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President and Trustee of the
Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, ED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior
Vice-President, John R. Wood and Associates, Inc., Realtors; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
<PAGE>
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Retired from the law firm of Miller, Ament, Henny & Kochuba; Director
or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica & Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman
and Director, Federated Securities Corp.; President or Vice President
of some of the Funds; Director or Trustee of some of the Funds.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
* THIS TRUSTEE IS DEEMED TO BE AN "INTERESTED PERSON" AS DEFINED IN
THE INVESTMENT COMPANY ACT OF 1940.
@ MEMBER OF THE EXECUTIVE COMMITTEE. THE EXECUTIVE COMMITTEE OF THE
BOARD OF TRUSTEES HANDLES THE RESPONSIBILITIES OF THE BOARD
BETWEEN MEETINGS OF THE BOARD.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares.
As of October 6, 1997, the following shareholder of record owned 5% or
more of the outstanding Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, owned approximately 1,479,081
Class A Shares (8.18%).
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>
John F. Donahue $ -0- $ -0- for the Trust and
Trustee and Chairman 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Trust and
Trustee and Executive 18 other investment companies in the Fund Complex
Vice President
James E. Dowd $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,341 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,217 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended August 31, 1997.
# The aggregate compensation is provided for the Trust which is
comprised of five portfolios.
The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the fiscal years
ended August 31, 1997, 1996, and 1995, the Adviser earned $470,040,
$341,175 and $341,354, respectively, of which $239,900, $195,433 and
$222,052 were voluntarily waived.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
as described in the prospectus. From March 1, 1994, to March 1, 1996,
Federated Administrative Services, a subsidiary of Federated
Investors, served as the Fund's Administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended August
31, 1997, 1996, and 1995, the Administrators collectively earned
$141,863, $125,000, and $134,042, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston, MA,
is custodian for the securities and cash of the Fund. Federated
Services Company, Pittsburgh, PA, provides certain accounting and
recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally use those that are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished
directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or by its
affiliates in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine
in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services
provided. During the fiscal years ended August 31, 1997, 1996, and
1995, the Fund paid no brokerage commissions. Although investment
decisions for the Fund are made independently from those of the other
accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the Adviser are prepared to invest
in, or desire to dispose of, the same security, available investments
or opportunities for sales will be allocated in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Fund or the size of
the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares
are sold at their NAV (plus a sales charge on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure
for purchasing Shares is explained in the prospectus under "Investing
in the Fund" and "Purchasing Shares."
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, larger purchases reduce or eliminate
the sales charge paid. The Fund will combine purchases of Class A
Shares made on the same day by the investor, the investor's spouse,
and the investor's children under age 21 when it calculates the sales
charge. In addition, the sales charge, if applicable, is reduced for
purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will
consider the previous purchases still invested in the Fund. For
example, if a shareholder already owns Class A Shares having a current
value at the public offering price of $90,000 and he purchases $10,000
more at the current public offering price, the sales charge on the
additional purchase according to the schedule now in effect would be
3.75%, not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must
be notified by the shareholder in writing or by his financial
intermediary at the time the purchase is made that Class A Shares are
already owned or that purchases are being combined. The Fund will
reduce or eliminate the sales charge after it confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales charge reduction or
elimination, a shareholder has the privilege of combining concurrent
purchases of Class A Shares of two or more funds for which affiliates
of Federated Investors serve as investment adviser and principal
underwriter (the "Federated Funds"), the purchase prices of which
include a sales charge. For example, if a shareholder concurrently
invested $80,000 in the Class A Shares of one of the other Federated
Funds with a sales charge, and $20,000 in Class A Shares in this Fund,
the sales charge would be reduced.
To receive this sales charge reduction or elimination, Federated
Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary at the time the concurrent purchases are
made. The Fund will reduce or eliminate the sales charge after it
confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase a specific dollar amount of Class
A Shares over the next 13 months, the sales charge may be reduced if
the shareholder signs a letter of intent to that effect. For example,
if a shareholder intends to purchase at least $50,000 of Class A
Shares of Federated Funds (excluding money market funds) over the next
13 months, the sales charge may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased
within the 13-month period and a provision for the custodian to hold
up to 4.50% of the total amount intended to be purchased in escrow (in
Class A Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be
released upon fulfillment of the letter of intent or the end of the
13-month period, whichever comes first. If the amount specified in the
letter of intent is not purchased, an appropriate number of escrowed
Shares may be redeemed in order to realize the sales charge.
While this letter of intent will not obligate the shareholder to
purchase Class A Shares, each purchase during the period will be at
the sales charge applicable to the total amount intended to be
purchased. At the time a letter of intent is established, current
balances in accounts in any Class A Shares of any Federated Funds,
excluding money market accounts, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. The
letter may be dated as of a prior date to include any purchase made
within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has
the privilege, within 120 days, to reinvest the redemption proceeds at
the next-determined net asset value without any sales charge.
Similarly, shareholders who redeem Class B Shares may be reinvested in
the same Share class within 120 days but would not be entitled to a
reimbursement of the contingent deferred sales charge if paid at the
time of redemption. However, such reinvested shares would not be
subject to a contingent deferred sales charge upon later redemption.
In addition, if the Class B Shares were reinvested through a financial
intermediary, the financial intermediary would not be entitled to an
advanced payment from Federated Securities Corp. on the reinvested
Shares. Federated Securities Corp. must be notified by the shareholder
in writing or by his financial intermediary of the reinvestment in
order to eliminate a sales charge or a contingent deferred sales
charge. If the shareholder redeems Shares in the Fund, there may be
tax consequences.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or
around the 15th of the month eight full years from the purchase date
and will no longer be subject to a fee under the distribution plan.
For purposes of conversion to Class A Shares, Shares purchased through
the reinvestment of dividends and distributions paid on Class B Shares
will be considered to be held in a separate sub-account. Each time any
Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of
the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject
to the continuing availability of a ruling from the Internal Revenue
Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such
a ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares
for an indefinite period.
PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES
The following individuals and their immediate family members may buy
Class A Shares at net asset value without a sales charge:
o Trustees, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. and its affiliates;
o Federated Life Members; and
o any associated person of an investment dealer who has a sales
agreement with Federated Securities Corp. Shares may also be sold
without a sales charge to trusts, pensions, or profit-sharing plans
for these individuals. These sales are made with the purchaser's
written assurance that the purchase is for investment purposes and
that the securities will not be resold except through redemption by
the Fund.
DETERMINING NET ASSET VALUE
The Fund's NAV per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The NAV for each class
of Shares may differ due to the variance in daily net income realized
by each class.
NAV is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares
are received; or (iii) the following holidays: New Year's Day, Martin
Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to determine the
market value of municipal bonds. The independent pricing service takes
into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors
or market data it considers relevant in determining valuations for
normal institutional size trading units of debt securities, and does
not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60
days or less at the time of purchase, shall be their amortized cost
value, unless the particular circumstances of the security indicate
otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium
or accumulation of discount rather than at current market value. The
Executive Committee continually assesses this method of valuation and
recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith
by the Trustees.
REDEEMING SHARES
The Fund redeems Shares at the next computed NAV after the Fund
receives the redemption request. Shareholder redemption may be subject
to a contingent deferred sales charge. Redemption procedures are
explained in the prospectus under "Redeeming and Exchanging Shares."
Although the transfer agent does not charge for telephone redemptions,
it reserves the right to charge a fee for the cost of wire-transferred
redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000
or 1.00% of the NAV of the respective class, whichever is less, for
any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the
Trustees determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way that NAV is determined.
The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their securities
and selling them before their maturity could receive less than the
redemption value of their securities and could incur certain
transactions costs.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
In computing the amount of the applicable Contingent Deferred Sales
Charge, redemptions are deemed to have occurred in the following
order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than six full years
from the date of purchase; (3) Shares held for fewer than six years on
a first-in, first-out basis.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
To qualify for elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, the
redemptions of Class B Shares must be from an account that is
at least 12 months old, has all Fund distributions reinvested
in Fund Shares, and has an account value of at least $10,000
when the Systematic Withdrawal Program is established.
Qualifying redemptions may not exceed 1.00% monthly of the
account value as periodically determined by the Fund. The
amounts that a shareholder may withdraw under a Systematic
Withdrawal Program that qualify for elimination of the
Contingent Deferred Sales Charge may not exceed 12% annually
with reference initially to the value of the Class B Shares
upon establishment of the Systematic Withdrawal Program and
then as calculated at the annual valuation date. Redemptions
on a qualifying Systematic Withdrawal Program can be made at
a rate of 1.00% monthly, 3.00% quarterly, or 6.00%
semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit
for redemption, as described, may be subject to the
Contingent Deferred Sales Charge. To the extent that a
shareholder exchanges Shares for Class B 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 12-month holding requirement. However, for purposes of
meeting the $10,000 minimum account value requirement, Class
B Share accounts will be not be aggregated. Any Shares
purchased prior to the termination of this program would have
the contingent deferred sales charge eliminated as provided
in the Fund's prospectus at the time of the purchase of the
Shares.
<PAGE>
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for acts or obligations of
the Trust on behalf of the Fund. To protect shareholders of the Fund,
the Trust has filed legal documents with Massachusetts that expressly
disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument
that the Trust or its Trustees enter into or sign on behalf of the
Fund.
In the unlikely event a shareholder of the Fund is held personally
liable for the Trust's obligations on behalf of the Fund, the Trust is
required to use the property of the Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay
any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial
loss resulting from liability as a shareholder of the Fund will occur
only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the
Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive
the special tax treatment afforded to such companies. To qualify for
this treatment, the Fund must, among other requirements:
O DERIVE AT LEAST 90% OF ITS GROSS INCOME FROM DIVIDENDS, INTEREST,
AND GAINS FROM THE SALE OF SECURITIES; O INVEST IN SECURITIES WITHIN
CERTAIN STATUTORY LIMITS; AND O DISTRIBUTE TO ITS SHAREHOLDERS AT
LEAST 90% OF ITS NET INCOME EARNED DURING THE YEAR.
SHAREHOLDERS' TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the
sale of portfolio securities and as a result of discounts from par
value on securities held to maturity. Sales would generally be made
because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such,
whether they are taken in cash or reinvested, and regardless
of the length of time the shareholder has owned the Shares.
Any loss by a shareholder on Fund Shares held for less than
six months and sold after a capital gains distribution will
be treated as a long-term capital loss to the extent of the
capital gains distribution.
TOTAL RETURN
The Fund's average annual total return for Class A Shares for the
one-year and five-year periods ended August 31, 1997, and for the
period from October 11, 1990 (date of initial public investment) to
August 31, 1997, were 4.25%, 6.15% and 7.62%, respectively. The Fund's
cumulative total return for Class B Shares from March 4, 1997 (date of
initial public investment) to August 31, 1997 was (-1.21%). Cumulative
total return reflects Class B Shares total performance over a specific
period of time. Class B Share total return is representative of only
six months of activity.
The Fund's average annual total return for each class of Shares is the
average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price
per share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional Shares, assuming a monthly
reinvestment of all dividends and distributions. Any applicable
contingent deferred sales charge will be deducted from the ending
value of the investment based on the lesser of the original purchase
price or the offering price of Shares redeemed.
YIELD
The Fund's yields for Class A Shares and Class B Shares for the
thirty-day period ended August 31, 1997 were 4.42% and 3.64%,
respectively.
The yield for each class of Shares of the Fund is determined by
dividing the net investment income per Share (as defined by the
Securities and Exchange Commission) earned by any class of Shares over
a thirty-day period by the maximum offering price per Share of the
respective class on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount
of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income
actually earned by any class of Shares because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may
not correlate to the dividends or other distributions paid to
shareholders. To the extent that financial institutions and
broker/dealers charge fees in connection with services provided in
conjunction with an investment in any class of Shares of the Fund,
performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yields for Class A Shares and Class B
Shares for the thirty-day period ended August 31, 1997 were 6.39% and
5.26%, respectively.
<PAGE>
The tax-equivalent yield for each class of Shares of the Fund is
calculated similarly to the yield, but is adjusted to reflect the
taxable yield that any class would have had to earn to equal its
actual yield, assuming a state and federal tax rate of 30.80% and
assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the
Fund's portfolio generally remains free from federal regular income
tax* and is free from the income taxes imposed by the state of
Pennsylvania. As the table below indicates, a "tax-free" investment is
an attractive choice for investors, particularly in times of narrow
spreads between "tax-free" and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
<S> <C> <C> <C> <C> <C> <C>
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used
in calculating the taxable yield equivalent. Furthermore,
additional state and local taxes paid on comparable taxable
investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not
an indicator of past or future performance of Shares. *Some
portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
<PAGE>
PERFORMANCE COMPARISONS
The performance of each class of Shares depends upon such variables
as:
O PORTFOLIO QUALITY;
O AVERAGE PORTFOLIO MATURITY;
O TYPE OF INSTRUMENTS IN WHICH THE PORTFOLIO IS INVESTED;
O CHANGES IN INTEREST RATES AND MARKET VALUE OF PORTFOLIO SECURITIES;
O CHANGES IN THE FUND'S CLASS EXPENSES; AND
O VARIOUS OTHER FACTORS.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation
of yield and total return.
Investors may use financial publications and/or indices to obtain a
more complete view of the Fund's performance. When comparing
performance, investors should consider all relevant factors such as
the composition of any index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may
include:
O Lehman Brothers Revenue Bond Index IS A TOTAL RETURN PERFORMANCE
BENCHMARK FOR THE LONG-TERM, INVESTMENT GRADE, REVENUE BOND MARKET.
RETURNS AND ATTRIBUTES FOR THE INDEX ARE CALCULATED SEMI-MONTHLY. O
Lipper Analytical Services, Inc. RANKS FUNDS IN VARIOUS FUND
CATEGORIES BY MAKING COMPARATIVE CALCULATIONS USING TOTAL RETURN.
TOTAL RETURN ASSUMES THE REINVESTMENT OF ALL CAPITAL GAINS
DISTRIBUTIONS AND INCOME DIVIDENDS AND TAKES INTO ACCOUNT ANY CHANGE
IN OFFERING PRICE OVER A SPECIFIC PERIOD OF TIME. FROM TIME TO TIME,
THE FUND WILL QUOTE ITS LIPPER RANKING IN THE "GENERAL MUNICIPAL BOND
FUNDS" CATEGORY IN ADVERTISING AND SALES LITERATURE. O Morningstar,
Inc., AN INDEPENDENT RATING SERVICE, IS THE PUBLISHER OF THE BI-WEEKLY
MUTUAL FUND VALUES. MUTUAL FUND VALUES RATES MORE THAN 1,000
NASDAQ-LISTED MUTUAL FUNDS OF ALL TYPES, ACCORDING TO THEIR
RISK-ADJUSTED RETURNS. THE MAXIMUM RATING IS FIVE STARS, AND RATINGS
ARE EFFECTIVE FOR TWO WEEKS. Advertisements and other sales literature
for the Fund may quote total returns which are calculated on
non-standardized base periods. The total returns represent the
historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specific period of time.
Advertisements may quote performance information which does not
reflect the effect of the sales charge.
Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in
general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their
views and analysis on how such developments could affect the Funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.
<PAGE>
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making -- structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual
funds in the industry and is now one of the largest institutional
buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers
Union regarding the tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through it subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance companies, and
investment and financial advisors.
The marketing effort to theses institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide -- we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country -- supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
rankings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securites Corp.
*source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small
degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond
rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, L.P. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality.
The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB--Bonds considered to be investment grade and of satisfactory
credit quality.
The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds, and therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "AAA"
category.
STANDARD & POOR'S RATINGS SERVICES MUNICIPAL NOTE RATINGS
S
P-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity
support or demonstrated broad based access to the market for
refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the F-1+ and F-1 categories.
Standard & Poor's Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
for issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate
liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION.
<S> <C> <C> <C> <C>
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements for:
(1) Federated Pennsylvania Municipal Income Fund (Filed in Part A);
(2) Federated Ohio Municipal Income Fund (Filed in Part A);
(3) Federated Michigan Intermediate Municipal Trust (Filed in Part A);
(4) Federated California Municipal Income Fund (Filed in Annual Report to Shareholders dated August
31, 1997);
(5) Federated New York Municipal Income Fund (Filed in Part A);
(b) Exhibits:
(1) (i) Paper Copy of Declaration of Trust of the Registrant (1);
(ii) Paper Copy of Amendment No. 1 (dated August 26, 1991) to Declaration of Trust (5);
(iii) Conformed Copy of Amendment No. 2 (dated August 6, 1990) to the Declaration of Trust (6);
(iv) Conformed Copy of Amendment No. 3 (dated August 31, 1992) to the Declaration of Trust (8);
(v) Conformed Copy of Amendment No. 4 (dated September 17, 1992) to the Declaration of Trust (8);
(vi) Conformed Copy of Amendment No. 5 (dated February 4, 1993) to the Declaration of Trust (10);
(vii) Conformed Copy of Amendment No. 6 (dated May 24, 1993) to the Declaration of Trust (13);
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 31, 1990. (File
Nos. 33-36729 and 811-6165)
5. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 4 on Form N-1A filed on October 28,
1991. (File Nos. 33-36729 and 811-6165)
6. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 5 on Form N-1A filed on January 24,
1992. (File Nos. 33-36729 and 811-6165)
8. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 7 on Form N-1A filed on September
25, 1992. (File Nos. 33-36729 and 811-6165)
10. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 10 on Form N-1A filed on March 24,
1993. (File Nos. 33-36729 and 811-6165)
13. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 13 on Form N-1A filed on July 2,
1993, (File Nos. 33-36729 and 811-6165)
<PAGE>
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial Interest for:
(i) Federated Pennsylvania Municipal Income Fund-Class A Shares (19);
(ii) Federated Pennsylvania Municipal Income Fund- Class B Shares; +
(iii) Federated Ohio Municipal Income Fund-Class F Shares (19);
(iv) Federated California Municipal Income Fund-Class F Shares (19);
(v) Federated New York Municipal Income Fund-Class F Shares (19);
(vi) Federated Michigan Intermediate Municipal Trust (19);
(5) Conformed copy of new Investment Advisory Contract of the Registrant (21);
(i) Copy of Amendment to Investment Advisory Contract (12)
(ii) Conformed Copies of Amendments to Investment Advisory Contract (14);
(iii) Conformed Copies of Amendments to
Investment Advisory Contract (14); (6) (i) Conformed
copy of Distributor's Contract of the
Registrant (21);
(ii) Copy of Amendment to Distributor's Contract (12);
(iii) Conformed copy of Amendment to Distributor's Contract (14);
(iv) The Registrant hereby incorporates
the conformed copy of the specimen
Mutual Fund Sales and Service
Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual
Funds Service Agreement from Item
24(b)(6) of the Cash Trust Series
II Registration Statement on Form
N-1A filed with the Commission on
July 24, 1995. (File Number
33-38550 and 811-6269).
(7) Not applicable;
(8) (i) Conformed Copy of Custodian Contract of the Registrant (18);
(ii) Conformed Copy of Custodian Fee Schedule; +
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 31, 1990. (File
Nos. 33-36729 and 811-6165)
12. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 12 on Form N-1A filed on May 17,
1993. (File Nos. 33-36729 and 811-6165)
14. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 14 on Form N-1A filed on October 28,
1993. (File Nos. 33-36729 and 811-6165)
18. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 19 on Form N-1A filed on October 30,
1995. (File Nos. 33-36729 and 811-6165)
19. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 21 on Form N-1A filed on October 23,
1996. (File Nos. 33-36729 and 811-6165)
21. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 23 on Form N-1A filed on October 15,
1997. (File Nos. 33-36729 and 811-6165)
<PAGE>
(9) (i) Conformed Copy of Amended and Restated Shareholder Services Agreement; +
(ii) Conformed Copy of Agreement for Fund Accounting Services, Administrative Services,
Transfer Agency Services and Custody Services Procurement; (19)
(iii) With regard to Federated Pennsylvania Municipal Income Fund, Federated Ohio Municipal
Income Fund, Federated California Municipal Income Fund and
Federated New York Municipal Income Fund, the Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between Fidelity and Federated
Shareholder Services from Item 24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the Commission on March 25, 1996.
(File Nos. 2-75670 and 811-3375).
(iv) The response described in Item
24(b)(6)(iv) are hereby incorporated by reference;
(10) Conformed Copy of Opinion and Consent of Counsel
as to the legality of shares being registered (1);
(11) Conformed Copy of Consent of Independent
Auditors; + (12) Not applicable; (13) Conformed Copy
of Initial Capital Understanding (1); (14) Not
applicable; (15) (i) Conformed copy of Rule 12b-1
Plan (21);
(ii) Conformed copy of Distribution Plan (21);
(iii) The response described in Item
24(b)(6)(iv) are hereby incorporated by reference;
(16) Copy of Schedule for Computation of Fund
Performance Data for:
(i) Ohio Municipal Income Fund (18);
(ii) Pennsylvania Municipal Income Fund (18);
(iii) California Municipal Income Fund (11);
(iv) New York Municipal Income Fund (11);
(v) Michigan Municipal Income Fund (11);
(17) Copy of Financial Data Schedules; +
(18) With regard to Federated Pennsylvania
Municipal Income Fund, Federated Ohio
Municipal Income Fund, Federated California
Municipal Income Fund and Federated New
York Municipal Income Fund, the Registrant
hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item
24(b)(18) of the World Investment Series,
Inc. Registration Statement on Form N-1A,
filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed Copy of Power of Attorney; (19)
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 31, 1990. (File
Nos. 33-36729 and 811-6165)
11. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 11 on Form N-1A filed on April 28,
1993. (File Nos. 33-36729 and 811-6165)
18. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 19 on Form N-1A filed on October 30,
1995. (File Nos. 33-36729 and 811-6165)
19. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 21 on Form N-1A filed on October 23,
1996, (File Nos. 33-36729 and 811-6165)
21. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 23 on Form N-1A filed on October 15,
1997. (File Nos. 33-36729 and 811-6165)
<PAGE>
</TABLE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 26. NUMBER OF HOLDERS OF SECURITIES:
Number of Record Holders
TITLE OF CLASS AS OF OCTOBER 6, 1997
-------------- ----------------------
Shares of Beneficial Interest
(no par value)
Federated California Municipal Income Fund
Class A Shares (formerly, Class F Shares) 323
Class B Shares (not currently effective) --
Federated Michigan Municipal Income Trust 323
Federated New York Municipal Income Fund 373
Federated Ohio Municipal Income Fund 1,537
Federated Pennsylvania Municipal Income Fund
Class A Shares 5,447
Class B Shares 269
Item 27. INDEMNIFICATION: (1)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the
investment adviser, see the section entitled "TRUST
INFORMATION -MANAGEMENT OF THE TRUST" in Part A. The
affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under
"MUNICIPAL SECURITIES INCOME TRUST MANAGEMENT." The
remaining Trustee of the investment adviser, his
position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson
(Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 31, 1990. (File
Nos. 33-36729 and 811-6165)
<PAGE>
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the
investment adviser is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. These individuals
are also officers of a majority of the investment
advisers to the Funds listed in Part B of this
Registration Statement.
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal underwriter for
the following closed-end investment company: Liberty Term Trust, Inc.-
1999.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 31. MANAGEMENT SERVICES: Not applicable.
<PAGE>
Item 32. UNDERTAKINGS:
Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with respect to the
removal of Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, MUNICIPAL
SECURITIES INCOME TRUST, certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 31st
day of October, 1997.
MUNICIPAL SECURITIES INCOME TRUST
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
October 31, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ J. Crilley Kelly Attorney In Fact October 31, 1997
J. Crilley Kelly For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Richard B. Fisher* President
J. Christopher Donahue* Executive Vice President
and Trustee
John W. McGonigle * Treasurer and Executive
Vice President
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders
of Municipal Securities Income Trust:
We consent to the use in Post-Effective Amendment No. 25 to
Registration Statement 33-36729 of Municipal Securities Income Trust
(comprised of the following portfolios: Pennsylvania Municipal Income
Fund, New York Municipal Income Fund, Michigan Municipal Income Fund,
California Municipal Income Fund and Ohio Municipal Income Fund) of
our reports dated October 13, 1997, appearing in the Prospectuses,
which are a part of such Registration Statement, and to the reference
to us under the heading "Financial Highlights" in such Prospectuses.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 29, 1997
Exhibit 4 (ii) under Form N-1A
Exhibit 3 (c) under Item 601/Reg. S-K
MUNICIPAL SECURITIES INCOME TRUST
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
CLASS B SHARES
Number Shares
- ----- -----
Account No. Alpha Code Organized Under See Reverse Side For
the Laws of the Certain Definitions
Commonwealth of
Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 625922836
Fully Paid and Non-Assessable Shares of Beneficial Interest of the
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND (CLASS B SHARES)
Portfolio of MUNICIPAL SECURITIES INCOME TRUST hereafter called the
"Trust", transferable on the books of the Trust by the owner, in
person or by duly authorized attorney, upon surrender of this
certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws of
the Trust, and all amendments thereto, to all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with its
seal.
Dated: MUNICIPAL SECURITIES INCOME TRUST
Trust Seal
(1990)
Massachusetts
/s/ Edward C. Gonzales /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Shareholder Services Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations; TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entireties (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received__________ hereby sell, assign, and transfer unto
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________________
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named Trust
with full power of substitution in the premises.
Dated______________________
NOTICE:_________________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.
All persons dealing with Municipal Securities Income Trust, a
Massachusetts Business Trust, must look solely to the Trust property
for the enforcement of any claim against the Trust, as the Trustees,
Officers, Agents or Shareholders of the Trust assume no personal
liability whatsoever for obligations entered into on BEHALF OF THE
TRUST.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
PAGE ONE
A. The Certificate is outlined by a blue one-half inch border.
B. The number in the upper left-hand corner and the number of shares
in the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is
boxed.
D. The Massachusetts corporate seal appears in the bottom middle of
the page.
PAGE TWO
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
DOMESTIC CUSTODY
FEE SCHEDULE
FEDERATED FUNDS
I. Custody Services
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.
ANNUAL FEES
ASSET
Per Fund .25 Basis Points
Wire Fees $3.00 per wire
Settlements:
oEach DTC Transaction $5.00
oEach Federal Reserve Book Entry Transaction $3.75
oEach Repo Transaction (All Repo) $3.75
oEach Physical Transaction (NY/Boston, Private Placement) $15.00
oEach Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
oGovernment Paydowns $5.00
oMaturity Collections $8.00
oPTC Transactions $6.00
II. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments and
the preparation of special reports will be subject to negotiation.
III. Balance Credit
MUNICIPAL FUNDS
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.
TRANSFER AGENT
A balance credit equal to 100% of the average balance in the
transfer agent demand deposit accounts, less the reserve requirement
and applicable related expenses, times 75% of the 30 average Fed Funds
Rate.
IV. Payment
The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds'
offices.
V. Term of Contract
The parties agree that this fee schedule shall become
effective January 1, 1997.
FEDERATED SERVICES COMPANY STATE STREET
BY: /S/ DOUGLAS L. HEIN BY: /S/ MICHAEL E. HAGERTY
TITLE: SENIOR VICE PRESIDENT TITLE: VICE PRESIDENT
DATE: APRIL 15, 1997 DATE: APRIL 8, 1997
----------------------------- -------------
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDED AND RESTATED
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of
September, 1995, (originally made and enterered into as of the first
day of March, 1994), by and between those investment companies listed
on Exhibit 1, as may be amended from time to time, having their
principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
(individually referred to herein as a "Fund" and collectively as
"Funds") and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be
rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby
appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby
accepts such appointments. FSS agrees to provide or cause to
be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or
Directors, as applicable), are necessary or desirable for
shareholders of the Funds. FSS further agrees to provide the
Funds, upon request, a written description of the Services
which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and FSS
agrees to accept as full compensation for its services rendered
hereunder a fee at an annual rate, calculated daily and payable
monthly, up to 0.25% of 1% of average net assets of each Fund.
For the payment period in which this Agreement becomes
effective or terminates with respect to any Fund, there shall
be an appropriate proration of the monthly fee on the basis
of the number of days that this Agreement is in effect with
respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the
date of its execution, and thereafter for successive periods
of one year only if the form of this Agreement is approved at
least annually by the Board of each Fund, including a
majority of the members of the Board of the Fund who are not
interested persons of the Fund ("Independent Board Members")
cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a
vote of a majority of the outstanding voting securities of any
Fund as defined in the Investment Company Act of 1940 on sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention
to terminate.
5. FSS agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it
provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury
regulations, and to provide each Fund or its designee with
timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by any Fund in connection
with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties
under this Agreement. FSS shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for such
Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of
such Fund's Board, officer, employee or agent of any Fund,
shall be deemed, when rendering services to such Fund or
acting on any business of such Fund (other than services or
business in connection with the duties of FSS hereunder) to
be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or
one under the control or direction of FSS even though paid by
FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust of each Fund that is
a Massachusetts business trust and agrees that the
obligations assumed by each such Fund pursuant to this
Agreement shall be limited in any case to such Fund and its
assets and that FSS shall not seek satisfaction of any such
obligations from the shareholders of such Fund, the Trustees,
Officers, Employees or Agents of such Fund, or any of them.
9. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized
officer of FSS, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of
them personally, and the obligations of this Agreement are
not binding upon any of the Trustees or shareholders of FSS,
but bind only the trust property of FSS as provided in the
Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given
if delivered to any Fund and to such Fund at the following
address: Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President.
11. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with
respect to the subject hereof whether oral or written. If any
provision of this Agreement shall be held or made invalid by
a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Sections 3 and
4, hereof, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their
respective successors and shall be governed by Pennsylvania
law; provided, however, that nothing herein shall be
construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by
the Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be
an original, and all such counterparts shall together constitute one
and the same instrument.
13. This Agreement shall not be assigned by any party without the
prior written consent of FSS in the case of assignment by any
Fund, or of the Funds in the case of assignment by FSS,
except that any party may assign to a successor all of or a
substantial portion of its business to a party controlling,
controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating
its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the
day and year first above written.
Investment Companies (listed on Exhibit 1)
Attest: /S/JOHN W. MCGONIGLE By: /S/ JOHN F. DONAHUE
John W. McGonigle John F. Donahue
Secretary Chairman
Federated Shareholder Services
Attest: /S/ JOSEPH M HUBER By: /S/ JOHN W. MCGONIGLE
Secretary President
<PAGE>
Exhibit 1 Exhibit 1
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
AUTOMATED GOVERNMENT MONEY TRUST
CASH TRUST SERIES, INC.:
Government Cash Series
Municipal Cash Series
Prime Cash Series
Treasury Cash Series
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
FEDERATED AMERICAN LEADERS FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED ARMS FUND
Institutional Service Shares
Institutional Shares
FEDERATED EQUITY FUNDS:
Federated Aggressive Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated Capital Appreciation Fund
Class A Shares
Class B Shares
Class C Shares
Federated Growth Strategies Fund
Class A Shares
Class B Shares
Class C Shares
Federated Small Cap Strategies Fund
Class A Shares
Class B Shares
Class C Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED EQUITY INCOME FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED GNMA TRUST
Institutional Service Shares
Institutional Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED GOVERNMENT TRUST"
Automated Government Cash Reserves
Automated Treasury Cash Reserves
U.S. Treasury Cash Reserves
Institutional Service Shares
Institutional Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED HIGH YIELD TRUST
FEDERATED INCOME SECURITIES TRUST:
Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Federated Income Trust
Institutional Service Shares
Institutional Shares
FEDERATED INDEX TRUST:
Federated Max-Cap Fund
Class C Shares
Institutional Service Shares
Institutional Shares
Federated Mid-Cap Fund
Federated Mini-Cap Fund
Class C shares
Institutional Shares
FEDERATED INSTITUTIONAL TRUST:
Federated Institutional Short-Term Government Fund
FEDERATED INVESTMENT TRUST:
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Federated Master Trust
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class A Shares
Class B Shares
Class C Shares
<PAGE>
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED MUNICIPAL TRUST:
Alabama Municipal Cash Trust
California Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Connecticut Municipal Cash Trust
Institutional Service Shares
Florida Municipal Cash Trust
Cash II Shares
Institutional Shares
Georgia Municipal Cash Trust
Maryland Municipal Cash Trust
Massachusetts Municipal Cash Trust
Institutional Service Shares
Boston 1784 Funds Shares
Michigan Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Minnesota Municipal Cash Trust
Cash Series Shares
Institutional Shares
New Jersey Municipal Cash Trust
Institutional Service Shares
Institutional Shares
New York Municipal Cash Trust
Cash II Shares
Institutional Service Shares
North Carolina Municipal Cash Trust
Ohio Municipal Cash Trust
Cash II Shares
Institutional Shares
Institutional Service Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Pennsylvania Municipal Cash Trust
Cash Series Shares
Institutional Service Shares
Institutional Shares
Tennessee Municipal Cash Trust
Institutional Shares
Institutional Service Shares
Virginia Municipal Cash Trust
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM MUNICIPAL TRUST
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
FEDERATED STOCK AND BOND FUND, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED STOCK TRUST
FEDERATED TAX-FREE TRUST
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED U.S. GOVERNMENT BOND FUND
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U. S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
Institutional Service Shares
Institutional Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FIXED INCOME SECURITIES, INC.:
Federated Limited Term Fund
Class A Shares
Class F Shares
Federated Limited Term Municipal Fund
Class A Shares
Class F Shares
Federated Strategic Income Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED TOTAL RETURN SERIES, INC.:
Federated Limited Duration Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Bond Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Limited Duration Fund
Institutional Shares
Institutional Service Shares
FEDERATED UTILITY FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
INTERMEDIATE MUNICIPAL TRUST:
Federated Intermediate Municipal Trust
Federated Ohio Intermediate Municipal Trust
Federated Pennsylvania Intermediate Municipal Trust
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
INTERNATIONAL SERIES, INC.:
Federated International Equity Fund
Class A Shares
Class B Shares
Class C Shares
Federated International Income Fund
Class A Shares
Class B Shares
Class C Shares
INVESTMENT SERIES FUNDS, INC.:
Federated Bond Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
EDWARD D. JONES & CO. DAILY PASSPORT CASH TRUST
LIBERTY TERM TRUST, INC. -- 1999
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class A Shares
Class B Shares
LIQUID CASH TRUST
MANAGED SERIES TRUST:
Federated Aggressive Growth Fund
Institutional Shares
Select Shares
Federated Managed Growth and Income Fund
Institutional Shares
Select Shares
Federated Managed Growth Fund
Institutional Shares
Select Shares
Federated Managed Income Fund
Institutional Shares
Select Shares
MONEY MARKET MANAGEMENT, INC.
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
MONEY MARKET OBLIGATIONS TRUST:
Automated Cash Management Trust
Cash II Shares
Institutional Shares
Government Obligations Fund
Institutional Shares
Institutional Service Shares
Government Obligations Tax-Managed Fund
Institutional Shares
Institutional Service Shares
Prime Obligations Fund
Institutional Shares
Institutional Service Shares
Tax-Free Obligations Fund
Institutional Shares
Institutional Service Shares
Treasury Obligations Fund
Institutional Capital Shares
Institutional Shares
Institutional Service Shares
MONEY MARKET OBLIGATIONS TRUST II:
Municipal Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Cash Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Value Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
MONEY MARKET TRUST
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
MUNICIPAL SECURITIES INCOME TRUST:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan IntermediateMunicipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares
TAX-FREE INSTRUMENTS TRUST
Institutional Service Shares
Investment Shares
TRUST FOR GOVERNMENT CASH RESERVES
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
TRUST FOR U.S. TREASURY OBLIGATIONS
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
WORLD INVESTMENT SERIES, INC.:
Federated Asia Pacific Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class B Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class B Shares
Class C Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Federated International Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated International High Income Fund
Class A Shares
Class B Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class B Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated World Utility Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Municipal Securities Income Trust
Federated California Municipal Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 20,566,505
<INVESTMENTS-AT-VALUE> 21,633,114
<RECEIVABLES> 306,383
<ASSETS-OTHER> 119,893
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,059,390
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,269
<TOTAL-LIABILITIES> 59,269
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,687,284
<SHARES-COMMON-STOCK> 2,051,158
<SHARES-COMMON-PRIOR> 1,669,535
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (753,772)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,066,609
<NET-ASSETS> 22,000,121
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,136,467
<OTHER-INCOME> 0
<EXPENSES-NET> 127,500
<NET-INVESTMENT-INCOME> 1,008,967
<REALIZED-GAINS-CURRENT> 243,124
<APPREC-INCREASE-CURRENT> 581,586
<NET-CHANGE-FROM-OPS> 1,833,677
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,008,967
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 515,114
<NUMBER-OF-SHARES-REDEEMED> 179,343
<SHARES-REINVESTED> 45,852
<NET-CHANGE-IN-ASSETS> 4,852,482
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (996,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 506,018
<AVERAGE-NET-ASSETS> 19,274,603
<PER-SHARE-NAV-BEGIN> 10.270
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> 0.460
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.730
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Municipal Securities Income Trust
Federated Michigan Intermediate Municipal Trust
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 63,488,574
<INVESTMENTS-AT-VALUE> 66,671,042
<RECEIVABLES> 1,113,541
<ASSETS-OTHER> 75,679
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,860,262
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 268,672
<TOTAL-LIABILITIES> 268,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,535,642
<SHARES-COMMON-STOCK> 6,229,544
<SHARES-COMMON-PRIOR> 5,869,678
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,126,520)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,182,468
<NET-ASSETS> 67,591,590
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,542,049
<OTHER-INCOME> 0
<EXPENSES-NET> 324,390
<NET-INVESTMENT-INCOME> 3,217,569
<REALIZED-GAINS-CURRENT> 149,867
<APPREC-INCREASE-CURRENT> 767,866
<NET-CHANGE-FROM-OPS> 4,135,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,217,659
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,512,481
<NUMBER-OF-SHARES-REDEEMED> 1,209,574
<SHARES-REINVESTED> 56,959
<NET-CHANGE-IN-ASSETS> 4,806,487
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,276,387)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 257,217
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 701,267
<AVERAGE-NET-ASSETS> 64,387,196
<PER-SHARE-NAV-BEGIN> 10.700
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> 0.150
<PER-SHARE-DIVIDEND> 0.540
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.850
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Municipal Securities Income Trust
Federated New York Municipal Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 21,937,036
<INVESTMENTS-AT-VALUE> 23,120,987
<RECEIVABLES> 471,282
<ASSETS-OTHER> 34,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,627,238
<PAYABLE-FOR-SECURITIES> 1,110,170
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130,596
<TOTAL-LIABILITIES> 1,240,766
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,336,454
<SHARES-COMMON-STOCK> 2,107,392
<SHARES-COMMON-PRIOR> 2,155,908
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,133,933)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,183,951
<NET-ASSETS> 22,386,472
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,370,576
<OTHER-INCOME> 0
<EXPENSES-NET> 150,975
<NET-INVESTMENT-INCOME> 1,219,601
<REALIZED-GAINS-CURRENT> 566,956
<APPREC-INCREASE-CURRENT> 432,403
<NET-CHANGE-FROM-OPS> 2,218,960
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,219,601
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 356,926
<NUMBER-OF-SHARES-REDEEMED> 456,448
<SHARES-REINVESTED> 51,006
<NET-CHANGE-IN-ASSETS> 454,807
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,700,488)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91,304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 549,773
<AVERAGE-NET-ASSETS> 22,724,436
<PER-SHARE-NAV-BEGIN> 10.170
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> 0.450
<PER-SHARE-DIVIDEND> 0.560
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.620
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Municipal Securities Income Trust
Federated Ohio Municipal Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 71,675,104
<INVESTMENTS-AT-VALUE> 75,928,352
<RECEIVABLES> 1,210,043
<ASSETS-OTHER> 121,599
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,259,994
<PAYABLE-FOR-SECURITIES> 1,580,718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172,936
<TOTAL-LIABILITIES> 1,753,654
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,410,424
<SHARES-COMMON-STOCK> 6,548,899
<SHARES-COMMON-PRIOR> 5,944,265
<ACCUMULATED-NII-CURRENT> 4,634
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (161,966)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,253,248
<NET-ASSETS> 75,506,340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,217,476
<OTHER-INCOME> 0
<EXPENSES-NET> 627,686
<NET-INVESTMENT-INCOME> 3,589,790
<REALIZED-GAINS-CURRENT> 627,060
<APPREC-INCREASE-CURRENT> 1,642,169
<NET-CHANGE-FROM-OPS> 5,859,019
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,614,135
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 438,606
<NUMBER-OF-SHARES-REDEEMED> 1,187,600
<SHARES-REINVESTED> 1,002,473
<NET-CHANGE-IN-ASSETS> 4,938,625
<ACCUMULATED-NII-PRIOR> 35,355
<ACCUMULATED-GAINS-PRIOR> (370,668)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 277,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,031,458
<AVERAGE-NET-ASSETS> 69,531,676
<PER-SHARE-NAV-BEGIN> 11.210
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> 0.320
<PER-SHARE-DIVIDEND> 0.590
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.530
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Municipal Securities Income Trust
Federated Pennsylvania Municipal Income Fund
Class A
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 220,627,466
<INVESTMENTS-AT-VALUE> 230,778,988
<RECEIVABLES> 4,193,957
<ASSETS-OTHER> 120,228
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 235,093,173
<PAYABLE-FOR-SECURITIES> 13,802,528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 592,784
<TOTAL-LIABILITIES> 14,395,312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,266,286
<SHARES-COMMON-STOCK> 18,178,135
<SHARES-COMMON-PRIOR> 7,408,593
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 477
<ACCUMULATED-NET-GAINS> 280,530
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,151,522
<NET-ASSETS> 212,791,813
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,163,487
<OTHER-INCOME> 0
<EXPENSES-NET> 894,357
<NET-INVESTMENT-INCOME> 6,269,130
<REALIZED-GAINS-CURRENT> 2,211,019
<APPREC-INCREASE-CURRENT> 5,539,761
<NET-CHANGE-FROM-OPS> 14,019,910
<EQUALIZATION> 126,956
<DISTRIBUTIONS-OF-INCOME> 6,501,486
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,204,916
<NUMBER-OF-SHARES-REDEEMED> 1,779,292
<SHARES-REINVESTED> 343,918
<NET-CHANGE-IN-ASSETS> 136,582,331
<ACCUMULATED-NII-PRIOR> 196,829
<ACCUMULATED-GAINS-PRIOR> (1,930,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 470,040
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,161,901
<AVERAGE-NET-ASSETS> 115,914,186
<PER-SHARE-NAV-BEGIN> 11.350
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> 0.390
<PER-SHARE-DIVIDEND> 0.650
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.710
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Municipal Securities Income Trust
Federated Pennsylvania Municipal Income Fund
Class B
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 220,627,466
<INVESTMENTS-AT-VALUE> 230,778,988
<RECEIVABLES> 4,193,957
<ASSETS-OTHER> 120,228
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 235,093,173
<PAYABLE-FOR-SECURITIES> 13,802,528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 592,784
<TOTAL-LIABILITIES> 14,395,312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,266,286
<SHARES-COMMON-STOCK> 675,372
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 477
<ACCUMULATED-NET-GAINS> 280,530
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,151,522
<NET-ASSETS> 7,906,048
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,163,487
<OTHER-INCOME> 0
<EXPENSES-NET> 894,357
<NET-INVESTMENT-INCOME> 6,269,130
<REALIZED-GAINS-CURRENT> 2,211,019
<APPREC-INCREASE-CURRENT> 5,539,761
<NET-CHANGE-FROM-OPS> 14,019,910
<EQUALIZATION> 126,956
<DISTRIBUTIONS-OF-INCOME> 91,906
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 678,264
<NUMBER-OF-SHARES-REDEEMED> 7,717
<SHARES-REINVESTED> 4,825
<NET-CHANGE-IN-ASSETS> 136,582,331
<ACCUMULATED-NII-PRIOR> 196,829
<ACCUMULATED-GAINS-PRIOR> (1,930,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 470,040
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,161,901
<AVERAGE-NET-ASSETS> 115,914,186
<PER-SHARE-NAV-BEGIN> 11.520
<PER-SHARE-NII> 0.300
<PER-SHARE-GAIN-APPREC> 0.200
<PER-SHARE-DIVIDEND> 0.310
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.710
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
