PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of Federated
California Municipal Income Fund, a portfolio of Municipal Securities Income
Trust. This report covers the first half of the fund's fiscal year, which is the
six-month period from September 1, 1997, through February 28, 1998. The report
begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and its financial statements.
Designed for tax-sensitive California residents, Federated California Municipal
Income Fund provides opportunities for income exempt from federal regular income
tax and California personal income tax.* This double tax-free advantage means
you can earn a greater after-tax yield than you could in a comparable
high-quality taxable investment.
During the six-month reporting period, the fund's portfolio of 40 quality
holdings paid a monthly dividend stream totaling $0.26 per share, while the
share price increased from $10.73 to $11.00. As a result, the fund's Class A
Shares achieved a six-month total return of 5.02%, based on net asset value.**
The fund's net assets reached $26 million at the end of the reporting period.
This report also contains information about a new class of shares--Class B
Shares--which began operation on December 1, 1997.***
Thank you for joining other shareholders of Federated California Municipal
Income Fund in pursuing monthly, double tax-free investment income. Of course,
you have the option of receiving income from the fund or building your account
by reinvesting your dividends and compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total return for the six-month reporting period based on offering
price for Class A Shares was -0.74%.
*** Total return for the period from December 1, 1997 (date of initial public
investment) to February 28, 1998, for Class B Shares based on net asset value
and offering price was 2.21% and -3.34%, respectively.
INVESTMENT REVIEW
Q. How has the California municipal bond market been faring?
A. California's economy has recovered quite well from the recessionary
environment which existed earlier in this decade. This has translated directly
into better fiscal health for the state's local governments and other issuers of
municipal debt. However, pockets of credit weakness still exist in California,
such as several distressed county governments and tax allocation districts.
Overall, the California municipal bond market performed very well relative to
the general market in terms of price appreciation. The solid relative
performance of California municipal debt may continue given the significant
legislative restrictions on issuance (i.e., proposition 13) and continued demand
for bonds by investors.
Q. In this environment, how did Federated California Municipal Income Fund
perform with respect to total return over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1998, the fund's Class
A Shares produced a total return of 5.02%, based on net asset value.* This
six-month total return is close to the Lehman Brothers Municipal Bond Index
return of 5.04%.+ The fund's performance over the reporting period is a result
of purchasing bonds with favorable performance characteristics such as discount
coupons and better call protection. The fund also benefited from having several
high coupon bonds pre-refunded. This resulted in significant price appreciation
as the bonds were priced to a shorter call date and backed by U.S. treasury
securities.
Q. In this environment, how did Federated California Municipal Income Fund
perform with respect to income and yield over the six-month reporting period?
A. The 30-day SEC yield for Class A Shares on February 28, 1998, was 4.24%,
based on offering price.** The SEC yield declined from 4.62% at the beginning of
the six-month reporting period as a result of a general decline in market
interest rates and positive net cash flows into the fund. Municipal interest
rates, as represented by the Bond Buyer 40 Index,++ declined from 5.53% on
November 1, 1997, to 5.24% at the end of the reporting period.
Q. What is your outlook for the municipal market through 1998 and how does your
outlook affect portfolio strategy?
A. The U.S. economy is expected to moderate in the second half of 1998 from its
tepid pace over the last twelve months. The effects on the U.S. economy from the
Asian crisis may be evident within the next few months. This fact combined with
a potentially balanced federal budget and diminished expectations concerning
inflation may result in a relatively favorable environment for fixed-income
securities later this year. The municipal bond market has been in a trading
range for several months and may continue to be range bound until economic
numbers begin to signal a change in the economy's direction. Portfolio strategy
will include maintaining a neutral duration target relative to its benchmark
while looking for opportunities to improve portfolio yield, and as a result, the
income distributed to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return for the six-month reporting period based on offering price
for Class A Shares was -0.74%. Total return for the period from December 1, 1997
(date of initial public investment) to February 28, 1998, for Class B Shares
based on net asset value and offering price was 2.21% and -3.34%, respectively.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day SEC yield for Class B
Shares on February 28, 1998, was 3.48%, based on offering price.
+ Lehman Brothers Municipal Bond Index are broad market performance benchmarks
for the tax-exempt bond market. As of March 31, 1998, approximately 42,021 bonds
were included in the Municipal Bond Index with a market value of $631 billion.
To be included in the Lehman Brothers Municipal Bond Index, bonds must have a
minimum credit rating of at least Baa. They must have an outstanding par value
of at least $3 million and be issued as part of a transaction of at least $50
million. The index includes both zero coupon bonds and bonds subject to the
alternative minimum tax. This index is unmanaged, and investments cannot be made
in an index.
++ The Bond Buyer 40 Index is a standard against which municipal bonds are
measured. This index is unmanaged, and investments cannot be made in a index.
PORTFOLIO OF INVESTMENTS
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--97.6%
CALIFORNIA--94.7%
$ 500,000 Anaheim, CA Public Financing Authority, Lease AAA $ 570,380
Revenue Bonds (Series 1997C), 6.00% (Anaheim
Public Improvements Project)/(FSA INS), 9/1/2010
500,000 Anaheim, CA Public Financing Authority, Lease AAA 566,430
Revenue Bonds (Series 1997C), 6.00% (Anaheim
Public Improvements Project)/(FSA INS), 9/1/2016
625,000 California Educational Facilities Authority, A1 701,994
Revenue Bonds (Series B), 6.60% (Loyola Marymount
University)/(United States Treasury PRF),
10/1/2022
1,000,000 California Educational Facilities Authority, AAA 1,018,760
Revenue Bonds (Series N), 5.35% (Stanford
University)/(Original Issue Yield: 5.43%),
6/1/2027
600,000 California Educational Facilities Authority, A3 670,968
Revenue Bonds, 6.70% (Southwestern
University)/(Original Issue Yield: 6.838%),
11/1/2024
680,000 California HFA, SFM Revenue Bonds (Series C), AA- 724,880
6.75%, 2/1/2025
1,290,000 California HFA, SFM Revenue Bonds (Series F-1), AA- 1,395,341
7.00%, 8/1/2026
1,000,000 California Health Facilities Financing Authority, A+ 1,029,380
Insured Health Facilities Refunding Revenue Bonds
(Series 1997), 5.50% (Valley Care Hospital
Corp.)/(California Mortgage Insurance
INS)/(Original Issue Yield: 5.737%), 5/1/2020
400,000 California Health Facilities Financing Authority, A+ 428,676
Revenue Bonds (Series A), 6.50% (Kaiser
Permanente Medical Care Program)/(Original Issue
Yield: 7.097%), 12/1/2020
700,000 California Health Facilities Financing Authority, AAA 752,437
Revenue Refunding Bonds (1996 Series A), 6.00%
(Catholic Health Care West)/(MBIA INS)/ (Original
Issue Yield: 6.15%), 7/1/2017
900,000 California PCFA, Exempt Facilities Revenue Bonds AA 921,960
(Series 1996), 5.50% (Mobil Corp.)/(Original
Issue Yield: 5.72%), 12/1/2029
500,000 California PCFA, PCR Revenue Bonds (Series B), A+ 537,410
6.40% (Southern California Edison Co.)/(Original
Issue Yield: 6.55%), 12/1/2024
900,000 California PCFA, Sewer & Solid Waste Disposal A+ 936,738
Revenue Bonds, 5.75% (Anheuser-Busch Cos.,
Inc.)/(Original Issue Yield: 5.818%), 12/1/2030
700,000 California PCFA, Solid Waste Disposal Revenue A 775,411
Bonds, 6.875% (Browning-Ferris Industries,
Inc.)/(Original Issue Yield: 6.95%), 11/1/2027
500,000 California State, Refunding UT GO Bonds, 5.00% A+ 491,940
(Original Issue Yield: 5.06%), 2/1/2021
600,000 California State, UT GO Bonds, 5.75% (Original A+ 629,850
Issue Yield: 6.25%), 3/1/2019
400,000 California Statewide Communities Development AA 396,780
Authority, Certificates of Participation, 5.25%
(St. Joseph Health System Group, CA)/(Original
Issue Yield: 5.47%), 7/1/2021
600,000 California Statewide Communities Development AA 690,024
Authority, Revenue Certificates of Participation,
6.625% (St. Joseph Health System Group,
CA)/(United States Treasury PRF)/(Original Issue
Yield: 6.674%), 7/1/2021
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 400,000 California Statewide Communities Development Baa3 $ 406,624
Authority, Special Facilities Revenue Bonds,
5.625% (United Air Lines)/(Original Issue Yield:
5.75%), 10/1/2034
500,000 Chula Vista, CA IDA, Revenue Bonds (Series A), A+ 538,295
6.40% (San Diego Gas & Electric)/(Original Issue
Yield: 6.473%), 12/1/2027
1,000,000 Eden Township, CA Hospital District, Hospital BBB+ 1,077,110
Revenue Bonds, 7.40% (Original Issue Yield:
7.483%), 11/1/1999 (@102)
500,000 El Dorado Cnty, CA Public Agency Financing AAA 517,045
Authority, Revenue Bonds, 5.50% (FGIC
INS)/(Original Issue Yield: 5.85%), 2/15/2021
700,000 Foothill/Eastern Transportation Corridor Agency, BBB- 765,457
CA, (Series 1995A) Senior Lien Toll Road Revenue
Bonds, 6.50% (Original Issue Yield: 6.78%),
1/1/2032
500,000 Inland Empire Solid Waste Financing Authority, AAA 574,345
CA, Revenue Bonds (Series B), 6.25% (FSA INS),
8/1/2011
500,000 Los Angeles County, CA Unified School District, AAA 570,540
UT GO Bonds (Series A), 6.00% (FGIC INS),
7/1/2011
600,000 Los Angeles, CA Community Redevelopment Agency, AAA 637,530
Housing Revenue Refunding Bonds (Series A), 6.55%
(AMBAC INS), 1/1/2027
900,000 Port of Oakland, CA, Revenue Bonds (Series AAA 934,524
1997G), 5.50% (MBIA INS)/ (Original Issue Yield:
5.83%), 11/1/2017
700,000 Regents of University of California, Research A 795,585
Facilities Revenue Bonds (1995 Series B), 6.55%,
9/1/2024
1,000,000 (a)Riverside County, CA Asset Leasing Corp., AAA 295,380
Leasehold Revenue Bonds (Riverside County
Hospital)/(MBIA INS)/(Original Issue Yield:
5.98%), 6/1/2021
600,000 Sacramento, CA Municipal Utility District, AAA 621,234
Electric Revenue Bonds (Series J), 5.50% (AMBAC
INS)/(Original Issue Yield: 5.80%), 8/15/2021
300,000 San Francisco, CA City & County Airport A+ 316,266
Commission, Second Series Revenue Bonds (Issue
12A), 5.90% (San Francisco International
Airport)/(Original Issue Yield: 5.97%), 5/1/2026
400,000 Stockton, CA, Health Facility Revenue Bonds BBB+ 409,084
(Series 1997A), 5.70% (Dameron Hospital
Association), 12/1/2014
1,000,000 Stockton, CA, Revenue Certificates of AAA 978,830
Participation (Series 1998A), 5.00% (MBIA
INS)/(Original Issue Yield: 5.15%), 9/1/2023
745,000 Vista, CA Joint Powers Financing Authority, NR 744,978
Revenue Bonds (Series 1997B), 5.50% (Original
Issue Yield: 5.57%), 9/1/2020
500,000 Watsonville, CA, Insured Hospital Revenue A+ 560,595
Refunding Bonds (Series 1996A), 6.20%
(Watsonville Community Hospital)/(California
State INS)/(Original Issue Yield: 6.225%),
7/1/2012
700,000 West Basin, CA Municipal Water District, AAA 729,428
Refunding Revenue Certificates of Participation
(Series A), 5.375% (AMBAC INS)/(Original Issue
Yield: 5.50%), 8/1/2014
</TABLE>
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 1,000,000 (a)Whisman, CA School District, UT GO Bonds AAA $ 296,780
(Series B) (MBIA INS)/ (Original Issue Yield:
5.48%), 8/1/2021
1,000,000 (a)Whisman, CA School District, UT GO Bonds AAA 281,380
(Series B) (MBIA INS)/ (Original Issue Yield:
5.48%), 8/1/2022
TOTAL 25,290,369
PUERTO RICO--2.9%
700,000 Puerto Rico Electric Power Authority, Revenue BBB+ 778,134
Bonds (Series T), 6.375% (Original Issue Yield:
6.58%), 7/1/2024
TOTAL LONG-TERM 26,068,503
MUNICIPALS (IDENTIFIED COST $24,419,542)
SHORT-TERM MUNICIPALS--2.6%
PUERTO RICO--2.6%
700,000 Government Development Bank for Puerto Rico (GDB) AA 700,000
Weekly VRDNs (MBIA INS)/(Credit Suisse First
Boston LIQ) (AT AMORTIZED COST)
TOTAL INVESTMENTS $ 26,768,503
(IDENTIFIED COST $25,119,542)(B)
</TABLE>
Securities that are subject to alternative minimum tax represents 30.2% of the
portfolio as calculated based upon total portfolio market value.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) Represents a zero-coupon bond purchased at a discount.
(b) The cost of investments for federal tax purposes amounts to $25,119,542. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,648,961 which is comprised of $1,697,383 appreciation and $48,422
depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($26,701,043) at February 28, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation FGIC --Financial Guaranty
Insurance Company FSA --Financial Security Assurance GO --General Obligation HFA
- --Housing Finance Authority IDA --Industrial Development Authority INS --Insured
LIQ --Liquidity Agreement MBIA --Municipal Bond Investors Assurance PCR
- --Pollution Control Revenue PCFA --Pollution Control Finance Authority 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 CALIFORNIA MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 26,768,503
$25,119,542)
Cash 12,927
Income receivable 351,363
Receivable for shares sold 119,991
Prepaid expenses 46,995
Total assets 27,299,779
LIABILITIES:
Payable for investments purchased $ 496,956
Income distribution payable 101,780
Total liabilities 598,736
NET ASSETS for 2,426,858 shares outstanding $ 26,701,043
NET ASSETS CONSIST OF:
Paid in capital $ 25,798,739
Net unrealized appreciation of investments 1,648,961
Accumulated net realized loss on investments (746,657)
Total Net Assets $ 26,701,043
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value and Redemption Proceeds Per Share ($24,733,541 / $11.00
2,248,033 shares outstanding)
Offering Price Per Share (100/95.50 of $11.00)* $11.52
CLASS B SHARES:
Net Asset Value and Offering Price Per Share ($1,967,502 / 178,825 $11.00
shares outstanding)
Redemption Proceeds Per Share (94.50/100 of $11.00)** $10.40
</TABLE>
* See "Purchasing Shares" 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 CALIFORNIA MUNICIPAL INCOME FUND
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 672,219
EXPENSES:
Investment advisory fee $ 47,469
Administrative personnel and services fee 69,384
Custodian fees 570
Transfer and dividend disbursing agent fees and expenses 14,122
Directors'/Trustees' fees 1,448
Auditing fees 6,878
Legal fees 1,267
Portfolio accounting fees 25,503
Distribution services fee--Class A Shares 29,158
Distribution services fee--Class B Shares 1,534
Shareholder services fee--Class A Shares 29,159
Shareholder services fee--Class B Shares 511
Share registration costs 7,240
Printing and postage 8,869
Insurance premiums 1,267
Miscellaneous 14,118
Total expenses 258,497
Waivers and reimbursements--
Waiver of investment advisory fee $ (47,469)
Waiver of distribution services fee--Class A Shares (29,158)
Reimbursement of other operating expenses (93,682)
Total waivers and reimbursements (170,309)
Net expenses 88,188
Net investment income 584,031
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 7,116
Net change in unrealized appreciation of investments 582,352
Net realized and unrealized gain on investments 589,468
Change in net assets resulting from operations $ 1,173,499
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income/operating loss $ 584,031 $ 1,008,967
Net realized gain (loss) on investments ($7,116 and $243,033, 7,116 243,124
respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 582,352 581,586
Change in net assets resulting from operations 1,173,499 1,833,677
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (574,926) (1,008,967)
Class B Shares (9,105) --
Change in net assets resulting from distributions to (584,031) (1,008,967)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 5,873,331 5,429,830
Net asset value of shares issued to shareholders in payment of 219,511 482,845
distributions declared
Cost of shares redeemed (1,981,388) (1,884,903)
Change in net assets resulting from share transactions 4,111,454 4,027,772
Change in net assets 4,700,922 4,852,482
NET ASSETS:
Beginning of period 22,000,121 17,147,639
End of period $ 26,701,043 $ 22,000,121
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED FEBRUARY 28,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.73 $10.27 $10.13 $10.01 $10.92 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.55 0.58 0.59 0.59 0.44
Net realized and unrealized gain (loss)
on investments 0.27 0.46 0.14 0.12 (0.91) 0.92
Total from investment operations 0.53 1.01 0.72 0.71 (0.32) 1.36
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.55) (0.58) (0.59) (0.59) (0.44)
NET ASSET VALUE, END OF PERIOD $11.00 $10.73 $10.27 $10.13 $10.01 $10.92
TOTAL RETURN(B) 5.02% 10.11% 7.21% 7.48% (3.04%) 14.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.73%* 0.66% 0.60% 0.55% 0.25% 0.25%*
Net investment income 4.93%* 5.25% 5.61% 6.04% 5.61% 5.58%*
Expense waiver/reimbursement(c) 1.44%* 1.97% 2.38% 2.41% 2.86% 1.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,734 $22,000 $17,148 $14,400 $15,059 $11,513
Portfolio turnover 2% 29% 21% 63% 63% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 2, 1992 (date of initial
public investment) to August 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
FEBRUARY 28,
1998(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.87
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11
Net realized and unrealized gain (loss) on investments 0.13
Total from investment operations 0.24
LESS DISTRIBUTIONS
Distributions from net investment income (0.11)
NET ASSET VALUE, END OF PERIOD $11.00
TOTAL RETURN(B) 2.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.52%*
Net investment income 4.44%*
Expense waiver/reimbursement(c) 1.32%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,968
Portfolio turnover 2%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 1, 1997 (date of initial
public investment) to February 28, 1998.
(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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated California
Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The investment objective of the Fund is to
provide current income exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax) and personal
income taxes imposed by the state of California and California municipalities.
The Fund offers two classes of shares: Class A Shares and Class B Shares.
Effective December 1, 1997, the Trust added Class B Shares and designated the
existing share class as Class A Shares.
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 $753,772, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2003 $535,442
2004 218,330
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 Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value) for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
CLASS A SHARES 1998 1997
<S> <C> <C>
Shares sold 346,187 515,114
Shares issued to shareholders in payment of distributions declared 19,971 45,852
Shares redeemed (169,283) (179,343)
Net change resulting from Class A Share transactions 196,875 381,623
<CAPTION>
PERIOD ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
CLASS B SHARES 1998(A) 1997
<S> <C> <C>
Shares sold 190,714 --
Shares issued to shareholders in payment of distributions declared 170 --
Shares redeemed (12,059) --
Net change resulting from Class B Share transactions 178,825 --
Net change resulting from share transactions 375,700 --
</TABLE>
(a) Reflects operations for the period from December 1, 1997 (date of initial
public investment) to February 28, 1998.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"), receives for
its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A
Shares and Class B Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.50% of the average daily net assets of the Fund's
Class A Shares, annually, and up to 0.75% of the average daily net assets of the
Fund's Class B Shares, annually, to compensate FSC. FSC may voluntarily choose
to waive any portion of its fee. FSC can modify or terminate this voluntary
waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund's Class A and Class B 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
Federated Services Company ("FServ"), through its subsidiary, Federated
Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
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.
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 February 28, 1998, were as follows:
PURCHASES $5,295,336
SALES $451,104
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1998, 40% 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 16% of total investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated California Municipal Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS FEBRUARY 28, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 625922109
Cusip 625922828
4031005 (4/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of Federated
Michigan Intermediate Municipal Trust, a portfolio of Municipal Securities
Income Trust. This report covers the first half of the fund's fiscal year, which
is the six-month period from September 1, 1997, through February 28, 1998. The
report begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and its financial statements.
Designed for tax-sensitive Michigan residents, Federated Michigan Intermediate
Municipal Trust provides opportunities for income exempt from federal regular
income tax and Michigan state income tax.* This double tax-free advantage means
you can earn a greater after-tax yield than you could in a comparable
high-quality taxable investment.
During the six-month reporting period, the fund's portfolio of 85 quality
holdings paid a monthly dividend stream totaling $0.27 per share, while the
share price increased from $10.85 to $11.03. As a result, the fund achieved a
six-month total return of 4.15%, based on net asset value.** The fund's net
assets reached $74 million at the end of the reporting period.
Thank you for joining other shareholders of Federated Michigan Intermediate
Municipal Trust in pursuing monthly, double tax-free investment income. Of
course, you have the option of receiving income from the fund or building your
account by reinvesting your dividends and compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total return for the six-month reporting period based on offering
price was 0.98%.
INVESTMENT REVIEW
Q. How has the Michigan municipal bond market been faring?
A. Michigan exempt municipal bonds performed favorably over the six-month
reporting period ended February 28, 1998. As an example, municipal bonds issued
by the state of Michigan are trading at interest rates which are more than one
standard deviation less than their six-month average yield. This strong relative
performance is a result of stable demand for in-state tax-exempt paper, a
limited supply of municipal bonds being issued in the state, and a strong
regional economy which has resulted in improving fiscal performance for state
and local governments.
Q. In this environment, how did Federated Michigan Intermediate Municipal Trust
perform with respect to total return over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1998, the fund produced
a total return of 4.15%, based on net asset value.* This six-month total return
lagged behind the Lehman Brothers Municipal Index/7-Year return of 4.44%.+ The
fund's performance over the reporting period is a result of maintaining a high
credit quality profile ("AA" average) and having a shorter duration than the
Lehman Municipal Index. The best performing credit sectors over the reporting
period were "BBB" and lower-rated municipal bonds, as a result of significant
credit spread tightening. The fund purchases bonds rated "A" or higher by the
major credit rating agencies. The fund's focus on income resulted in a
significant weighting in bonds with premium coupons and less market volatility.
The fund also benefited from having several high coupon bonds pre-refunded. This
resulted in significant price appreciation as the bonds were priced to a shorter
call date and backed by U.S. treasury securities.
Q. In this environment, how did Federated Michigan Intermediate Municipal Trust
perform with respect to income and yield over the six-month reporting period?
A. The 30-day SEC yield on February 28, 1998, was 3.75%, based on offering
price.** The SEC yield declined from 3.98% at the beginning of the reporting
period as a result of a general decline in market interest rates and positive
net cash flows into the fund. Municipal interest rates, as represented by the
Bond Buyer 40 Index,++ declined from 5.53% on November 1, 1997, to 5.24% at the
end of the reporting period.
Q. What is your outlook for the municipal market through 1998 and how does your
outlook affect portfolio strategy? A. The U.S. economy is expected to moderate
in the second half of 1998 from its tepid pace over the last twelve months. The
effects on the U.S. economy from the Asian crisis may be evident within the next
few months. This fact combined with a potentially balanced federal budget and
diminished expectations concerning inflation may result in a relatively
favorable environment for fixed-income securities later this year. The municipal
bond market has been in a trading range for several months and may continue to
be range bound until economic numbers begin to signal a change in the economy's
direction. Portfolio strategy will include maintaining a neutral duration target
relative to its benchmark while looking for opportunities to improve portfolio
yield, and as a result, the income distributed to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return for the six-month reporting period based on offering price
was 0.98%.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized.
+ Lehman Brothers Municipal Index/7-Year is an unmanaged index of municipal
bonds issued after January 1, 1991, with a minimum credit rating of at least
Baa, been issued as part of a deal of at least $50 million, have a maturity
value of at least $3 million and a maturity range of four years and shy six
years. As of January 1996, the index also includes zero coupon bonds and bonds
subject to the alternative minimum tax. Investments cannot be made in an index.
++ The Bond Buyer 40 Index is a standard against which municipal bonds are
measured. This index is unmanaged, and investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--99.7%
MICHIGAN--99.7%
$ 1,000,000 Anchor Bay, MI School District, UT GO Bonds, AAA $ 1,061,860
5.30% (MBIA INS)/(Original Issue Yield: 5.35%),
5/1/2008
230,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2000 AA 241,615
215,000 Ann Arbor, MI, UT GO Bonds, 6.00%, 9/1/2001 AA 228,736
500,000 Avondale, MI School District, UT GO Refunding AA+ 540,195
Bonds, 6.75% (Michigan State GTD)/(Original Issue
Yield: 6.95%), 5/1/2014
500,000 Battle Creek, MI Building Authority, Revenue A+ 530,070
Bonds, 6.00%, 4/1/2002
500,000 Battle Creek, MI Building Authority, Revenue A+ 531,065
Bonds, 6.10%, 4/1/2003
2,000,000 Battle Creek, MI Downtown Development Authority, AAA 2,062,040
Refunding Bonds, 5.10% (MBIA INS)/(Original Issue
Yield: 5.20%), 5/1/2010
100,000 Battle Creek, MI Water Supply System, Revenue NR 103,639
Bonds (Series B), 6.90% (United States Treasury
PRF), 9/1/1998 (@102)
1,010,000 Belding Area Schools, MI, Refunding UT GO Bonds, AAA 995,052
4.90% (Michigan State GTD)/(AMBAC INS)/(Original
Issue Yield: 5.00%), 5/1/2013
1,060,000 Belding Area Schools, MI, Refunding UT GO Bonds, AAA 1,043,697
4.95% (Michigan State GTD)/(AMBAC INS)/(Original
Issue Yield: 5.05%), 5/1/2014
1,000,000 Cedar Springs Public Schools, MI, Refunding UT GO AAA 986,580
Bonds (Series 1998), 5.00% (Michigan State
GTD)/(FSA INS)/(Original Issue Yield: 5.13%),
5/1/2017
100,000 Detroit, MI City School District, UT GO Refunding AAA 100,625
Bonds (Series A), 7.15% (MBIA INS), 5/1/1998
500,000 Detroit, MI Economic Development Corp., Resource AAA 542,660
Recovery Revenue Bonds (Series A), 6.875% (FSA
INS)/(Original Issue Yield: 7.00%), 5/1/2009
3,000,000 Detroit, MI Water Supply System, Revenue AAA 3,224,550
Refunding Bonds, 6.00% (FGIC INS)/ (Original
Issue Yield: 6.10%), 7/1/2002
1,000,000 Detroit/Wayne County, MI Stadium Authority, AAA 1,037,880
Revenue Bonds, 5.25% (FGIC INS)/ (Original Issue
Yield: 5.55%), 2/1/2011
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10% AAA 1,079,290
(AMBAC INS)/(Original Issue Yield: 6.15%),
6/1/2004
200,000 Farmington Hills, MI Hospital Finance Authority, AAA 210,434
Hospital Revenue Refunding Bonds (Series A),
6.60% (Botsford General Hospital)/(MBIA INS),
2/15/2000
425,000 Forest Hills, MI Public School, UT GO Bonds, AA 459,467
7.375% (United States Treasury PRF)/(Original
Issue Yield: 7.397%), 5/1/2000 (@101)
285,000 Garden City, MI School District, UT GO Refunding AAA 309,245
Bonds, 5.80% (FSA INS), 5/1/2004
250,000 Garden City, MI School District, UT GO Refunding AAA 273,832
Bonds, 5.90% (FSA INS), 5/1/2005
565,000 Garden City, MI School District, UT GO Refunding AAA 617,392
Bonds, 6.00% (FSA INS), 5/1/2006
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
MICHIGAN--CONTINUED
$ 515,000 Garden City, MI School District, UT GO Refunding AAA $ 565,516
Bonds, 6.10% (FSA INS), 5/1/2007
500,000 Holt, MI Public Schools, Refunding UT GO Bonds, NR 508,060
5.00% (Michigan State GTD)/ (MBIA INS)/(Original
Issue Yield: 5.05%), 5/1/2011
150,000 Huron Valley, MI School District, UT GO Bonds, NR 163,273
6.50% (Michigan State GTD)/ (United States
Treasury PRF), 5/1/2001 (@102)
270,000 Ingham County MI Sewer Authority, Revenue Bonds, AA- 286,727
Project #4, Delhi Charter Township, 5.70%,
11/1/2003
360,000 Ingham County MI Sewer Authority, Revenue Bonds, AA- 382,252
Project #4, Delhi Charter Township, 5.80%,
11/1/2004
465,000 Ingham County MI Sewer Authority, Revenue Bonds, AA- 494,495
Project #4, Delhi Charter Township, 5.90%,
11/1/2005
1,850,000 Jenison Public Schools, UT GO School Building and AAA 1,977,372
Site Refunding Bonds, Series 1996, 5.30% (FGIC
INS)/(Original Issue Yield: 5.40%), 5/1/2007
265,000 Kent Hospital Finance Authority, MI, Hospital AAA 288,312
Revenue Refunding Bonds, 6.30% (Pine Rest
Christian Hospital, MI)/(FGIC INS)/(Original
Issue Yield: 6.40%), 11/1/2003
415,000 Kent Hospital Finance Authority, MI, Hospital AAA 451,508
Revenue Refunding Bonds, 6.30% (Pine Rest
Christian Hospital, MI)/(FGIC INS)/(Original
Issue Yield: 6.45%), 11/1/2004
500,000 Lake Orion, MI School District, UT GO Refunding AAA 528,205
Bonds, 5.90% (Michigan State GTD)/(AMBAC INS),
5/1/2001
2,000,000 Lake Orion, MI School District, UT GO Refunding AAA 2,152,980
Bonds, 6.05% (AMBAC INS)/ (Michigan State LOC),
5/1/2002
500,000 Lansing, MI Sewer Disposal System, Revenue AAA 537,640
Refunding Bonds, 5.50% (FGIC INS)/(Original Issue
Yield: 5.60%), 5/1/2007
750,000 Livonia, MI Public School District, UT GO Bonds AA+ 794,528
(Series I), 6.00%, 5/1/2001
1,000,000 Lowell Area Schools, MI, UT GO Refunding Bonds, AAA 1,054,400
5.20% (Michigan State GTD)/ (FGIC INS)/(Original
Issue Yield: 5.25%), 5/1/2008
1,710,000 Marquette, MI Hospital Finance Authority, AAA 1,808,171
Hospital Revenue Refunding Bonds (1996 Series D),
5.30% (Marquette General Hospital, MI)/(FSA INS),
4/1/2005
1,290,000 Marquette, MI Hospital Finance Authority, AAA 1,376,095
Hospital Revenue Refunding Bonds (1996 Series D),
5.40% (Marquette General Hospital, MI)/(FSA INS),
4/1/2006
1,350,000 Michigan Higher Education Student Loan Authority, AAA 1,435,590
Student Loan Revenue Bonds, Series XVII-A, 5.65%
(AMBAC LOC), 6/1/2010
1,500,000 Michigan Municipal Bond Authority, Revenue AA 1,609,500
Refunding Q-SBLF Bonds, 6.00% (Michigan
State)/(Michigan State GTD)/(Original Issue
Yield: 6.10%), 5/1/2002
3,000,000 Michigan Public Power Agency, Revenue Refunding AA- 3,203,340
Bonds (Series A) Belle River Project, 5.70%
(Original Issue Yield: 5.80%), 1/1/2003
1,000,000 Michigan State Comprehensive Transportation AA- 1,056,420
Board, Revenue Refunding Bonds (Series B), 5.50%
(Michigan State)/(Original Issue Yield: 5.60%),
5/15/2002
1,000,000 Michigan State Comprehensive Transportation AA- 1,079,140
Board, Revenue Refunding Bonds (Series B), 6.00%
(Michigan State)/(Original Issue Yield: 6.05%),
5/15/2007
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
MICHIGAN--CONTINUED
$ 2,000,000 Michigan State Hospital Finance Authority, AAA $ 1,970,340
Refunding Revenue Bonds (Series 1998A), 4.90%
(St. John Hospital, MI)/(AMBAC INS)/(Original
Issue Yield: 5.05%), 5/15/2013
1,325,000 Michigan State Hospital Finance Authority, AA- 1,332,910
Revenue Bonds (Series 1997W), 5.00% (Mercy Health
Services)/(Original Issue Yield: 5.26%),
8/15/2011
415,000 Michigan State Hospital Finance Authority, A+ 438,086
Revenue Bonds (Series A), 6.15% (Crittenton
Hospital, MI), 3/1/2001
440,000 Michigan State Hospital Finance Authority, A+ 472,388
Revenue Bonds (Series A), 6.25% (Crittenton
Hospital, MI), 3/1/2002
1,000,000 Michigan State Hospital Finance Authority, AAA 998,450
Revenue Bonds, 5.25% (St. John Hospital,
MI)/(AMBAC INS)/(Original Issue Yield: 5.65%),
5/15/2026
500,000 Michigan State Hospital Finance Authority, NR 557,885
Revenue Bonds, Providence Hospital, 7.00%
(Daughters of Charity)/(Original Issue Yield:
7.04%), 11/1/2021
1,500,000 Michigan State Hospital Finance Authority, A+ 1,559,595
Revenue Refunding Bonds (Series A), 5.50% (St.
John Hospital, MI)/(Original Issue Yield: 5.80%),
5/15/2001
800,000 Michigan State Hospital Finance Authority, AAA 856,240
Revenue Refunding Bonds, 5.95% (Oakwood Obligated
Group)/(FGIC INS)/(Original Issue Yield: 6.05%),
5/1/2002
575,000 Michigan State Hospital Finance Authority, AAA 625,922
Revenue Refunding Bonds, 6.30% (Sparrow Obligated
Group, MI)/(MBIA INS), 11/15/2003
375,000 Michigan State Hospital Finance Authority, AAA 396,529
Revenue Refunding Bonds, 6.85% (Oakland General
Hospital, MI)/(AMBAC INS), 7/1/2000
1,000,000 Michigan State Housing Development Authority, AAA 1,041,800
(Series A) Rental Housing Revenue Bonds, 5.55%
(MBIA INS), 4/1/2004
500,000 Michigan State Housing Development Authority, AA+ 522,105
Revenue Bonds (Series A), 5.90%, 12/1/2005
500,000 Michigan State Housing Development Authority, AA+ 520,925
Revenue Bonds (Series A), 5.90%, 6/1/2005
430,000 Michigan State Housing Development Authority, AA+ 447,849
Revenue Bonds (Series A), 6.25%, 6/1/2002
200,000 Michigan State Housing Development Authority, AA+ 211,502
Revenue Bonds (Series A), 7.00%, 12/1/2005
280,000 Michigan State Housing Development Authority, AA+ 294,157
Revenue Bonds (Series B), 6.30%, 12/1/2003
1,000,000 Michigan State Housing Development Authority, AA+ 1,040,030
Revenue Bonds (Series E), 5.55%, 12/1/2007
175,000 Michigan State Housing Development Authority, AA+ 185,308
Single Family Mortgage Revenue Bonds (Series B),
6.95%, 12/1/2020
1,000,000 Michigan State, UT GO Recreation Program Bonds, AA+ 1,060,290
5.75% (Original Issue Yield: 5.80%), 11/1/2001
250,000 Michigan Strategic Fund, LT Obligation Revenue A 295,453
Refunding Bonds (Series A), 7.10% (Ford Motor
Co.)/(Original Issue Yield: 7.127%), 2/1/2006
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
MICHIGAN--CONTINUED
$ 500,000 Michigan Strategic Fund, Limited Obligation A $ 493,835
Revenue Bonds (Series 1998), 5.30% (Porter Hills
Presbyterian Village, Inc.)/(Original Issue
Yield: 5.422%), 7/1/2018
4,250,000 Monroe County, MI Pollution Control Authority, AAA 4,714,313
PCR Revenue Bonds (Series A), 6.35% (Detroit
Edison Co.)/(AMBAC INS), 12/1/2004
1,750,000 Novi, MI Community School District, UT GO Bonds, AA 1,850,730
Q-SBLF, 5.45% (Original Issue Yield: 5.50%),
5/1/2003
300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds, AA- 331,332
6.65% (Oakland Community College District,
MI)/(Original Issue Yield: 6.743%), 5/1/2011
1,765,000 Oakland County, MI EDC, Limited Obligation NR 1,792,993
Revenue Bonds (Series 1997), 5.50% (Lutheran
Social Services of Michigan)/(First of America
Bank - Michigan LOC), 6/1/2014
250,000 Oakland County, MI, LT GO Bonds, AA+ 266,543
Evergreen-Farmington Sewer Disposal, 6.30%,
5/1/2005
610,000 Okemos, MI Public School District, UT GO AA 655,256
Refunding Bonds, Q-SBLF, 6.00% (Michigan State
GTD), 5/1/2002
140,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa AA 144,991
Water Supply System, 6.50% (Original Issue Yield:
6.55%), 10/1/2002
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa AA 101,532
Water System, 6.85%, 5/1/2000
220,000 Ottawa County, MI, LT GO Bonds,Northwest Ottawa AA 227,843
Water Supply System, 6.50%, 10/1/2001
1,000,000 Petoskey, MI Hospital Finance Authority, Limited AAA 968,580
Obligation Revenue & Refunding Bonds, 5.00%
(Northern Michigan Hospital Obligated
Group)/(MBIA INS)/ (Original Issue Yield: 5.22%),
11/15/2018
400,000 Plymouth-Canton, MI Community School District, UT AA 434,132
GO Bonds (Series C), Q-SBLF, 6.00% (Michigan
State GTD)/(Original Issue Yield: 6.10%),
5/1/2003
500,000 Plymouth-Canton, MI Community School District, UT AA+ 545,150
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)
615,000 Riverview, MI Community School District, UT GO AAA 672,736
Bonds, 6.20% (FGIC INS)/ (United States Treasury
PRF), 5/1/2002 (@101.5)
570,000 Riverview, MI Community School District, UT GO AAA 623,512
Bonds, 6.20% (FGIC INS)/ (United States Treasury
PRF), 5/1/2002 (@101.5)
350,000 Rochester, MI Community School District, UT GO AA+ 381,857
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.60%),
5/1/2002 (@100)
250,000 Rochester, MI Community School District, UT GO AA+ 272,755
Bonds, 6.50% (Michigan State GTD)/(United States
Treasury PRF)/(Original Issue Yield: 6.75%),
5/1/2002 (@100)
270,000 Shelby Charter Townships, MI Building Authority, AAA 295,186
Revenue Bonds, 6.25% (AMBAC INS)/(Original Issue
Yield: 6.45%), 11/1/2006
230,000 Shelby Charter Townships, MI Building Authority, AAA 251,454
Revenue Bonds, 6.25% (AMBAC INS)/(Original Issue
Yield: 6.50%), 11/1/2007
</TABLE>
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
MICHIGAN--CONTINUED
$ 250,000 University of Michigan, Hospital Revenue Bonds, AA $ 273,917
7.00% (United States Treasury PRF)/(Original
Issue Yield: 7.25%), 12/1/2000 (@102)
1,500,000 University of Michigan, Hospital Revenue AA 1,619,340
Refunding Bonds (Series A), 5.70% (Original Issue
Yield: 5.80%), 12/1/2004
1,000,000 Walled Lake, MI Consolidated School District, UT AAA 1,058,770
GO Refunding Bonds, 5.30% (MBIA INS)/(Original
Issue Yield: 5.35%), 5/1/2008
1,000,000 Wayne County, MI Building Authority, LT GO AAA 1,064,090
Capital Improvement Bonds, 5.35% (MBIA
INS)/(Original Issue Yield: 5.40%), 6/1/2009
885,000 Wyandotte, MI Electric Authority, Revenue AAA 960,712
Refunding Bonds, 6.10% (MBIA INS), 10/1/2002
1,000,000 Yale, MI Public Schools District, UT GO Bonds, NR 1,010,810
5.25% (Michigan State GTD)/ (FSA INS)/(Original
Issue Yield: 5.30%), 5/1/2017
Total Long-Term Municipal Securities 73,773,581
(identified cost $69,646,141)
SHORT-TERM MUNICIPALS--1.8%
MICHIGAN--1.8%
1,300,000 Michigan Strategic Fund, Limited Obligation PCR A 1,300,000
Bonds (Series 1993) Weekly VRDNs (Allied-Signal,
Inc.) (at amortized cost)
Total Investments (identified cost $ 75,073,581
$70,946,141)(a)
</TABLE>
Securities that are subject to alternative minimum tax represent 6.0% of the
portfolio as calculated based upon total portfolio market value.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) The cost of investments for federal tax purposes amounts to $70,946,141. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,127,440 which is comprised of $4,139,953 appreciation and $12,513
depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($73,961,744) at February 28, 1998.
The following acronyms are used throughout this portfolio: AMBAC --American
Municipal Bond Assurance Corporation EDC --Economic Development Commission 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
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 75,073,581
$70,946,141)
Income receivable 1,107,524
Receivable for shares sold 68,584
Prepaid expenses 252
Total assets 76,249,941
LIABILITIES:
Payable for investments purchased $ 1,977,263
Income distribution payable 278,291
Payable to Bank 32,643
Total liabilities 2,288,197
Net Assets for 6,706,005 shares outstanding $ 73,961,744
NET ASSETS CONSIST OF:
Paid in capital $ 70,784,851
Net unrealized appreciation of investments 4,127,440
Accumulated net realized loss on investments (950,547)
Total Net Assets $ 73,961,744
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($73,961,744 / 6,706,005 shares outstanding) $11.03
Offering Price Per Share (100/97.00 of $11.03)* $11.37
Redemption Proceeds Per Share $11.03
</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
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,862,716
EXPENSES:
Investment advisory fee $ 138,493
Administrative personnel and services fee 61,987
Custodian fees 2,220
Transfer and dividend disbursing agent fees and expenses 17,319
Directors'/Trustees' fees 1,753
Auditing fees 6,821
Legal fees 1,448
Portfolio accounting fees 27,141
Shareholder services fee 86,536
Share registration costs 7,087
Printing and postage 9,125
Insurance premiums 1,429
Miscellaneous 886
Total expenses 362,245
Waivers--
Waiver of investment advisory fee $ (125,305)
Waiver of shareholder services fee (62,306)
Total waivers (187,611)
Net expenses 174,634
Net investment income 1,688,082
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 175,973
Net change in unrealized appreciation of investments 944,972
Net realized and unrealized gain on investments 1,120,945
Change in net assets resulting from operations $ 2,809,027
</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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,688,082 $ 3,217,659
Net realized gain (loss) on investments ($175,973 and $133,935, 175,973 149,867
respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 944,972 767,866
Change in net assets resulting from operations 2,809,027 4,135,392
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,688,082) (3,217,659)
SHARE TRANSACTIONS--
Proceeds from sale of shares 11,515,897 16,338,296
Net asset value of shares issued to shareholders in payment of 280,077 615,490
distributions declared
Cost of shares redeemed (6,546,765) (13,065,032)
Change in net assets resulting from share transactions 5,249,209 3,888,754
Change in net assets 6,370,154 4,806,487
NET ASSETS:
Beginning of period 67,591,590 62,785,103
End of period $ 73,961,744 $ 67,591,590
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.85 $10.70 $10.80 $10.59 $11.02 $10.38
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.54 0.36 0.54 0.53 0.55
Net realized and unrealized gain (loss)
on investments 0.18 0.15 (0.10) 0.21 (0.43) 0.64
Total from investment operations 0.45 0.69 0.26 0.75 0.10 1.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.27) (0.54) (0.36) (0.54) (0.53) (0.55)
NET ASSET VALUE, END OF PERIOD $11.03 $10.85 $10.70 $10.80 $10.59 $11.02
TOTAL RETURN(A) 4.15% 6.59% 4.13% 7.39% 0.88% 11.73%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50%* 0.50% 0.50% 0.50% 0.50% 0.37%
Net investment income 4.88%* 5.00% 4.99% 5.19% 4.87% 5.11%
Expense waiver/reimbursement(b) 0.54%* 0.59% 0.63% 0.65% 0.57% 1.06%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,962 $67,592 $62,785 $60,621 $58,480 $50,625
Portfolio turnover 10% 12% 7% 23% 13% 3%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) 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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL INCOME TRUST
FEBRUARY 28, 1998 (UNAUDITED)
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 Income 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.
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:
EXPIRATION YEAR EXPIRATION AMOUNT
2003 $192,251
2004 934,269
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 Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value) for each class of shares. Transactions in shares were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
Shares sold 1,046,771 1,512,481
Shares issued to shareholders in payment of distributions declared 25,523 56,959
Shares redeemed (595,833) (1,209,574)
Net change resulting from Share transactions 476,461 359,866
</TABLE>
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.
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
Federated Services Company maintains the Fund's accounting records for which it
receives a fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended February 28, 1998, 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 $10,200,000 and $8,600,000, 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 February 28, 1998, were as follows:
PURCHASES $6,793,003
SALES $13,492,052
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1998, 66.8% 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 16.5% of total investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Michigan Intermediate Municipal Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS FEBRUARY 28, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 625922703
3032602 (4/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of Federated New
York Municipal Income Fund, a portfolio of Municipal Securities Income Trust.
This report covers the first half of the fund's fiscal year, which is the
six-month period from September 1, 1997, through February 28, 1998. The report
begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and its financial statements.
Designed for tax-sensitive New York residents, Federated New York Municipal
Income Fund provides opportunities for income exempt from federal regular income
tax, New York state income tax, and New York City local income tax.* This double
tax-free advantage (triple tax-free for New York City residents) means you can
earn a greater after-tax yield than you could in a comparable high-quality
taxable investment.
During the six-month reporting period, the fund's portfolio of 29 quality
holdings paid a monthly dividend stream totaling $0.03 per share, while the
share price increased from $10.62 to $10.90. As a result, the fund achieved a
six-month total return of 5.21%, based on net asset value.** The fund's net
assets totaled $22 million at the end of the reporting period.
Thank you for joining other shareholders of Federated New York Municipal Income
Fund in pursuing monthly, double tax-free, (or triple tax-free for New York City
residents) investment income. Of course, you have the option of receiving income
from the fund or building your account by reinvesting your dividends and
compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total return for the six-month reporting period based on offering
price was 3.08%.
INVESTMENT REVIEW
Q. How has the New York municipal bond market been faring?
A. The market for New York municipal bonds was strong over the previous six
months. Investor demand for New York tax-exempt bonds remained healthy even
during periods when a large amount of New York paper was issued in the market.
New York state and New York City benefited from the strong regional economy,
especially the resurgence of the financial, insurance, and real estate sectors.
This resulted in solid fiscal performance for many of the state's local
governments. New York City's recent upgrade from the BBB to A rating category by
one of the major rating agencies is a clear example of this improvement in
credit quality across the state which has translated into solid relative price
performance for New York municipal bonds.
Q. In this environment, how did Federated New York Municipal Income Fund perform
with respect to total return over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1998, the fund's Class
F Shares produced a total return of 5.21%, based on net asset value.* This
six-month total return beat the Lehman Brothers Municipal Bond Index return of
5.04%.+ The fund's performance over the reporting period is a result of
purchasing bonds with favorable performance characteristics such as discount
coupons and better call protection. The fund also benefited from having several
high coupon bonds pre-refunded. This resulted in significant price appreciation
as the bonds were priced to a shorter call date and backed by U.S. treasury
securities.
Q. In this environment, how did Federated New York Municipal Income Fund perform
with respect to income and yield over the six-month reporting period?
A. The 30-day SEC yield on February 28, 1998, was 4.45%, based on offering
price.** The SEC yield declined from 4.67% at the beginning of the reporting
period as a result of a general decline in market interest rates and positive
net cash flows into the fund. Municipal interest rates, as represented by the
Bond Buyer 40 Index,++ declined from 5.53% on November 1, 1997, to 5.24% at the
end of the reporting period.
Q. What is your outlook for the municipal market through 1998 and how does your
outlook affect portfolio strategy?
A. The U.S. economy is expected to moderate in the second half of 1998 from its
tepid pace over the last twelve months. The effects on the U.S. economy from the
Asian crisis may be evident within the next few months. This fact combined with
a potentially balanced federal budget and diminished expectations concerning
inflation may result in a relatively favorable environment for fixed-income
securities later this year. The municipal bond market has been in a trading
range for several months and may continue to be range bound until economic
numbers begin to signal a change in the economy's direction. Portfolio strategy
will include maintaining a neutral duration target relative to its benchmark
while looking for opportunities to improve portfolio yield, and as a result, the
income distributed to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return for the six-month reporting period based on offering price
was 3.08%.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized.
+ Lehman Brothers Municipal Bond Index are broad market performance benchmarks
for the tax-exempt bond market. As of March 31, 1998, approximately 42,021 bonds
were included in the Municipal Bond Index with a market value of $631 billion.
To be included in the Lehman Brothers Municipal Bond Index, bonds must have a
minimum credit rating of at least Baa. They must have an outstanding par value
of at least $3 million and be issued as part of a transaction of at least $50
million. The index includes both zero coupon bonds and bonds subject to the
alternative minimum tax. This index is unmanaged, and investments cannot be made
in an index.
++ The Bond Buyer 40 Index is a standard against which municipal bonds are
measured. This index is unmanaged, and investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--97.9%
NEW YORK--97.9%
$ 500,000 Albany County Airport Authority, NY, Airport AAA $ 509,150
Revenue Bonds (Series 1997), 5.375% (FSA
INS)/(Original Issue Yield: 5.72%), 12/15/2017
1,000,000 Amherst, NY IDA, Tax-Exempt Lease Revenue Bonds A 1,025,750
(Series 1997A), 5.55% (KeyBank, N.A.
LOC)/(Original Issue Yield: 5.65%), 10/1/2017
500,000 Essex Cnty., NY IDA, PCR Refunding Revenue Bonds A- 532,410
(Series 1997C), 5.70% (International Paper Co.),
7/1/2016
500,000 Essex Cnty., NY IDA, Solid Waste Disposal Revenue A- 521,135
Bonds (Series A), 5.80% (International Paper Co.),
12/1/2019
600,000 Metropolitan Transportation Authority, New York, AAA 608,154
Commuter Facilities Revenue Bonds (Series C-1),
5.25% (FGIC INS)/(Original Issue Yield: 5.48%),
7/1/2017
305,000 Nassau County, NY IDA, Civic Facility Revenue A 347,609
Bonds, 6.85% (Hofstra University), 1/1/2012
330,000 Nassau County, NY IDA, Civic Facility Revenue A 375,058
Bonds, 6.85% (Hofstra University), 1/1/2013
1,000,000 New York City Municipal Water Finance Authority, A- 980,590
Water & Sewer System Revenue Bonds, Series A,
5.125% (Original Issue Yield: 5.50%), 6/15/2021
1,000,000 New York City, NY IDA, (Series 1995) Civic NR 1,052,570
Facility Revenue Bonds, 6.30% (College of New
Rochelle)/(Original Issue Yield: 6.45%), 9/1/2015
500,000 New York City, NY IDA, Civic Facility Revenue NR 545,145
Bonds, 7.00% (Mt. St. Vincent College, NY),
5/1/2008
400,000 New York City, NY IDA, Civil Facilities Revenue NR 418,724
Bonds, 5.80% (YMCA of Greater NY)/ (Original Issue
Yield: 6.10%), 8/1/2016
400,000 New York City, NY IDA, Industrial Development BBB- 413,612
Revenue Bonds (Series 1997), 5.75% (Brooklyn Navy
Yard Cogeneration Partners, L.P.
Project)/(Original Issue Yield: 5.81%), 10/1/2036
400,000 New York City, NY IDA, Revenue Bonds, 5.65% BB+ 408,856
(United Air Lines)/(Original Issue Yield: 5.682%),
10/1/2032
750,000 New York City, NY IDA, Special Facilities Revenue BBB- 843,255
Bonds, 6.90% (American Airlines), 8/1/2024
1,000,000 New York City, NY Transitional Finance Authority, AA 945,690
Future Tax Secured Bonds (Series 1998B), 4.75%
(Original Issue Yield: 4.95%), 11/15/2018
500,000 New York City, NY, GO UT Bonds, 7.25% (Original BBB+ 589,545
Issue Yield: 7.55%), 8/15/2004 (@101)
900,000 New York State Dormitory Authority, Revenue Bonds A+ 1,001,844
(Series A), 6.50% (University of Rochester,
NY)/(Original Issue Yield: 6.582%), 7/1/2019
1,000,000 New York State Dormitory Authority, Revenue Bonds, AA 1,022,420
5.50% (Long Island University)/(Asset Guaranty
INS)/(Original Issue Yield: 5.75%), 9/1/2020
</TABLE>
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
NEW YORK--CONTINUED
$ 500,000 New York State Dormitory Authority, Revenue Bonds, NR $ 538,440
6.25% (Nyack Hospital)/ (Original Issue Yield:
6.50%), 7/1/2013
1,000,000 New York State Environmental Facilities Corp., BBB 1,056,540
Solid Waste Disposal Revenue Bonds, 6.10%
(Occidental Petroleum Corp.)/(Original Issue
Yield: 6.214%), 11/1/2030
900,000 New York State Environmental Facilities Corp., AAA 984,519
Water Facilities Revenue Refunding Bonds (Series
A), 6.30% (Spring Valley Water Co., NY)/(AMBAC
INS), 8/1/2024
1,000,000 New York State HFA, (Series 1995A) Sevice Contract BBB+ 1,099,330
Obligation Revenue Bonds, 6.375% (Original Issue
Yield: 6.45%), 9/15/2015
1,000,000 New York State Medical Care Facilities Finance AA 1,099,000
Agency, FHA-Mortgage Revenue Bonds (Series A),
6.50% (Lockport Memorial Hospital, NY)/(FHA GTD),
2/15/2035
1,000,000 New York State Medical Care Facilities Finance AA 1,109,030
Agency, Revenue Bonds (Series B), 6.60% (FHA
GTD)/(Original Issue Yield: 6.625%), 8/15/2034
2,000,000 New York State Mortgage Agency, Revenue Bonds NR 2,161,680
(Series 40A), 6.70%, 4/1/2025
1,000,000 New York State Thruway Authority, Local Highway BBB+ 1,099,280
and Bridge Service Contract Revenue Bonds, Series
1995, 6.25% (Original Issue Yield: 6.435%),
4/1/2014
500,000 Port Authority of New York and New Jersey, Revenue AAA 552,500
Bonds (Series 96), 6.60% (FGIC INS)/(Original
Issue Yield: 6.65%), 10/1/2023
400,000 Port Authority of New York and New Jersey, Special AAA 445,620
Project Bonds (Series 6), 6.00% (JFK International
Air Terminal LLC)/(MBIA INS), 12/1/2006
TOTAL LONG TERM MUNICIPALS (IDENTIFIED COST 22,287,456
$20,629,180)
SHORT-TERM MUNICIPALS--3.0%
NEW YORK--2.1%
500,000 New York State Urban Development Corp., BBB+ 479,455
Correctional Capital Facilities Refunding Revenue
Bonds (Series 1998), 5.00% (Original Issue Yield:
5.32%), 1/1/2020
PUERTO RICO--0.9%
200,000 Government Development Bank for Puerto Rico (GDB) AA 200,000
Weekly VRDNs (MBIA INS)/ (Credit Suisse First
Boston LIQ)
TOTAL SHORT-TERM MUNICIPALS (AT AMORITIZED 679,455
COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 22,966,911
$21,308,635)(a)
</TABLE>
At February 28, 1998, 30.63% of the total investments at market value were
subject to alternative minimum tax.
* 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 $21,308,635. The
net unrealized appreciation/depreciation of investments on a federal tax basis
amounts to $1,658,276 which is comprised of $1,686,793 appreciation and $28,517
depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($22,720,765) at February 28, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation AMT --Alternative Minimum
Tax 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 LIQ --Liquidity Agreement LLC --Limited Liability
Corporation 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
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 22,966,911
$21,308,635)
Cash 43,567
Income receivable 345,499
Receivable for shares sold 4,500
Total assets 23,360,477
LIABILITIES:
Payable for investments purchased $ 481,330
Payable for shares redeemed 63,109
Income distribution payable 95,273
Total liabilities 639,712
Net Assets for 2,084,611 shares outstanding $ 22,720,765
NET ASSETS CONSIST OF:
Paid in capital $ 22,098,055
Net unrealized appreciation of investments 1,658,276
Accumulated net realized loss on investments (1,035,566)
Total Net Assets $ 22,720,765
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
Net asset value per share ($22,720,765 / 2,084,611 shares $10.90
outstanding)
Offering price per share (100/99.00 of $10.90)* $11.01
Redemption proceeds per share (99.00/100 of $10.90)** $10.79
</TABLE>
* See "Purchasing Shares" 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
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 641,062
EXPENSES:
Investment advisory fee $ 44,723
Administrative personnel and services fee 61,987
Custodian fees 849
Transfer and dividend disbursing agent fees and expenses 13,775
Directors'/Trustees' fees 1,629
Auditing fees 7,421
Legal fees 2,172
Portfolio accounting fees 23,849
Distribution services fee 55,904
Shareholder services fee 27,952
Share registration costs 6,335
Printing and postage 7,602
Insurance premiums 1,448
Miscellaneous 13,937
Total expenses 269,583
Waivers and reimbursements--
Waiver of investment advisory fee $ (44,723)
Waiver of distribution services fee (53,668)
Waiver of shareholder services fee (2,236)
Reimbursement of other operating expenses (90,199)
Total waivers and reimbursements (190,826)
Net expenses 78,757
Net investment income 562,305
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 98,367
Net change in unrealized appreciation of investments 474,325
Net realized and unrealized gain on investments 572,692
Change in net assets resulting from operations $ 1,134,997
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 562,305 $ 1,219,601
Net realized gain (loss) on investments ($98,367 and $566,956, 98,367 566,956
respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 474,325 432,403
Change in net assets resulting from operations 1,134,997 2,218,960
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (562,305) (1,219,601)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,562,826 3,711,284
Net asset value of shares issued to shareholders in payment of 236,829 532,033
distributions declared
Cost of shares redeemed (2,038,054) (4,787,869)
Change in net assets resulting from share transactions (238,399) (544,552)
Change in net assets 334,293 454,807
NET ASSETS:
Beginning of period 22,386,472 21,931,665
End of period $ 22,720,765 $ 22,386,472
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.62 $10.17 $10.13 $10.10 $10.92 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.56 0.58 0.57 0.57 0.44
Net realized and unrealized gain (loss) on 0.28 0.45 0.04 0.03 (0.82) 0.88
investments
Total from investment operations 0.31 1.01 0.62 0.60 (0.25) 1.32
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.56) (0.58) (0.57) (0.57) (0.44)
NET ASSET VALUE, END OF PERIOD $10.90 $10.62 $10.17 $10.13 $10.10 $10.92
TOTAL RETURN(B) 5.21% 10.13% 6.18% 6.41% (2.31%) 13.38%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.70%* 0.66% 0.60% 0.59% 0.39% 0.25%*
Net investment income 5.03%* 5.34% 5.62% 5.94% 5.49% 5.53%*
Expense waiver/reimbursement(c) 1.71%* 1.75% 1.93% 1.74% 2.07% 1.91%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $22,721 $22,386 $21,932 $21,600 $23,152 $14,495
Portfolio turnover 19% 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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED NEW YORK MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
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.
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:
EXPIRATION YEAR EXPIRATION AMOUNT
2003 $ 149,736
2004 983,796
2005 401
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 Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in Class F Shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
Shares sold 144,724 356,926
Shares issued to shareholders in payment of distributions declared 21,953 51,006
Shares redeemed (189,458) (456,448)
Net change resulting from share transactions (22,781) (48,516)
</TABLE>
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("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended February 28, 1998, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $2,500,000 and $2,400,000, 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 February 28, 1998, were as follows:
Purchases $4,291,432
Sales $4,516,152
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1998, 32.9% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.61% of total investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated New York Municipal Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS FEBRUARY 28, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 625922208
4031009 (4/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of Federated Ohio
Municipal Income Fund, a portfolio of Municipal Securities Income Trust. This
report covers the first half of the fund's fiscal year, which is the six-month
period from September 1, 1997, through February 28, 1998. The report begins with
a discussion with the fund's portfolio manager, followed by a complete listing
of the fund's holdings and its financial statements.
Designed for tax-sensitive Ohio residents, Federated Ohio Municipal Income Fund
provides opportunities for income exempt from federal regular income tax and
Ohio state income tax.* This double tax-free advantage means you can earn a
greater after-tax yield than you could in a comparable high-quality taxable
investment.
During the six-month reporting period, the fund's portfolio of 44 quality
holdings paid a monthly dividend stream totaling $0.28 per share and capital
gains totaling $0.02 per share, while the share price increased from $11.53 to
$11.80. As a result, the fund achieved a six-month total return of 5.02%, based
on net asset value.** The fund's net assets reached $76 million at the end of
the reporting period.
Thank you for joining other shareholders of Federated Ohio Municipal Income Fund
in pursuing monthly, double tax-free investment income. Of course, you have the
option of receiving income from the fund or building your account by reinvesting
your dividends and compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. The total return for the six-month reporting period based on
offering price was 2.88%.
INVESTMENT REVIEW
Q. How has the Ohio municipal bond market been faring?
A. Ohio exempt municipal bonds experienced relatively weaker performance on a
price basis when compared with other specialty state municipal bonds such as
Michigan, California, and New York. The state of Ohio experienced a large amount
of municipal bond supply coming to market over the last six months which
contributed to a supply and demand imbalance within the market for Ohio
municipal bonds. However, the regional economy recovered quite dramatically from
the previous recession and continues to display solid growth. The region
benefited greatly by diversifying away from automobile manufacturing and
becoming a more service oriented local economy. Credit quality throughout the
state has been stable with few issues for concern at the local government level.
Q. In this environment, how did Federated Ohio Municipal Income Fund perform
with respect to total return over the six-month reporting period?
A. For the six-month reporting period ended February 28, 1998, the fund's Class
F Shares produced a total return of 5.02%, based on net asset value.* This
six-month total return is close to the Lehman Brothers Municipal Bond Index
return of 5.04%.+ The fund's performance over the reporting period is a result
of purchasing bonds with favorable performance characteristics such as discount
coupons and better call protection. The fund also benefited from having several
high coupon bonds pre-refunded. This resulted in significant price appreciation
as the bonds were priced to a shorter call date and backed by U.S. treasury
securities.
Q. In this environment, how did Federated Ohio Municipal Income Fund perform
with respect to income and yield over the six-month reporting period?
A. The 30-day SEC yield on February 28, 1998, was 4.18%, based on offering
price.** The SEC yield declined from 4.51% at the beginning of the reporting
period as a result of a general decline in market interest rates and positive
net cash flows into the fund. Municipal interest rates, as represented by the
Bond Buyer 40 Index,++ declined from 5.53% on November 1, 1997, to 5.24% at the
end of the reporting period.
Q. What is your outlook for the municipal market through 1998 and how does your
outlook affect portfolio strategy?
A. The U.S. economy is expected to moderate in the second half of 1998 from its
tepid pace over the last twelve months. The effects on the U.S. economy from the
Asian crisis may be evident within the next few months. This fact combined with
a potentially balanced federal budget and diminished expectations concerning
inflation may result in a relatively favorable environment for fixed-income
securities later this year. The municipal bond market has been in a trading
range for several months and may continue to be range bound until economic
numbers begin to signal a change in the economy's direction. Portfolio strategy
will include maintaining a neutral duration target relative to its benchmark
while looking for opportunities to improve portfolio yield, and as a result, the
income distributed to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for the six-month reporting period based on
offering price was 2.88%.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized.
+ Lehman Brothers Municipal Bond Index are broad market performance benchmarks
for the tax-exempt bond market. As of March 31, 1998, approximately 42,021
bonds were included in the Municipal Bond Index with a market value of $631
billion. To be included in the Lehman Brothers Municipal Bond Index, bonds
must have a minimum credit rating of at least Baa. They must have an
outstanding par value of at least $3 million and be issued as part of a
transaction of at least $50 million. The index includes both zero coupon bonds
and bonds subject to the alternative minimum tax. This index is unmanaged, and
investments cannot be made in an index.
++ The Bond Buyer 40 Index is a standard against which municipal bonds are
measured. This index is unmanaged, and investments cannot be made in an
index.
PORTFOLIO OF INVESTMENTS
FEDERATED OHIO MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--97.3%
OHIO--91.4%
$ 300,000 Bellefontaine, OH, Storm Water Utility LT GO A $ 324,864
Bonds, 7.05%, 6/1/2011
2,000,000 Brecksville-Broadview Heights CSD, OH, UT GO NR 2,006,360
Bonds, 5.25% (FGIC INS)/ (Original Issue Yield:
5.825%), 12/1/2021
500,000 Brunswick, OH, UT GO Bonds, 7.35% (Original A2 549,665
Issue Yield: 7.446%), 12/1/2010
1,000,000 Clermont County, OH, Hospital Facilities AAA 1,044,390
Refunding & Revenue Bonds (Series B), 5.625%
(Mercy Health Systems)/(AMBAC INS)/(Original
Issue Yield: 5.80%), 9/1/2021
1,000,000 Cleveland, OH Airport System, Revenue Bonds AAA 983,040
(Series 1997A), 5.125% (FSA INS)/ (Original
Issue Yield: 5.41%), 1/1/2022
2,500,000 Cleveland, OH Airport System, Revenue Bonds AAA 2,682,400
(Series A), 6.00% (FGIC INS)/ (Original Issue
Yield: 6.378%), 1/1/2024
2,000,000 Cleveland, OH Public Power System, Revenue AAA 2,350,360
Bonds, First Mortgage (Series A), 7.00% (MBIA
Insurance Corporation INS)/(United States
Treasury PRF)/ (Original Issue Yield: 7.15%),
11/15/2024
2,600,000 Columbus, OH Municipal Airport Authority, AAA 2,822,430
Improvement Revenue Bonds, 6.25% (Port Columbus
International Airport)/(MBIA INS)/(Original
Issue Yield: 6.35%), 1/1/2024
1,500,000 Cuyahoga County, OH Hospital Authority, AAA 1,558,095
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
1,500,000 Cuyahoga County, OH Hospital Authority, Revenue AAA 1,706,415
Bonds, 6.25% (Meridia Health System)/(Original
Issue Yield: 6.80%), 8/15/2024
2,000,000 Forest Hills, OH Local School District, UT GO AAA 2,142,780
Bonds, 5.70% (MBIA INS), 12/1/2016
1,500,000 Franklin County, OH Health Care Facilities, NR 1,480,470
Revenue Refunding Bonds, 5.50% (Ohio
Presbyterian Retirement Services)/(Original
Issue Yield: 5.69%), 7/1/2021
500,000 Franklin County, OH Hospital Facility AAA 544,435
Authority, Hospital Revenue Refunding &
Improvement Bonds, 7.25% (Riverside United
Methodist Hospital)/ (MBIA INS)/(Original Issue
Yield: 7.29%), 5/15/2020
2,000,000 Franklin County, OH Hospital Facility Aa3 2,067,740
Authority, Revenue Refunding Bonds (Series A),
5.75% (Riverside United Methodist Hospital)/
(Original Issue Yield: 6.10%), 5/15/2020
1,300,000 Hamilton County, OH Health System, Revenue BBB 1,407,562
Refunding Bonds, Providence Hospital, 6.875%
(Franciscan Sisters of Christian Charity
HealthCare Ministry, Inc.)/ (Original Issue
Yield: 7.05%), 7/1/2015
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
OHIO--CONTINUED
$ 700,000 Hamilton County, OH Hospital Facilities A- $ 766,738
Authority, Revenue Refunding & Improvement
Bonds, 7.00% (Deaconess Hospital)/(Original
Issue Yield: 7.046%), 1/1/2012
2,000,000 Hamilton County, OH Hospital Facilities A 2,161,980
Authority, Revenue Refunding Bonds (Series A),
6.25% (Bethesda Hospital, OH)/(Original Issue
Yield: 6.55%), 1/1/2012
2,000,000 Hamilton County, OH, Sales Tax Bonds (Series AAA 1,906,160
1998A), 4.75% (Hamilton County, OH Football
Project)/(MBIA INS)/(Original Issue Yield:
4.93%), 12/1/2017
1,200,000 Hamilton, OH, Wastewater System Revenue Bonds AAA 1,205,664
(Series 1998A), 5.15% (FSA INS)/(Original Issue
Yield: 5.15%), 10/15/2017
1,580,000 Hancock County, OH, LT GO Bonds (Series 1997), AA- 1,622,312
5.45%, 12/1/2017
440,000 Lakewood, OH Hospital Improvement Authority, AAA 448,963
Revenue Refunding Bonds (Series One), 6.00%
(Lakewood Hospital, OH)/(MBIA INS)/ (Original
Issue Yield: 6.90%), 2/15/2010
3,000,000 Lorain County, OH, Hospital Facilities Revenue AAA 3,189,600
Bonds (Series 1997B), 5.625% (Catholic
Healthcare Partners)/(MBIA INS)/(Original Issue
Yield: 5.825%), 9/1/2016
1,000,000 Mahoning County, OH Hospital Facilities, AAA 1,042,010
Revenue Bonds, 5.50% (Western Reserve Care
System)/(MBIA INS)/(Original Issue Yield:
5.75%), 10/15/2025
1,000,000 Marion County, OH Hospital Authority, Hospital BBB+ 1,101,040
Refunding & Improvement Revenue Bonds (Series
1996), 6.375% (Community Hospital of
Springfield)/ (Original Issue Yield: 6.52%),
5/15/2011
420,000 Marysville, OH, LT Sewer System GO Bonds, A 458,930
7.15%, 12/1/2011
1,000,000 Miami County, OH, Hospital Facilities Revenue BBB 1,073,260
Refunding & Improvement Bonds (Series 1996A),
6.375% (Upper Valley Medical Center,
OH)/(Original Issue Yield: 6.62%), 5/15/2026
1,500,000 Montgomery County, OH, Health System Revenue BBB 1,508,970
Bonds (Series 1997), 5.50% (Franciscan Medical
Center-Dayton Campus)/(Original Issue Yield:
5.551%), 7/1/2018
1,000,000 Moraine, OH Solid Waste Disposal Authority, A- 1,198,140
Revenue Bonds, 6.75% (General Motors
Corp.)/(Original Issue Yield: 6.80%), 7/1/2014
10,195,000 Ohio HFA, Residential Mortgage Revenue Bonds AAA 10,953,712
(Series B-2), 6.70% (GNMA COL), 3/1/2025
1,700,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65% AAA 1,792,123
(GNMA COL)/ (Original Issue Yield: 7.669%),
3/1/2029
195,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80% AAA 204,489
(GNMA COL), 3/1/2030
500,000 Ohio State Air Quality Development Authority, AAA 539,110
PCR Refunding Bonds (Series A), 7.45% (Ohio
Edison Co.)/(FGIC INS), 3/1/2016
</TABLE>
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
OHIO--CONTINUED
$ 3,000,000 Ohio State Air Quality Development Authority, AAA $ 3,299,160
Revenue Refunding Bonds, 6.375% (JMG Funding
Limited Partnership)/(AMBAC INS)/(Original
Issue Yield: 6.493%), 1/1/2029
2,000,000 Ohio State Turnpike Commission, Revenue Bonds, AA- 2,101,560
Series A, 5.75%, 2/15/2024
1,500,000 Ohio State, Education Loan Revenue Bonds AAA 1,573,050
(Series 1997A), 5.85% (AMBAC INS), 12/1/2019
2,000,000 Olentangy, OH Local School District, UT GO AA- 2,010,460
Bonds, 5.25% (Original Issue Yield: 5.46%),
12/1/2017
730,000 Reynoldsburg, OH City School District, UT GO AAA 378,016
Capital Appreciation Refunding Bonds (FGIC
INS)/(Original Issue Yield: 5.30%), 12/1/2011
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 546,505
2,000,000 Toledo-Lucas County, OH Port Authority, Port Aa3 2,105,820
Facilities Revenue Refunding Bonds, 5.90%
(Cargill, Inc.)/(Original Issue Yield: 5.981%),
12/1/2015
1,500,000 University of Cincinnati, OH, General Receipts AA 1,469,940
Revenue Bonds (Series 1998AA), 5.00% (Original
Issue Yield: 5.15%), 6/1/2018
1,115,000 Warren County, OH, Special Assessment UT GO Aa2 1,147,770
Bonds, 5.50%, 12/1/2017
TOTAL 69,476,488
PUERTO RICO--3.5%
2,400,000 Puerto Rico Electric Power Authority, Revenue BBB+ 2,667,888
Bonds (Series T), 6.375% (Original Issue Yield:
6.58%), 7/1/2024
VIRGIN ISLANDS--2.4%
1,750,000 Virgin Islands HFA, SFM Revenue Refunding Bonds AAA 1,857,712
(Series A), 6.50% (GNMA COL)/(Original Issue
Yield: 6.522%), 3/1/2025
TOTAL LONG-TERM 74,002,088
MUNICIPALS (IDENTIFIED COST $68,571,452)
SHORT-TERM MUNICIPALS--0.9%
PUERTO RICO--0.9%
700,000 Government Development Bank for Puerto Rico AA 700,000
(GDB) Weekly VRDNs (MBIA INS)/(Credit Suisse
First Boston LIQ) (at net asset value)
TOTAL INVESTMENTS $ 74,702,088
(IDENTIFIED COST $69,271,452)(A)
</TABLE>
Securities that are subject to alternative minimum tax represent 36.0% of the
portfolio as calculated based upon total portfolio market value.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $69,271,452. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,430,636 which is comprised of $5,481,075 appreciation and $50,439
depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($76,050,350) at February 28, 1998.
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 FSA
- --Financial Security Assurance GNMA --Government National Mortgage Association
GO --General Obligation HFA --Housing Finance Authority INS --Insured LIQ
- --Liquidity Agreement LOC --Letter of Credit LT --Limited Tax MBIA --Municipal
Bond Investors Assurance PCR --Pollution Control Revenue PRF --Pre-refunded 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
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 74,702,088
$69,271,452)
Cash 47,515
Income receivable 1,222,804
Receivable for investments sold 245,000
Receivable for shares sold 7,920
Total assets 76,225,327
LIABILITIES:
Payable for shares redeemed $ 6,925
Income distribution payable 126,164
Accrued expenses 41,888
Total liabilities 174,977
Net Assets for 6,443,505 shares outstanding $ 76,050,350
NET ASSETS CONSIST OF:
Paid in capital $ 70,218,082
Net unrealized appreciation of investments 5,430,636
Accumulated net realized gain on investments 382,673
Undistributed net investment income 18,959
Total net assets $ 76,050,350
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
Net asset value per share ($76,050,350 / 6,443,505 shares $11.80
outstanding)
Offering price per share (100/99.00 of $11.80)* $11.92
Redemption proceeds per share (99.00/100 of $11.80)** $11.68
</TABLE>
* See "Purchasing Shares" 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 OHIO MUNICIPAL INCOME FUND
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,154,405
EXPENSES:
Investment advisory fee $ 148,656
Administrative personnel and services fee 61,987
Custodian fees 3,819
Transfer and dividend disbursing agent fees and expenses 24,528
Directors'/Trustees' fees 1,614
Auditing fees 6,764
Legal fees 1,484
Portfolio accounting fees 25,581
Distribution services fee 148,656
Shareholder services fee 92,910
Share registration costs 6,959
Printing and postage 10,749
Insurance premiums 1,424
Taxes 184
Miscellaneous 2,024
Total expenses 537,339
Waivers --
Waiver of investment advisory fee $ (108,317)
Waiver of distribution services fee (89,193)
Waiver of shareholder services fee (3,716)
Total waivers (201,226)
Net expenses 336,113
Net investment income 1,818,292
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 678,698
Net change in unrealized appreciation of investments 1,177,388
Net realized and unrealized gain on investments 1,856,086
Change in net assets resulting from operations $ 3,674,378
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED OHIO MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,818,292 $ 3,589,790
Net realized gain (loss) on investments ($678,698 net gain and 678,698 627,060
$627,060 net gain, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation/depreciation 1,177,388 1,642,169
Change in net assets resulting from operations 3,674,378 5,859,019
NET EQUALIZATION CREDITS (DEBITS)-- (6,579) 13,748
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,797,388) (3,614,135)
Distributions from net realized gains (134,059) --
Change in net assets resulting from distributions to (1,931,447) (3,614,135)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 5,537,333 4,590,738
Proceeds from shares issued in connection with the acquisition -- 9,320,692(a)
Net asset value of shares issued to shareholders in payment of 1,149,256 2,243,948
distributions declared
Cost of shares redeemed (7,878,931) (13,475,385)
Change in net assets resulting from share transactions (1,192,342) 2,679,993
Change in net assets 544,010 4,938,625
NET ASSETS:
Beginning of period 75,506,340 70,567,715
End of period (including undistributed net investment income of $ 76,050,350 $ 75,506,340
$18,959 and $4,634, respectively)
</TABLE>
(a) Includes $384,016 of unrealized appreciation.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.53 $11.21 $11.22 $11.01 $11.65 $10.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.59 0.60 0.60 0.56 0.57
Net realized and unrealized gain
(loss) on investments 0.29 0.32 (0.01) 0.20 (0.64) 0.77
Total from investment operations 0.57 0.91 0.59 0.80 (0.08) 1.34
LESS DISTRIBUTIONS
Distributions from net investment
income (0.28) (0.59) (0.60) (0.59) (0.56) (0.57)
Distributions in excess of net
investment income -- -- -- -- -- (0.01)(a)
Total distributions from net
investment income (0.28) (0.59) (0.60) (0.59) (0.56) (0.58)
Distributions from net realized
gain on investments (0.02) -- -- -- -- --
Total distributions (0.30) (0.59) (0.60) (0.59) (0.56) (0.58)
NET ASSET VALUE, END OF PERIOD $11.80 $11.53 $11.21 $11.22 $11.01 $11.65
TOTAL RETURN(B) 5.02% 8.34% 5.34% 7.65% (0.72%) 12.69%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90%* 0.90% 0.90% 0.90% 0.90% 0.87%
Net investment income 4.89%* 5.19% 5.28% 5.53% 5.02% 5.13%
Expense waiver/reimbursement(c) 0.54%* 0.58% 0.58% 0.60% 0.55% 0.83%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $76,050 $75,506 $70,568 $70,532 $81,566 $73,973
Portfolio turnover 13% 38% 11% 33% 20% 0%
</TABLE>
* Computed on an annualized basis.
(a) 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.
(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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED OHIO MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
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 which is 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 ex-change 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.
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 $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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $148,031
2003 14,757
2004 32,711
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 Board of Trustees ("the "Trustees") to
issue an unlimited number of full and fractional shares of beneficial interest
(without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
February 28, August 31,
1998 1997
<S> <C> <C>
Shares sold 473,229 438,606
Shares issued in connection with the acquisition -- 804,896
Shares issued to shareholders in payment of distributions declared 98,222 197,577
Shares redeemed (676,845) (1,187,600)
Net change resulting from share transactions (105,394) 253,479
</TABLE>
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 period ended February 28, 1998, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $5,900,000 and $5,800,000, 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 February 28, 1998, were as follows:
PURCHASES $ 9,657,115
SALES $12,549,209
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1998, 59.5% 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 22.0% of total investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
Nicholas P. Constantakis
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Ohio Municipal Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS FEBRUARY 28, 1998
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 625922307
2032305 (4/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders of Federated
Pennsylvania Municipal Income Fund, a portfolio of Municipal Securities Income
Trust. This report covers the first half of the fund's fiscal year, which is the
six-month period from September 1, 1997, through February 28, 1998. The report
begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's quality holdings and its financial statements.
Designed for tax-sensitive Pennsylvania residents, Federated Pennsylvania
Municipal Income Fund provides opportunities for income exempt from federal
regular income tax and Pennsylvania state income tax.* This double tax-free
advantage means you can earn a greater after-tax yield than you could in a
comparable high-quality taxable investment.
During the six-month reporting period, the fund's Class A Shares paid a monthly
dividend stream totaling $0.30 per share and capital gains totaling $0.04 per
share, while the share price increased from $11.71 to $11.95. As a result, Class
A Shares achieved a six-month total return of 5.03%, based on net asset value.**
The fund's Class B Shares paid a monthly dividend stream totaling $0.26 per
share and capital gains totaling $0.04 per share, while the share price
increased from $11.71 to $11.95. As a result, Class B Shares achieved a
six-month total return of 4.66%, based on net asset value.**
The fund's net assets reached $238 million at the end of the reporting period.
Thank you for joining other shareholders of Federated Pennsylvania Municipal
Income Fund in pursuing monthly, double tax-free investment income. Of course,
you have the option of receiving income from the fund or building your account
by reinvesting your dividends and compounding tax free.
Sincerely,
[Graphic]
Richard B. Fisher
President
April 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. The total return for the six-month reporting period based on
offering price for Class A Shares and Class B Shares was 0.31% and -0.95%,
respectively.
INVESTMENT REVIEW
Q. How has the Pennsylvania municipal bond market been faring? A. The
Pennsylvania municipal bond market experienced a supply and demand imbalance
over the previous six months. This was a result of a large amount of new
issuance of Pennsylvania exempt municipal bonds, which have been driven by the
relatively low interest rate environment. However, credit quality has been
stable for governmental issuers across Pennsylvania due to the strength of the
regional economy. Pennsylvania's economy has diversified away from basic
manufacturing and has become more services oriented which should provide some
stability during the next cyclical downturn.
Q. In this environment, how did Federated Pennsylvania Municipal Income Fund
perform with respect to total return over the six-month reporting period? A. For
the six-month reporting period ended February 28, 1998, the fund's Class A
Shares produced a total return of 5.03%, based on net asset value.* This
six-month return is close to the Lehman Brothers Municipal Bond Index return of
5.04%.+ The fund's performance over the reporting period is a result of
purchasing bonds with favorable performance characteristics such as discount
coupons and better call protection. The fund also benefited from having several
high coupon bonds pre-refunded. This resulted in significant price appreciation
as the bonds were priced to a shorter call date and backed by U.S. treasury
securities.
Q. In this environment, how did Federated Pennsylvania Municipal Income Fund
perform with respect to income and yield over the six-month reporting period? A.
The 30-day SEC yield for Class A Shares on February 28, 1998, was 3.99%, based
on offering price.** The SEC yield declined from 4.22% at the beginning of the
reporting period as a result of a general decline in market interest rates and
positive net cash flows into the fund. Municipal interest rates, as represented
by the Bond Buyer 40 Index,++ declined from 5.53% on November 1, 1997, to 5.24%
at the end of the reporting period.
Q. What is your outlook for the municipal market through 1998 and how does your
outlook affect portfolio strategy? A. The U.S. economy is expected to moderate
in the second half of 1998 from its tepid pace over the last twelve months. The
effects on the U.S. economy from the Asian crisis may be evident within the next
few months. This fact combined with a potentially balanced federal budget and
diminished expectations concerning inflation may result in a relatively
favorable environment for fixed-income securities later this year. The municipal
bond market has been in a trading range for several months and may continue to
be range bound until economic numbers begin to signal a change in the economy's
direction. Portfolio strategy will include maintaining a neutral duration target
relative to its benchmark while looking for opportunities to improve portfolio
yield, and as a result, the income distributed to shareholders.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for the six-month reporting period based on
offering price for Class A Shares was 0.31%. Total return for the six-month
reporting period for Class B Shares based on net asset value and offering
price was 4.66% and -0.95%, respectively.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day SEC yield on
February 28, 1998, for the fund's Class B Shares was 3.40%, based on offering
price.
+ Lehman Brothers Municipal Bond Index are broad market performance benchmarks
for the tax-exempt bond market. As of March 31, 1998, approximately 42,021
bonds were included in the Municipal Bond Index with a market value of $631
billion. To be included in the Lehman Brothers Municipal Bond Index, bonds
must have a minimum credit rating of at least Baa. They must have an
outstanding par value of at least $3 million and be issued as part of a
transaction of at least $50 million. The index includes both zero coupon bonds
and bonds subject to the alternative minimum tax. The index is unmanaged, and
investments cannot be made in an index.
++ The Bond Buyer 40 Index is a standard against which municipal bonds are
measured. The index is unmanaged, and investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--99.3%
PENNSYLVANIA--99.3%
$ 590,000 Allegheny County Sanitation Authority, Revenue AAA $ 615,535
Bonds (Series B), 7.25% (FGIC INS), 6/1/1999
(@100)
2,000,000 Allegheny County, PA HDA, Health & Education BBB 2,251,840
Revenue Bonds, 7.00% (Rehabilitation Institute
of Pittsburgh)/(United States Treasury
PRF)/(Original Issue Yield: 7.132%), 6/1/2002
(@102)
1,500,000 Allegheny County, PA HDA, Hospital Revenue A3 1,564,125
Bonds, Series 1997, 5.75% (St. Francis Medical
Center, PA)/(Original Issue Yield: 6.00%),
5/15/2017
4,000,000 Allegheny County, PA HDA, Revenue Bonds AAA 3,929,080
(Series 1997B), 5.00% (UPMC Health
System)/(MBIA INS)/(Original Issue Yield:
5.43%), 7/1/2016
1,500,000 Allegheny County, PA HDA, Revenue Bonds, 5.30% AAA 1,508,205
(Children's Hospital of Pittsburgh)/(MBIA
INS)/(Original Issue Yield: 5.70%), 7/1/2026
1,500,000 Allegheny County, PA HDA, Revenue Bonds, Baa1 1,490,835
5.375% (Ohio Valley General Hospital,
PA)/(Original Issue Yield: 5.50%), 1/1/2018
4,000,000 Allegheny County, PA HDA, Revenue Bonds, AAA 4,192,560
Series 1997A, 5.60% (UPMC Health System)/(MBIA
INS)/(Original Issue Yield: 5.85%), 4/1/2017
3,225,000 Allegheny County, PA Housing Development AAA 3,544,630
Authority, Refunding Revenue Bonds, 6.625%
(Allegheny General Hospital), 7/1/2009
325,000 Allegheny County, PA Housing Development AAA 331,640
Authority, Revenue Bonds, 7.60% (Presbyterian
University Hospital)/(MBIA INS), 3/1/1998
(@102)
500,000 Allegheny County, PA Institution District, GO AAA 532,915
UT Bonds, 7.30% (MBIA INS)/ (Original Issue
Yield: 7.375%), 4/1/2009
415,000 Allegheny County, PA Residential Finance Aaa 431,612
Agency, SFM Revenue Bonds (Series K), 7.75%
(GNMA COL), 12/1/2022
700,000 Allegheny County, PA Residential Finance Aaa 741,797
Agency, SFM Revenue Bonds (Series Q), 7.40%
(GNMA COL), 12/1/2022
1,500,000 Allegheny County, PA, Residual Interest NR 1,764,375
Tax-Exempt Securities (Series 329B), 8.81585%
(Pittsburgh International Airport), 1/1/2011
3,000,000 Allegheny County, PA, Residual Interest NR 3,547,500
Tax-Exempt Securities (Series 329C), 8.81585%
(Pittsburgh International Airport), 1/1/2014
3,000,000 Allegheny County, PA, Residual Interest NR 3,551,250
Tax-Exempt Securities (Series PA 329A),
8.81585% (Pittsburgh International Airport),
1/1/2010
2,060,000 Allentown, PA Area Hospital Authority, Revenue BBB 2,254,711
Bonds (Series B), 6.75% (Sacred Heart Hospital
of Allentown), 11/15/2015
3,500,000 Berks County, PA Municipal Authority, AAA 3,796,835
Refunding Revenue Bonds, 5.50% (Reading
Hospital & Medical Center)/(MBIA
INS)/(Original Issue Yield: 5.573%), 10/1/2008
1,170,000 Bethlehem, PA, General Obligation Unlimited, AAA 1,264,243
6.15% (MBIA LOC), 6/1/2002
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 4,250,000 Bradford County, PA IDA, Solid Waste Disposal A- $ 4,708,107
Revenue Bonds (Series A), 6.60% (International
Paper Co.), 3/1/2019
1,000,000 Bucks County, PA Community College Authority, Aa 1,035,240
College Building Revenue Bonds (Series 1996),
5.50% (Original Issue Yield: 5.70%), 6/15/2017
1,000,000 Butler, PA Area School District, UT GO Bonds AAA 943,190
(Series A), 4.75% (FGIC INS)/ (Original Issue
Yield: 5.18%), 10/1/2022
2,130,000 Chartiers Valley, PA, Refunding Revenue Bonds, AAA 2,212,644
6.15%, 3/1/2007
2,000,000 Chester County, PA HEFA, Revenue Bonds, Series AA- 2,013,200
B, 5.375% (Jefferson Health System)/(Original
Issue Yield: 5.63%), 5/15/2027
1,035,000 Chester County, PA, General Obligation Aa2 1,114,271
Unlimited, 6.40%, 12/15/2001
1,000,000 Clarion County, PA Hospital Authority, Revenue BBB- 1,019,960
Refunding Bonds, Series 1997, 5.75% (Clarion
County Hospital)/(Original Issue Yield:
5.95%), 7/1/2017
745,000 Cocalico Lancaster County, PA School District, AAA 793,812
GO UT Bonds, 6.40% (MBIA INS), 3/1/2001
500,000 Commonwealth of Pennsylvania, GO UT Bonds AAA 532,340
(Second Series A), 6.875% (United States
Treasury PRF), 11/1/1999 (@101.5)
1,575,000 Commonwealth of Pennsylvania, GO UT Bonds, AA- 1,768,835
6.00% (Original Issue Yield: 6.15%), 7/1/2007
1,100,000 Dauphin County, PA General Authority, Hospital AAA 1,125,245
Revenue Bonds (Series A1), 5.50%
(Hapsco-Western PA Hospital)/(MBIA
INS)/(Original Issue Yield: 5.85%), 7/1/2023
1,000,000 Delaware County Authority, PA, Revenue Bonds AAA 1,031,060
(Series 1996), 5.50% (Elwyn, Inc.)/ (Connie
Lee INS)/(Original Issue Yield: 5.69%),
6/1/2020
2,900,000 Delaware County, PA Authority, College Revenue BBB- 2,858,994
Refunding Bonds (Series 1998A), 5.375%
(Neumann College)/(Original Issue Yield:
5.48%), 10/1/2018
200,000 Delaware River Joint Toll Bridge, Revenue NR 206,568
Bonds, 7.40%, 7/1/2002
10,000,000 Delaware Valley, PA Regional Finance AAA 10,711,900
Authority, Local Government Revenue Bonds
(Series 1997B), 5.60% (AMBAC INS), 7/1/2017
500,000 Erie County, PA Prison Authority, Lease AAA 541,385
Revenue Bonds, 6.45% (MBIA LOC)/ (Original
Issue Yield: 6.50%), 11/1/2001
1,000,000 Fayette County, PA Hospital Authority, Aa3 1,028,590
Healthcare Facility Revenue Bonds (Series
1996A), 6.00% (Mount Macrina Manor)/(National
City, Pennsylvania LOC), 9/1/2018
2,000,000 Fayette County, PA Hospital Authority, AAA 2,108,720
Hospital Revenue Bonds (Series 1996A), 5.75%
(Uniontown Hospital)/(Connie Lee
INS)/(Original Issue Yield: 6.05%), 6/15/2015
1,175,000 Franklin County, PA IDA, Hospital Revenue Aaa 1,139,527
Refunding Bonds, Series 1998, 5.00%
(Chambersburg Hospital)/(AMBAC INS)/(Original
Issue Yield: 5.20%), 7/1/2022
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 1,000,000 Geisinger Authority, PA Health System, Revenue AA $ 1,068,950
Bonds, 7.625% (United States Treasury
PRF)/(Original Issue Yield: 7.697%), 7/1/1999
(@102)
2,750,000 Harrisburg, PA Authority, Pooled Bond Program AAA 2,904,908
Revenue Bonds (Series I), 5.625% (MBIA
INS)/(Original Issue Yield: 5.98%), 4/1/2015
750,000 Harrisburg, PA Water Authority, Revenue Bonds, AAA 812,145
6.65% (FGIC LOC), 7/15/2001
800,000 Jeannette Health Services Authority, PA, BBB+ 844,816
Hospital Revenue Bonds (Series A of 1996),
6.00% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 6.15%),
11/1/2018
2,915,000 Jim Thorpe Area School District, PA, UT GO AAA 3,083,866
Bonds (Series A), 5.75% (MBIA INS), 3/15/2017
1,000,000 Lackawanna Trail School District, PA, UT GO AAA 1,084,730
Refunding Bonds, 6.90% (AMBAC INS), 3/15/2010
3,000,000 Lancaster, PA School District, GO Bonds AAA 3,093,690
(Series 1997), 5.40% (FGIC INS)/(Original
Issue Yield: 5.50%), 2/15/2014
1,380,000 Latrobe, PA Industrial Development Authority, Baa1 1,503,331
College Revenue Bonds, 6.75% (St. Vincent
College, PA)/(Original Issue Yield: 7.00%),
5/1/2024
1,500,000 Lebanon County, PA Good Samaritan Hospital BBB+ 1,578,765
Authority, Hospital Revenue Bonds, 6.00% (Good
Samaritan Hospital)/(Original Issue Yield:
6.10%), 11/15/2018
1,000,000 Lehigh County, PA General Purpose Authority, A 1,044,450
Hospital Refunding Revenue Bonds (Series
1996A), 5.75% (Muhlenberg Hospital
Center)/(Original Issue Yield: 5.85%),
7/15/2010
2,500,000 Lehigh County, PA General Purpose Authority, AAA 2,592,650
Hospital Revenue Bonds (Series B), 5.625%
(Lehigh Valley Hospital Inc.)/(MBIA
INS)/(Original Issue Yield: 5.775%), 7/1/2025
1,000,000 Luzerne Co, PA, UT GO Bonds, 5.625% (FGIC AAA 1,043,150
INS)/(Original Issue Yield: 5.78%), 12/15/2021
2,500,000 Luzerne County, PA IDA, Revenue Refunding AAA 2,853,525
Bonds (Series A), 7.00% (Pennsylvania Gas &
Water Co.)/(AMBAC INS), 12/1/2017
4,000,000 Lycoming County, PA Authority, Hospital Lease A- 4,334,520
Revenue Bonds (Series B), 6.50% (Divine
Providence Hospital, PA)/(Original Issue
Yield: 6.70%), 7/1/2022
1,000,000 Lycoming County, PA Authority, Hospital AAA 1,028,720
Revenue Bonds, 5.50% (Divine Providence
Hospital, PA)/(Connie Lee INS)/(Original Issue
Yield: 5.90%), 11/15/2022
1,000,000 Manheim, PA Central School District, GO UT AAA 1,066,680
Bonds, 6.40% (FGIC INS), 3/1/2001
1,200,000 McKeesport, PA Area School District, GO UT AAA 440,124
Bonds 6.30% accrual (FSA INS)/ (Original Issue
Yield: 6.30%), 10/1/2017
1,375,000 McKeesport, PA Area School District, GO UT AAA 402,517
Bonds 6.35% accrual (FSA INS)/ (Original Issue
Yield: 6.35%), 10/1/2021
1,000,000 McKeesport, PA Area School District, GO UT AAA 388,840
Bonds, 6.25% accrual (FSA INS)/ (Original
Issue Yield: 6.25%), 10/1/2016
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 1,440,000 McKeesport, PA Area School District, GO UT, AAA $ 496,786
6.30% accrual (FSA INS)/(Original Issue Yield:
6.30%), 10/1/2018
2,000,000 McKeesport, PA Area School District, GO UT, AAA 649,740
6.30% accrual (FSA INS)/(Original Issue Yield:
6.30%), 10/1/2019
1,000,000 McKeesport, PA Area School District, GO UT, AAA 308,380
6.35% accrual (FSA INS)/(Original Issue Yield:
6.35%), 10/1/2020
2,360,000 Monroe County, PA Hospital Authority, Hospital AAA 2,345,108
Revenue Bonds, 5.125% (Pocono Medical
Center)/(AMBAC INS)/(Original Issue Yield:
5.40%), 7/1/2015
3,250,000 Montgomery County, PA IDA, Retirement A- 3,378,895
Community Revenue Bonds (Series 1996B), 5.75%
(Adult Communities Total Services,
Inc.)/(Original Issue Yield: 5.98%),
11/15/2017
1,000,000 Montgomery County, PA IDA, Retirement A- 1,048,960
Community Revenue Refunding Bonds (Series
1996A), 5.875% (Adult Communities Total
Services, Inc.)/(Original Issue Yield:
6.125%), 11/15/2022
500,000 Mt. Pleasant Borough, PA Business District BBB 510,670
Authority, Hospital Revenue Bonds (Series
1997), 5.75% (Frick Hospital)/(Original Issue
Yield: 5.85%), 12/1/2017
1,300,000 Mt. Pleasant Borough, PA Business District BBB 1,327,742
Authority, Hospital Revenue Bonds (Series
1997), 5.75% (Frick Hospital)/(Original Issue
Yield: 5.90%), 12/1/2027
1,245,000 North Penn, PA School District, Refunding Aaa 1,287,305
Revenue Bonds, 6.20%, 3/1/2007
500,000 Northern Cambria, PA School District, GO UT AAA 529,875
Bonds, 7.10% (AMBAC INS), 1/15/2000 (@100)
500,000 Pennsylvania Convention Center Authority, BBB 533,795
Refunding Revenue Bonds (Series A), 6.25%,
9/1/2004
1,000,000 Pennsylvania Convention Center Authority, AAA 1,177,560
Revenue Bonds, 6.70% (FGIC INS)/ (Original
Issue Yield: 6.843%), 9/1/2016
4,000,000 Pennsylvania EDFA, Resource Recovery Revenue NR 4,244,800
Bonds (Series A), 6.40% (Northampton
Generating), 1/1/2009
1,525,000 Pennsylvania Housing Finance Authority, AA+ 1,575,752
Refunding Revenue Bonds, 5.35%, 10/1/2008
855,000 Pennsylvania Housing Finance Authority, AA+ 875,426
Refunding Revenue Bonds, 5.375% (FHA INS),
10/1/2028
1,000,000 Pennsylvania Housing Finance Authority, AA+ 1,024,210
Revenue Bonds, 5.375%, 10/1/2016
1,000,000 Pennsylvania Housing Finance Authority, AA+ 1,020,980
Revenue Bonds, 5.40%, 10/1/2027
580,000 Pennsylvania Housing Finance Authority, AA+ 596,217
Revenue Bonds, 5.55% (FHA/VA mtgs. GTD),
10/1/2012
1,000,000 Pennsylvania Housing Finance Authority, AA+ 1,032,960
Revenue Bonds, 5.65%, 4/1/2020
1,000,000 Pennsylvania Housing Finance Authority, SFM AA+ 1,081,980
Revenue Bond (Series 39B), 6.875%, 10/1/2024
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 600,000 Pennsylvania Housing Finance Authority, SFM AA+ $ 639,306
Revenue Bonds (Series 33), 6.90%, 4/1/2017
1,000,000 Pennsylvania Housing Finance Authority, SFM AA+ 1,063,450
Revenue Bonds (Series 34-B), 7.00% (FHA GTD),
4/1/2024
3,575,000 Pennsylvania Housing Finance Authority, SFM AA+ 3,763,474
Revenue Bonds (Series 28), 7.65% (FHA GTD),
10/1/2023
750,000 Pennsylvania Intergovernmental Co-op AAA 799,193
Authority, City of Philadelphia Funding
Program, 6.00% (FGIC LOC)/(Original Issue
Yield: 6.125%), 6/15/2002
2,000,000 Pennsylvania Intergovernmental Co-op AAA 2,051,800
Authority, Special Tax Revenue Bonds, 5.625%
(MBIA INS)/(Original Issue Yield: 97.245%),
6/15/2023
850,000 Pennsylvania Intergovernmental Co-op AAA 993,285
Authority, Special Tax, 7.00% (FGIC INS),
6/15/2005
5,500,000 Pennsylvania State Higher Education Facilities AA 5,783,580
Authority, Health Services Revenue Bonds
(Series A of 1996), 5.75% (University of
Pennsylvania)/(Original Issue Yield: 6.035%),
1/1/2022
1,000,000 Pennsylvania State Higher Education Facilities A 1,105,840
Authority, Hospital Revenue Bonds (Series A),
7.25% (Allegheny General Hospital)/(Original
Issue Yield: 7.40%), 9/1/2017
2,000,000 Pennsylvania State Higher Education Facilities NR 2,201,580
Authority, Revenue Bonds (Series 1996), 7.20%
(Thiel College), 5/15/2026
4,000,000 Pennsylvania State Higher Education Facilities AAA 4,444,600
Authority, Revenue Bonds (Series A), 7.375%
(Medical College of Pennsylvania)/(United
States Treasury PRF)/(Original Issue Yield:
7.45%), 3/1/2021
2,000,000 Pennsylvania State Higher Education Facilities AAA 2,125,900
Authority, Revenue Bonds (Series N), 5.875%
(MBIA INS)/(Original Issue Yield: 5.913%),
6/15/2021
2,000,000 Pennsylvania State Higher Education Facilities A- 2,156,800
Authority, Revenue Bonds, 6.375% (Drexel
University)/(Original Issue Yield: 6.415%),
5/1/2017
750,000 Pennsylvania State Higher Education Facilities AAA 798,218
Authority, Revenue Bonds, 6.80% (MBIA
LOC)/(Original Issue Yield: 6.85%), 6/15/2001
1,500,000 Pennsylvania State Higher Education Facilities AA 1,520,805
Authority, University Revenue Bonds (Series
1997), 5.45% (University of the Arts)/(Asset
Guaranty INS)/(Original Issue Yield: 5.58%),
3/15/2017
500,000 Pennsylvania State IDA, Economic Development NR 536,155
Revenue Bonds (Series A), 6.80% (Original
Issue Yield: 6.85%), 1/1/2001
1,105,000 Pennsylvania State School Finance Authority, A 1,188,074
Refunding Revenue Bonds (Series A), 6.00%
(Cornell School District), 9/1/2002
1,000,000 Pennsylvania State Turnpike Commission, AAA 1,069,180
Refunding Revenue Bonds (Series L), 6.00%
(MBIA INS)/(Original Issue Yield: 6.85%),
6/1/2015
1,500,000 Philadelphia, PA Gas Works, Revenue Bonds, BBB 1,571,205
5.80% (Original Issue Yield: 5.90%), 7/1/2001
500,000 Philadelphia, PA Gas Works, Revenue Bonds, BBB 534,935
7.40%, 6/15/2000
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 2,565,000 Philadelphia, PA Hospitals & Higher Education A- $ 2,600,038
Facilities Authority, Hospital Revenue Bonds
(Series 1997), 5.50% (Temple University
Hospital)/(Original Issue Yield: 5.85%),
11/15/2015
1,655,000 Philadelphia, PA Hospitals & Higher Education BBB 1,745,280
Facilities Authority, Hospital Revenue Bonds
(Series 1997), 5.75% (Jeanes Hospital,
PA)/(Original Issue Yield: 5.80%), 7/1/2008
1,700,000 Philadelphia, PA Hospitals & Higher Education BBB 1,763,308
Facilities Authority, Hospital Revenue Bonds
(Series 1997), 5.875% (Jeanes Hospital,
PA)/(Original Issue Yield: 6.10%), 7/1/2017
325,000 Philadelphia, PA Hospitals & Higher Education BBB+ 350,717
Facilities Authority, Refunding Revenue Bonds,
6.15% (Pennsylvania Hospital)/(Original Issue
Yield: 6.25%), 7/1/2005
250,000 Philadelphia, PA Hospitals & Higher Education AAA 272,452
Facilities Authority, Revenue Bonds, 7.75%
(Children's Seashore House, PA)/(AMBAC INS),
8/15/2000 (@100)
150,000 Philadelphia, PA Municipal Authority, AAA 153,539
Refunding Revenue Bonds, 7.50% (FGIC INS),
4/1/1998 (@102)
905,000 Philadelphia, PA Municipal Authority, AAA 975,943
Refunding Revenue Bonds, 7.80% (FGIC INS),
4/1/2000 (@100)
1,300,000 Philadelphia, PA School District, GO UT Bonds, AAA 1,360,320
5.20% (MBIA INS)/(Original Issue Yield:
5.35%), 7/1/2003
1,000,000 Philadelphia, PA Water & Sewer, Revenue Bonds, BBB 1,047,550
7.40%, 8/1/1999
4,000,000 Philadelphia, PA, (Series 1995A) Airport AAA 4,334,600
Revenue Bonds, 6.10% (Philadelphia Airport
System)/(AMBAC INS)/(Original Issue Yield:
6.40%), 6/15/2025
9,500,000 Philadelphia, PA, Airport Revenue Bonds AAA 9,760,870
(Series 1997B), 5.50% (Philadelphia Airport
System)/(AMBAC INS)/(Original Issue Yield:
5.65%), 6/15/2017
960,000 Philadelphia, PA, Revenue Bonds, 10.875%, Aaa 1,206,211
7/1/2008
255,000 Pittsburgh, PA Stadium Authority, Lease AAA 285,080
Revenue Bonds, 6.50%, 4/1/2011
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, AAA 1,056,790
Mortgage Revenue Bonds (Series 1997A), 6.15%,
10/1/2016
1,500,000 Pittsburgh, PA Urban Redevelopment Authority, AAA 1,562,610
Mortgage Revenue Bonds (Series 1997C), 5.90%,
10/1/2022
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, AAA 1,024,360
Revenue Bonds, 5.45% (FGIC INS)/(PNC Bank,
N.A. LOC), 6/1/2028
1,000,000 Pittsburgh, PA Water & Sewer Authority, Series AAA 1,080,960
A Revenue Bonds, 6.50% (FGIC LOC)/(Original
Issue Yield: 6.60%), 9/1/2001
1,000,000 Schuylkill, PA Redevelopment Authority, AAA 1,098,210
Revenue Bonds, 6.75% (FGIC LOC), 6/1/2002
1,000,000 Scranton, PA School District, UT GO Bonds AAA 984,240
(Series 1998), 5.00% (AMBAC INS)/ (Original
Issue Yield: 5.20%), 4/1/2017
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 1,250,000 Scranton-Lackawanna, PA Health & Welfare Aaa $ 1,234,737
Authority, Refunding Revenue Bonds, 5.125%
(Community Medical Center)/(FGIC
INS)/(Original Issue Yield: 5.43%), 7/1/2019
2,500,000 Scranton-Lackawanna, PA Health & Welfare NR 2,798,750
Authority, Revenue Bonds (Series 1994-A),
7.60% (Allied Services Rehabilitation
Hospitals, PA), 7/15/2020
85,000 Scranton-Lackawanna, PA Health & Welfare AAA 87,678
Authority, Revenue Bonds, 7.25% (Community
Medical Center)/(BIG LOC)/(Original Issue
Yield: 7.384%), 7/1/1999
2,900,000 Seneca Valley, PA School District, Refunding AAA 2,877,322
UT GO Bonds (Series 1998AA), 5.15% (FGIC
INS)/(Original Issue Yield: 5.20%), 2/15/2020
2,245,000 Shaler, PA School District Authority, GO UT AAA 2,441,258
Bonds, 6.25%, 4/15/2008
2,650,000 Sharon, PA General Hospital Authority, BBB+ 2,877,476
Hospital Revenue Bonds, 6.875% (Sharon
Regional Health System), 12/1/2022
2,000,000 Somerset County, PA Hospital Authority, AA 2,014,860
Hospital Refunding Revenue Bonds (Series
1997B), 5.375% (Somerset Community
Hospital)/(Asset Guaranty INS)/ (Original
Issue Yield: 5.68%), 3/1/2017
2,000,000 Southeastern, PA Transportation Authority, AAA 2,044,200
Special Revenue Bonds, 5.375% (FGIC
INS)/(Original Issue Yield: 5.70%), 3/1/2017
8,000,000 Southeastern, PA Transportation Authority, AAA 8,163,280
Special Revenue Bonds, 5.375% (FGIC
INS)/(Original Issue Yield: 5.75%), 3/1/2022
500,000 State Public School Building Authority, PA, AAA 545,180
College Revenue Bonds, 6.50% (Harrisburg Area
Community College-D)/(MBIA LOC), 4/1/2002
1,000,000 University of Pittsburgh, Higher Education AAA 1,034,850
Refunding Revenue Bonds (Series A), 6.40%
(MBIA INS), 4/1/2000
9,000,000 University of Pittsburgh, University Refunding AAA 8,857,170
Revenue Bonds (Series 1997B), 5.00% (MBIA
INS)/(Original Issue Yield: 5.287%), 6/1/2017
1,000,000 Warren County, PA Hospital Authority, Revenue BBB+ 1,112,830
Bonds (Series A), 7.00% (Warren General
Hospital, PA)/(Original Issue Yield: 7.101%),
4/1/2019
680,000 Washington County, PA Authority, Lease Revenue AAA 736,005
Bonds, 7.00% (AMBAC INS), 6/15/2000 (@103)
400,000 Washington County, PA Authority, Lease Revenue AAA 544,096
Bonds, 7.875%, 12/15/2018
1,000,000 West View, PA Municipal Authority, Special AAA 1,448,950
Obligation Bonds, 9.50%, 11/15/2014
835,000 Westmoreland County, PA Municipal Authority, AAA 992,464
Special Obligation Bonds, 9.125%, 7/1/2010
Total Long-Term Municipal Securities 237,246,358
(identified cost $222,848,309)
SHORT-TERM MUNICIPAL SECURITIES--2.0%
PENNSYLVANIA--2.0%
1,500,000 Erie County, PA Hospital Authority Weekly A 1,500,000
VRDNs (St. Vincent Health System)/ (Mellon
Bank N.A., Pittsburgh LOC)*
</TABLE>
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 700,000 New Castle, PA Area Hospital Authority, AAA $ 700,000
(Series 1996) Weekly VRDNs (Jameson Memorial
Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ)
2,000,000 Philadelphia, PA Hospitals & Higher Education AA 2,000,000
Facilities Authority, Hospital Revenue Bonds
(Series 1992B) Daily VRDNs (Children's
Hospital of Philadelphia)/ (Morgan Guaranty
Trust Co., New York LIQ)
500,000 Philadelphia, PA Hospitals & Higher Education AA 500,000
Facilities Authority, Hospital Revenue Bonds
(Series A of 1996) Daily VRDNs (Children's
Hospital of Philadelphia)/(Morgan Guaranty
Trust Co., New York LIQ)
Total Short-Term Municipal Securities (at 4,700,000
amortized cost)
Total Investments (identified cost $ 241,946,358
$227,548,309)(a)
</TABLE>
Securities that are subject to alternative minimum tax represent 16.2% of the
portfolio as calculated based upon total portfolio market value.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) The cost of investments for federal tax purposes amounts to $227,548,309.
The net unrealized appreciation of investments on a federal tax basis
amounts to $14,398,049 which is comprised of $14,623,257 appreciation and
$225,208 depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($238,846,223) at February 28, 1998.
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 HEFA --Health and
Education Facilities 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
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (identified and tax cost $ 241,946,358
$227,548,309)
Cash 63,812
Income receivable 3,736,692
Receivable for investments sold 25,000
Receivable for shares sold 1,464,167
Total assets 247,236,029
LIABILITIES:
Payable for investments purchased $ 7,882,082
Payable for shares redeemed 15,884
Capital gain distribution payable 409,631
Accrued expenses 82,209
Total liabilities 8,389,806
Net Assets for 19,992,524 shares outstanding $ 238,846,223
NET ASSETS CONSIST OF:
Paid in capital $ 223,859,513
Net unrealized appreciation of investments 14,398,049
Accumulated net realized gain on investments 838,476
Distributions in excess of net investment income (249,815)
Total Net Assets $ 238,846,223
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net asset value per share ($219,679,975 / 18,388,085 shares $11.95
outstanding)
Offering price per share (100/95.50 of $11.95)* $12.51
Redemption proceeds per share $11.95
CLASS B SHARES:
Net asset value per share ($19,166,248 / 1,604,439 shares $11.95
outstanding)
Offering price per share $11.95
Redemption proceeds per share (94.50/100 of $11.95)** $11.29
</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 PENNSYLVANIA MUNICIPAL INCOME FUND
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,481,101
EXPENSES:
Investment advisory fee $ 455,011
Administrative personnel and services fee 85,825
Custodian fees 6,385
Transfer and dividend disbursing agent fees and expenses 51,063
Directors'/Trustees' fees 1,740
Auditing fees 8,060
Legal fees 1,835
Portfolio accounting fees 51,913
Distribution services fee--Class B Shares 48,347
Shareholder services fee--Class A Shares 267,783
Shareholder services fee--Class B Shares 16,116
Share registration costs 14,952
Printing and postage 15,755
Insurance premiums 1,700
Miscellaneous 1,845
Total expenses 1,028,330
Waivers and reimbursements--
Waiver of investment advisory fee $ (99,565)
Waiver of shareholder services fee--Class A Shares (21,423)
Total waivers (120,988)
Net expenses 907,342
Net investment income 5,573,759
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,295,510
Net change in unrealized appreciation of investments 4,246,527
Net realized and unrealized gain on investments 5,542,037
Change in net assets resulting from operations $ 11,115,796
</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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,573,759 $ 6,269,130
Net realized gain (loss) on investments ($1,295,510 and 1,295,510 2,211,019
$2,211,019, respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 4,246,527 5,539,761
Change in net assets resulting from operations 11,115,796 14,019,910
NET EQUALIZATION CREDITS-- 2,013 126,956
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (5,531,090) (6,501,486)
Class B Shares (294,020) (91,906)
Distributions from net realized gains
Class A Shares (692,628) --
Class B Shares (44,936) --
Change in net assets resulting from distributions to (6,562,674) (6,593,392)
shareholders
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME)--
Proceeds from sale of shares 24,049,303 29,680,851
Net asset value of shares issued to shareholders in payment of 3,852,566 4,035,972
distributions declared
Net asset value of shares issued in connection with the -- 115,985,657
acquisition of William Penn Interest Income PA Tax Free Fund
Cost of shares redeemed (14,308,642) (20,673,623)
Change in net assets resulting from share transactions 13,593,227 129,028,857
Change in net assets 18,148,362 136,582,331
NET ASSETS:
Beginning of period 220,697,861 84,115,530
End of period $ 238,846,223 $ 220,697,861
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.71 $11.35 $11.23 $10.94 $11.68 $10.93
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.62 0.65 0.65 0.60 0.60
Net realized and unrealized gain (loss) on investments 0.29 0.39 0.12 0.27 (0.75) 0.75
Total from investment operations 0.58 1.01 0.77 0.92 (0.15) 1.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.30) (0.65) (0.65) (0.63) (0.59) (0.60)
Distributions from net realized gain on
investment transactions (0.04) -- -- -- -- --
Total distributions (0.34) (0.65) (0.65) (0.63) (0.59) (0.60)
NET ASSET VALUE, END OF PERIOD $11.95 $11.71 $11.35 $11.23 $10.94 $11.68
TOTAL RETURN(A) 5.03% 9.12% 6.99% 8.76% (1.34%) 12.71%
RATIOS TO AVERAGE NET ASSETS Expenses 0.75%* 0.75% 0.75% 0.75% 0.75% 0.83%
Net investment income 4.94%* 5.34% 5.73% 5.92% 5.27% 5.33%
Expense waiver/reimbursement(b) 0.11%* 0.22% 0.25% 0.28% 0.45% 0.70%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $219,680 $212,792 $84,116 $83,722 $85,860 $69,947
Portfolio turnover 15% 30% 23% 59% 17% 0%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) 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)
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) PERIOD ENDED
FEBRUARY 28, AUGUST 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.71 $11.52
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.30
Net realized and unrealized gain (loss) on investments 0.29 0.20
Total from investment operations 0.54 0.50
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.31)
Distributions from net realized gain on investment transactions (0.04) --
Total distributions (0.30) (0.31)
NET ASSET VALUE, END OF PERIOD $11.95 $11.71
TOTAL RETURN(B) 4.66% 4.41%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.53%* 1.25%*
Net investment income 4.20%* 4.62%*
Expense waiver/reimbursement(c) 0.09%* 0.47%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $19,166 $7,906
Portfolio turnover 15% 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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
FEBRUARY 28, 1998 (UNAUDITED)
ORGANIZATION
Municipal Securities Income Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of five portfolios. The
financial statements included herein are only those of Federated Pennsylvania
Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The investment objective of the Fund is to
provide current income which is exempt from federal regular income tax and the
personal income taxes imposed by the Commonwealth of Pennsylvania.
The Fund offers two classes of shares: Class A Shares and 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. Immediately 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 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 $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:
EXPIRATION YEAR EXPIRATION AMOUNT
2004 $37,020(a)
2004 $72,833
(a) Capital loss carryforward is attributable to the acquisition 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 Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value) for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1998 August 31, 1997
Class A Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,083,315 $ 12,895,046 2,145,449 $ 21,789,555
Shares issued to shareholders in payment of 306,995 3,645,629 343,918 3,979,801
distributions declared
Shares issued in connection with the -- -- 10,059,467 115,985,657
acqusition of the Acquired Fund
Shares redeemed (1,180,360) (14,010,429) (1,779,292) (20,583,883)
Net change resulting from Class A Share 209,950 $ 2,530,246 10,769,542 $ 121,171,130
transactions
<CAPTION>
Six Months Ended Year Ended
February 28, 1998 August 31, 1997(a)
Class B Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 936,603 $ 11,154,257 678,264 $ 7,891,296
Shares issued to shareholders in payment of 17,404 206,937 4,825 56,171
distributions declared
Shares redeemed (24,940) (298,213) (7,717) (89,740)
Net change resulting from Class B Share 929,067 $ 11,062,981 675,372 $ 7,857,727
transactions
Net change resulting from share 1,139,017 $ 13,593,227 11,444,914 $ 129,028,857
transactions
</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.
PERCENTAGE
OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A Shares 0.40%
Class B Shares 0.75%
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. Class A Shares did not incur a distribution services fee for
the period ended February 28, 1998, 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 for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended February 28, 1998, 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 $18,020,000 and $16,080,000, 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 February 28, 1998, were as follows:
Purchases $36,040,297
Sales $33,273,288
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1998, 53.6% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 18.4% of total investments.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C.Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which containes facts
concerning its objective and policies, management fees, expenses, and other
information.
NOTES
NOTES
[Graphic]Federated Investors
Federated Pennsylvania Municipal Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS
FEBRUARY 28, 1998
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 625922505
Cusip 625922836
2032304 (4/98)
[Graphic]
