SEMI-ANNUAL REPORT
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, 1998 through February 28, 1999. The report
begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and financial statements.
Federated California Municipal Income Fund is a convenient way for tax-sensitive
California residents to pursue income that is exempt from federal regular income
tax and state income tax./1/ This double tax-free advantage gives investors the
opportunity to earn a greater after-tax yield than they could in a comparable
high-quality taxable investment.
During the six-month reporting period, the fund paid a monthly dividend stream
totaling $0.27 per share for Class A Shares and $0.22 for Class B Shares. The
share price decreased slightly from $11.13 to $11.10. As a result, the fund's
Class A Shares and Class B Shares achieved six-month total returns of 2.10% and
1.74%, respectively, based on net asset value./2/ The fund's net assets reached
$54.8 million at the end of the reporting period.
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 any income from the fund or building your
account by reinvesting your dividends and compounding tax free.
Sincerely,
/s/ Richard B. Fisher
Richard B. Fisher
President
April 15, 1999
1 Income may be subject to the federal alternative minimum tax.
2 Performance quoted reflects 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 returns for the six-month reporting period based on
offering price were (3.41%) for Class A Shares and (3.74%) for Class B Shares.
INVESTMENT REVIEW
What's your review of the municipal bond marketplace over the reporting period?
During the reporting period, there was an imbalance between supply and demand in
the municipal bond market. Municipal bond issuance was extremely heavy as a
result of low relative interest rates, which gave municipal entities the
opportunity to refund existing high coupon debt. In addition, many state and
local governments had significant infrastructure development needs. Demand for
municipal bonds was impacted by "rate shock" that individual investors
experienced when long term yields on municipal bonds were at or below the 5.00%
threshold. Demand by institutions, including arbitrageurs, property and casualty
insurers and corporations, was relatively mixed with some institutions actually
being net sellers over the reporting period.
Municipal bond insurance continued to be a significant influence on the
market. Approximately 59% of the municipal bonds issued in 1998 were guaranteed
by one of the mono-line municipal bond insurers, such as MBIA and AMBAC. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors have
also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
How have California municipal bonds performed over the reporting period?
Generally, credit quality remained strong throughout the state as represented by
strong employment growth, additional new business formation and a protracted low
inflation environment; the state's budget surplus has eased fiscal pressure at
all levels of government. California debt issuance in 1998 increased
significantly over 1997 levels, while demand increased modestly. California
municipal debt was trading with a spread of approximately 77 basis points to the
benchmark AAA municipal yield curve at the end of February 1999. This is wider
than the six month average of 71 basis points.
How has Federated California Municipal Income Fund performed with respect to
total return and income for the six-month reporting period ended February 28,
1999?
For the six month period ended February 28, 1999, the fund's Class A Shares
produced a total return of 2.10% based on net asset value./1/ This return lagged
the total return of the Lehman Brothers Municipal Bond Index of 2.62%,/2/ but
beat the Lipper California Municipal Funds Average total return of 2.09%./3/
1 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 (3.41%). Total return for the six-month
reporting period for Class B Shares, based on net asset value and offering
price, was 1.74% and (3.74%), respectively.
2 The Lehman Brothers Municipal Bond Index is a broad market performance
benchmark for the tax-exempt bond market. To be included in the Index, bonds
must have a minimum credit rating of at least Baa. This index is unmanaged,
and investments cannot be made in the index.
3 The Lipper California Municipal Fund Average represents the average of the
total returns reported by all mutual funds designated by Lipper Analytical
Services, Inc. as falling in the category. The figure does not reflect sales
charges.
The income on the fund remained competitive during the reporting period. The
fund's 30-day current net yield, or SEC yield, on February 28, 1999 was 4.23%/4/
for Class A Shares based on net asset value. The yield represents a decrease
from the 4.57% SEC yield at the beginning of the reporting period.
What accounted for the fund's performance?
The fund's duration was positioned to be neutral to the relevant municipal
benchmark. Municipal yields were generally higher over the reporting period with
the Bond Buyer Municipal Index moving from a low of 4.95% to 5.17% at the end of
the reporting period./5/ The high for the index over the reporting period was
5.22% on January 11, 1999. The duration and average maturity of the fund were
structured so as to take advantage of what management expected to be a trading
range for municipal interest rates over the reporting period. The fund was also
affected by selective spread widening in the BBB credit sector, to which it had
limited exposure.
What kind of environment do you see ahead for municipal bonds?
The municipal bond market is undergoing fundamental changes that are being
driven by new technology. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and may
eventually lead to Internet trading of municipal bonds. The municipal bond
markets use of these new technologies will lead to better dissemination of
information and potentially greater market efficiency. There have also been
enormous improvements in information disclosure and the availability of
municipal bond prices to investors.
The volume of municipal issuance in 1999 is expected to be around $230
billion, with a potential increase in refunding volume in what may be a lower
interest rate environment. Municipal bond insurance may become less prevalent as
bond insurers pull away from certain sectors of the market and toughen
underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the market place may contribute to additional
credit spread widening in the coming period.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. The market does not expect any material
interruptions in the supply of necessary municipal services, although there
remains the potential for some functions to suffer temporary disruptions.
The approach of the presidential election cycle will bring potential federal
tax law changes back into the news. Potential developments such as the
introduction of a flat tax or significant changes to the top marginal brackets
could affect the trading value of municipal debt relative to taxable fixed
income alternatives, such as corporate and treasury securities.
4 The 30-day SEC yield for Class A Shares on February 28, 1999 was 4.04%, based
on offering price. The 30-day SEC yield for Class B Shares on February 28,
1999 based on net asset value, was 3.49%.
5 The Bond Buyer Municipal Index is a standard against which municipal bonds are
measured.
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
Principal Credit Value
Amount Rating/1/
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<S> <C> <C> <C>
LONG-TERM MUNICIPALS--99.6%
California--98.1%
$ 500,000 ABAG Finance Authority for Non-Profit Corporations, Refunding Revenue A- $ 492,130
Certificates of Participation, 5.125% (Episcopal Homes Foundation)/(Original
Issue Yield: 5.35%), 7/1/2018
2,000,000 Alameda Corridor Transportation Authority, CA, Senior Lien Revenue Bonds AAA 2,033,540
(Series 1999A), 5.125% (MBIA INS), 10/1/2018
500,000 Anaheim, CA, Public Financing Authority, Lease Revenue Bonds (Series 1997C), AAA 578,275
6.00% (Anaheim Public Improvements Project)/(FSA INS), 9/1/2010
500,000 Anaheim, CA, Public Financing Authority, Lease Revenue Bonds (Series 1997C), AAA 572,135
6.00% (Anaheim Public Improvements Project)/(FSA INS), 9/1/2016
1,000,000 Antioch, CA, Public Financing Authority, Reassessment Revenue Bonds (Series AAA 990,770
1998A), 5.00% (AMBAC INS)/(Original Issue Yield: 5.08%), 9/2/2018
2,000,000 Bassett, CA, USD, Refunding Certificates of Participation (Series 1999A), AAA 1,958,140
4.75% (FSA INS)/(Original Issue Yield: 4.90%), 5/1/2017
1,000,000 Beverly Hills, CA, Public Finance Authority, Lease Revenue Bonds AA- 1,013,940
(Series1998A), 5.25%, 6/1/2028
605,000 Blythe, CA, Financing Authority, Sewer Revenue Bonds (Series 1998), NR 611,140
5.75%,4/1/2028
500,000 Bonita Canyon, CA, Public Facilities Financing Authority, Community NR 486,795
Facilities District No. 98-1 Special Tax Bonds (Series 1998), 5.375%
(OriginalIssue Yield: 5.50%), 9/1/2028
1,000,000 California Community College Financing Authority, Lease Revenue Bonds AAA 963,380
(Series A), 4.75% (MBIA INS)/(Original Issue Yield: 4.97%), 10/1/2024
1,000,000 California Educational Facilities Authority, Revenue Bonds (Series 1998A), AA 987,020
5.00% (University of Southern California), 10/1/2028
625,000 California Educational Facilities Authority, Revenue Bonds (Series B), A1 700,850
6.60%(Loyola Marymount University)/(United States Treasury PRF), 10/1/2002
(@102)
1,000,000 California Educational Facilities Authority, Revenue Bonds (Series N), 5.35% AAA 1,035,690
(Stanford University)/(Original Issue Yield: 5.43%), 6/1/2027
600,000 California Educational Facilities Authority, Revenue Bonds, 6.70% A3 673,344
(Southwestern University)/(Original Issue Yield: 6.838%), 11/1/2024
500,000 California Educational Facilities Authority, Student Loan Revenue Bonds AAA 521,660
(Series 1998), 5.55% (AMBAC INS), 4/1/2028
680,000 California HFA, SFM Revenue Bonds (Series C), 6.75%, 2/1/2025 AA- 726,553
1,135,000 California HFA, SFM Revenue Bonds (Series F-1), 7.00%, 8/1/2026 AA- 1,229,954
</TABLE>
<TABLE>
Principal Credit Value
Amount Rating/1/
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<S> <C> <C> <C>
LONG-TERM MUNICIPALS--continued
California--continued
$ 1,000,000 California Health Facilities Financing Authority, Insured Health Facilities A+ $ 1,032,580
Refunding Revenue Bonds (Series 1997), 5.50% (Valley Care Hospital
Corp.)/(California Mortgage Insurance INS)/(Original Issue Yield: 5.737%),
5/1/2020
500,000 California Health Facilities Financing Authority, Insured Health Facility A+ 503,495
Revenue Bonds (Series 1998A), 5.25% (Casa De Las Campanas)/(California
Mortgage Insurance INS)/(Original Issue Yield: 5.35%), 8/1/2020
1,000,000 California Health Facilities Financing Authority, Revenue Bonds (Series A- 1,009,790
1998), 5.40% (Northern California Presbyterian Homes, Inc.)/(Original Issue
Yield: 5.417%), 7/1/2028
1,000,000 California Health Facilities Financing Authority, Revenue Bonds (Series AAA 991,510
1998A), 5.00% (UCSF-Stanford Health Care)/(FSA INS)/(Original Issue Yield:
5.23%), 11/15/2028
1,000,000 California Health Facilities Financing Authority, Revenue Bonds (Series A 972,280
1998B), 5.00% (Kaiser Permanente)/(Original Issue Yield: 5.20%), 10/1/2020
400,000 California Health Facilities Financing Authority, Revenue Bonds (Series A), A 430,700
6.50% (Kaiser Permanente Medical Care Program)/(Original Issue Yield:
7.097%), 12/1/2020
1,000,000 California Health Facilities Financing Authority, Revenue Bonds (Series B), AAA 991,510
5.00% (UCSF-Stanford Health Care)/(AMBAC INS)/(Original Issue Yield: 5.23%),
11/15/2028
1,000,000 California Health Facilities Financing Authority, Revenue Bonds 1998 (Series A 983,500
A), 5.00% (Catholic Healthcare West)/(Original Issue Yield: 5.20%), 7/1/2018
700,000 California Health Facilities Financing Authority, Revenue Refunding Bonds AAA 762,006
(Series 1996A), 6.00% (Catholic Healthcare West)/(MBIA INS)/(Original Issue
Yield: 6.15%), 7/1/2017
900,000 California PCFA, Exempt Facilities Revenue Bonds (Series 1996), 5.50% (Mobil AA 926,298
Corp.)/(Original Issue Yield: 5.72%), 12/1/2029
500,000 California PCFA, PCR Revenue Bonds (Series B), 6.40% (Southern California A+ 546,900
Edison Co.)/(Original Issue Yield: 6.55%), 12/1/2024
900,000 California PCFA, Sewer & Solid Waste Disposal Revenue Bonds, 5.75% A+ 952,254
(Anheuser-Busch Cos., Inc.)/(Original Issue Yield: 5.818%), 12/1/2030
700,000 California PCFA, Solid Waste Disposal Revenue Bonds, 6.875% (Browning- A- 764,512
Ferris Industries, Inc.)/(Original Issue Yield: 6.95%), 11/1/2027
1,280,000 California Public Capital Improvements Financing Authority, Trust Receipts AAA 1,280,000
(Series 1996 FR-3) Weekly VRDNs (MBIA INS)/(Bank of New York, NewYork LIQ)
1,000,000 California Rural Home Mortgage Finance Authority, SFM Revenue Bonds, (Series AAA 1,087,960
1998 B-4) 5.75% (GNMA COL Home Mortgage Program), 12/1/2029
</TABLE>
<TABLE>
Principal Credit Value
Amount Rating/1/
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<S> <C> <C> <C>
LONG-TERM MUNICIPALS--continued
California--continued
$ 1,000,000 California State Public Works Board, Lease Revenue Bonds (Series 1998A), A $ 985,060
4.875% (Department of Forestry and Fire Protection Telecommunication Towers
and Vaults)/(Original Issue Yield: 5.01%), 10/1/2018
20,000 California State, GO UT Bonds, 5.75% (Original Issue Yield: 6.25%), 3/1/2019 AAA 21,463
580,000 California State, GO UT Bonds, 5.75% (Original Issue Yield: 6.25%), 3/1/2019 AAA 645,743
1,000,000 California State, Refunding UT GO Bonds, 4.75% (FGIC INS)/(Original Issue AAA 990,220
Yield: 4.82%), 2/1/2016
500,000 California State, Refunding UT GO Bonds, 5.00% (Original Issue Yield: A+ 494,400
5.06%), 2/1/2021
400,000 California Statewide Communities Development Authority, Certificates of AA 404,588
Participation, 5.25% (St. Joseph Health System Group, CA)/(Original Issue
Yield: 5.47%), 7/1/2021
600,000 California Statewide Communities Development Authority, Revenue Certificates AA 694,104
of Participation, 6.625% (St. Joseph Health System Group, CA)/(United States
Treasury PRF)/(Original Issue Yield: 6.674%), 7/1/2021
400,000 California Statewide Communities Development Authority, Special Facilities BB+ 409,764
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), 6.40% (San Diego Gas & A+ 544,155
Electric)/(Original Issue Yield: 6.473%), 12/1/2027
1,000,000 Eden Township, CA, Hospital District, Hospital Revenue Bonds, 7.40% BBB+ 1,049,510
(Original Issue Yield: 7.483%), 11/1/1999 (@102)
500,000 El Dorado County, CA, Public Agency Financing Authority, Revenue Bonds, AAA 525,815
5.50% (FGIC INS)/(Original Issue Yield: 5.85%), 2/15/2021
790,000 El Monte, CA, Public Financing Authority, Tax Allocation Revenue Bonds NR 795,522
(Series 1998), 5.75% (El Monte, CA Community Redevelopment Agency), 6/1/2028
700,000 Foothill/Eastern Transportation Corridor Agency, CA (Series 1995A), Senior BBB- 781,445
Lien Toll Road Revenue Bonds, 6.50% (Original Issue Yield: 6.78%), 1/1/2032
500,000 Inland Empire Solid Waste Financing Authority, CA, Revenue Bonds (SeriesB), AAA 571,350
6.25% (FSA INS), 8/1/2011
600,000 Los Angeles, CA, Community Redevelopment Agency, Housing Revenue Refunding AAA 639,204
Bonds (Series A), 6.55% (AMBAC INS), 1/1/2027
460,000 Pomona, CA, Redevelopment Agency, Tax Allocation Bonds (Series 1998X), 5.40% BBB+ 461,555
(Mountain Meadows Redevelopment Project), 12/1/2024
900,000 Port of Oakland, CA, Revenue Bonds (Series 1997G), 5.50% (MBIAINS)/ AAA 944,037
(Original Issue Yield: 5.83%), 11/1/2017
700,000 Regents of University of California, Research Facilities Revenue Bonds A+ 799,603
(1995Series B), 6.55%, 9/1/2024
</TABLE>
<TABLE>
Principal Credit Value
Amount Rating/1/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM MUNICIPALS--continued
California--continued
$ 1,000,000 Riverside County, CA, Asset Leasing Corp., Leasehold Revenue Bonds AAA $ 317,710
(Riverside County Hospital)/(MBIA INS)/(Original Issue Yield: 5.98%),
6/1/2021
600,000 Sacramento, CA, Municipal Utility District, Electric Revenue Bonds AAA 632,352
(Series J), 5.50% (AMBAC INS)/(Original Issue Yield: 5.80%), 8/15/2021
2,000,000 San Diego, CA, Redevelopment Agency, Tax Allocation Bonds (Series 1999A), AAA 1,936,920
4.75% (Centre City Redevelopment Project)/(AMBAC INS)/ (OriginalIssue Yield:
4.93%), 9/1/2018
2,000,000 San Diego, CA, Water Utility Fund, Net System Bonds, 5.00% (FGICINS)/ AAA 1,990,580
(Original Issue Yield: 5.17%), 8/1/2021
1,500,000 San Francisco, CA, City & County Airport Commission, International Airport AAA 1,468,650
Revenue Bonds (Series 18A), 5.00% (FGIC INS)/(Original Issue Yield: 5.24%),
5/1/2022
300,000 San Francisco, CA, City & County Airport Commission, Second Series Revenue A+ 319,269
Bonds (Issue 12A), 5.90% (San Francisco International Airport)/(Original
Issue Yield: 5.97%), 5/1/2026
1,000,000 Sierra Madre, CA, Financing Authority, Tax Increment Revenue Refunding Bonds AAA 986,610
(Series 1998A), 5.00% (MBIA INS)/(Original Issue Yield: 5.35%), 11/1/2019
1,000,000 Sierra View Local Health Care District, CA, Refunding Revenue Bonds (Series A 981,470
1998), 5.25% (American Capital Access INS)/(Original Issue Yield: 5.40%),
7/1/2018
400,000 Stockton, CA, Health Facility Revenue Bonds (Series 1997A), 5.70% (Dameron BBB+ 407,700
Hospital Association), 12/1/2014
500,000 Stockton, CA, Revenue Certificates of Participation (Series 1998A), 5.00% AAA 497,545
(MBIA INS)/(Original Issue Yield: 5.15%), 9/1/2023
745,000 Vista, CA, Joint Powers Financing Authority, Revenue Bonds (Series 1997B), NR 745,030
5.50% (Original Issue Yield: 5.57%), 9/1/2020
500,000 Watsonville, CA, Insured Hospital Revenue Refunding Bonds (Series 1996A), A+ 579,665
6.20% (Watsonville Community Hospital)/(California State INS)/(Original
Issue Yield: 6.225%), 7/1/2012
700,000 West Basin, CA, Municipal Water District, Refunding Revenue Certificates of AAA 736,533
Participation (Series A), 5.375% (AMBAC INS)/(Original Issue Yield: 5.50%),
8/1/2014
1,000,000 West Sacramento, CA, Limited Obligation Refunding Improvement Bonds, 5.60% NR 998,270
(West Sacramento Reassessment District of 1998)/(Original Issue Yield:
5.70%), 9/2/2017
1,000,000 Whisman, CA, School District, UT GO Bonds (Series B) (MBIA INS)/(Original AAA 317,760
Issue Yield: 5.48%), 8/1/2021
</TABLE>
<TABLE>
Principal Credit Value
Amount Rating/1/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM MUNICIPALS--continued
California--continued
$ 1,000,000 Whisman, CA, School District, UT GO Bonds (Series B) (MBIA INS)/ (Original AAA $ 301,650
Issue Yield: 5.48%), 8/1/2022
TOTAL 53,785,863
Puerto Rico--1.5%
700,000 Puerto Rico Electric Power Authority, Revenue Bonds (Series T), 6.375% BBB+ 798,434
(Original Issue Yield: 6.58%), 7/1/2024
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $52,647,965) 54,584,297
SHORT-TERM MUNICIPALS--0.7%
Puerto Rico--0.7%
400,000 Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA AA 400,000
INS)/(Credit Suisse First Boston LIQ) (at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $53,047,965)2 $ 54,984,297
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 20.1% of the
portfolio as calculated based upon total portfolio market value.
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
2 The cost of investments for federal tax purposes amounts to $53,047,965. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,936,332 which is comprised of $2,023,662 appreciation and $87,330
depreciation at February 28, 1999.
Note: The categories of investments are shown as a percentage of net assets
($54,825,081) at February 28, 1999.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation COL --Collateralized FGIC
- --Financial Guaranty Insurance Company FSA --Financial Security Assurance GNMA
- --Government National Mortgage Association 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
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified and tax cost $53,047,965) $ 54,984,297
Income receivable 713,508
Receivable for shares sold 297,223
Prepaid expenses 22,253
TOTAL ASSETS 56,017,281
Liabilities:
Payable for investments purchased $ 997,198
Income distribution payable 195,002
TOTAL LIABILITIES 1,192,200
Net Assets for 4,937,436 shares outstanding $ 54,825,081
Net Assets Consist of:
Paid in capital $ 53,633,379
Net unrealized appreciation of investments 1,936,332
Accumulated net realized loss on investments (744,630)
TOTAL NET ASSETS $ 54,825,081
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Class A Shares:
Net Asset Value Per Share ($28,033,920 / 2,524,652 shares outstanding) $11.10
Offering Price Per Share (100 / 95.50 of $11.10)/1/ $11.62
Redemption Proceeds Per Share $11.10
Class B Shares:
Net Asset Value Per Share ($26,791,161 / 2,412,784 shares outstanding) $11.10
Offering Price Per Share $11.10
Redemption Proceeds Per Share (94.50 / 100 of $11.10)/2/ $10.49
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 1,202,011
Expenses:
Investment advisory fee $ 91,500
Administrative personnel and services fee 76,863
Custodian fees 1,007
Transfer and dividend disbursing agent fees and expenses 20,084
Directors'/Trustees' fees 1,991
Auditing fees 6,878
Legal fees 1,267
Portfolio accounting fees 32,276
Distribution services feeClass A Shares 35,018
Distribution services feeClass B Shares 66,507
Shareholder services feeClass A Shares 35,018
Shareholder services feeClass B Shares 22,169
Share registration costs 12,308
Printing and postage 5,973
Insurance premiums 1,267
Miscellaneous 905
TOTAL EXPENSES 411,031
Waivers and Reimbursements:
Waiver of investment advisory fee $ (91,500)
Waiver of distribution services feeClass A Shares (35,018)
Reimbursement of other operating expenses (102,626)
TOTAL WAIVERS AND REIMBURSEMENTS (229,144)
Net expenses 181,887
Net investment income 1,020,124
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (7,667)
Net change in unrealized appreciation of investments (166,413)
Net realized and unrealized loss on investments (174,080)
Change in net assets resulting from operations $ 846,044
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year
(unaudited) Ended
February 28, August 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,020,124 $ 1,319,281
Net realized gain (loss) on investments ($(7,667) and $16,809, respectively, as (7,667) 16,809
computed for federal tax purposes)
Net change in unrealized appreciation of investments (166,413) 1,036,136
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 846,044 2,372,226
Distributions to Shareholders:
Distributions from net investment income
Class A Shares (662,792) (1,204,810)
Class B Shares (357,332) (114,471)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (1,020,124) (1,319,281)
Share Transactions:
Proceeds from sale of shares 22,864,862 19,344,464
Net asset value of shares issued to shareholders in payment of distributions declared 469,366 671,591
Cost of shares redeemed (7,146,712) (4,257,476)
Change in net assets resulting from share transactions 16,187,516 15,758,579
Change in net assets 16,013,436 16,811,524
Net Assets:
Beginning of period 38,811,645 22,000,121
End of period $ 54,825,081 $ 38,811,645
</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) Year Ended August 31,
February 28, ----------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.13 $ 10.73 $ 10.27 $ 10.13 $ 10.01 $ 10.92
Income from Investment Operations:
Net investment income 0.27 0.53 0.55 0.58 0.59 0.59
Net realized and unrealized gain (0.03) 0.40 0.46 0.14 0.12 (0.91)
(loss) on investments
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.93 1.01 0.72 0.71 (0.32)
Less Distributions:
Distributions from net (0.27) (0.53) (0.55) (0.58) (0.59) (0.59)
investmentincome
Net Asset Value, End of Period $ 11.10 $ 11.13 $ 10.73 $ 10.27 $ 10.13 $ 10.01
Total Return/1/ 2.10% 8.84% 10.11% 7.21% 7.48% (3.04%)
Ratios to Average Net Assets:
Expenses 0.50%/2/ 0.69% 0.66% 0.60% 0.55% 0.25%
Net investment income 4.73%/2/ 4.84% 5.25% 5.61% 6.04% 5.61%
Expense waiver/reimbursement/3/ 1.10%/2/ 1.42% 1.97% 2.38% 2.41% 2.86%
Supplemental Data:
Net assets, end of period $28,034 $28,792 $22,000 $17,148 $14,400 $15,059
(000omitted)
Portfolio turnover 4% 6% 29% 21% 63% 63%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 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 Period
(unaudited) Ended
February 28, August 31,
1999 1998/1/
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 11.13 $ 10.87
Income from Investment Operations:
Net investment income 0.23 0.33
Net realized and unrealized gain (loss) on investments (0.04) 0.26
TOTAL FROM INVESTMENT OPERATIONS 0.19 0.59
Less Distributions:
Distributions from net investment income (0.22) (0.33)
Net Asset Value, End of Period $ 11.10 $ 11.13
Total Return/2/ 1.74% 5.53%
Ratios to Average Net Assets:
Expenses 1.25%/3/ 1.40%/3/
Net investment income 4.03%/3/ 4.14%/3/
Expense waiver/reimbursement/4/ 0.84%/3/ 1.16%/3/
Supplemental Data:
Net assets, end of period (000 omitted) $26,791 $10,020
Portfolio turnover 4% 6%
</TABLE>
1 Reflects operations for the period from December 1, 1997 (date of initial
public investment) to August 31, 1998.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
FEBRUARY 28, 1999 (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.
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"). Dividend income and 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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $736,963, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
- -------------------------------------------------
<S> <C>
2003 $518,633
- -------------------------------------------------
2004 218,330
- -------------------------------------------------
</TABLE>
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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, 1999 August 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
Class A Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 447,895 $ 4,994,772 850,058 $ 9,305,868
Shares issued to shareholders in payment of 27,399 306,541 55,492 608,194
distributionsdeclared
Shares redeemed (537,225) (5,991,673) (370,125) (4,055,499)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (61,931) $ (690,360) 535,425 $ 5,858,563
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1999 August 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
Class B Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,601,535 $17,870,090 912,747 $10,038,596
Shares issued to shareholders in payment of distributions 14,560 162,825 5,755 63,397
declared
Shares redeemed (103,457) (1,155,039) (18,356) (201,977)
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS 1,512,638 $16,877,876 900,146 $ 9,900,016
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 1,450,707 $16,187,516 1,435,571 $15,758,579
</TABLE>
1 Reflects operations for the period from December 1, 1997 (date of initial
public investment) to August 31, 1998.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Investment Management Company (formerly, 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, Inc. 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 0.25% 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Class A and Class B Shares for the period. The fee paid to
FSSC is used to finance certain services for shareholders and to maintain
shareholder accounts. FSSC may voluntarily choose to waive any portion of its
fee. FSSC 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 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, 1999, 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 and amounted to $18,280,000 and $20,300,000,
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, 1999, were as follows:
<TABLE>
- ---------------------------------------------------------
<S> <C>
Purchases $20,027,545
- ---------------------------------------------------------
Sales $ 1,636,860
- ---------------------------------------------------------
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1999, 48.1% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The value of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 14.3% of total investments.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
TRUSTEES
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
OFFICERS
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
J. SCOTT ALBRECHT
Vice President
RICHARD J. THOMAS
Treasurer
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.
[Federated Logo](SM)
Federated California Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 625922109
Cusip 625922828
4031005 (4/99)
Federated is a registered mark [LOGO]
of Federated Investors, Inc. RECYCLED
1999 (C) Federated Investors, Inc. PAPER
[Federated Logo]
World-Class Investment Manager(SM)
S E M I - A N N U A L R E P O R T
FEDERATED
CALIFORNIA
MUNICIPAL
INCOME FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1999
SEMI-ANNUAL REPORT
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, 1998 through February 28, 1999. The
report begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and financial statements.
Federated Michigan Intermediate Municipal Trust is a convenient way for
tax-sensitive Michigan residents to pursue income that is exempt from federal
regular income tax and Michigan state income tax.1 This double tax-free
advantage gives investors the opportunity to earn a greater after-tax yield than
they could in a comparable high-quality taxable investment.
During the six-month reporting period, the fund paid a monthly dividend stream
totaling $0.26 per share, while the share price decreased slightly from $11.09
to $11.07. As a result, the fund achieved a six-month total return of 2.21%
based on net asset value.2 The fund's net assets totaled $82 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 any income from the fund or building
your account by reinvesting your dividends and compounding tax free.
Sincerely,
/S/Richard B. Fisher
Richard B. Fisher
President
April 15, 1999
1 Income may be subject to the federal alternative minimum tax.
2Performance quoted reflects 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 (0.83%).
Investment Review
What's your review of the municipal bond marketplace over the reporting period?
During the reporting period, there was an imbalance between supply and demand in
the municipal bond market. Municipal bond issuance was extremely heavy as a
result of low relative interest rates, which gave municipal entities the
opportunity to refund existing high coupon debt. In addition, many state and
local governments had significant infrastructure development needs. Demand for
municipal bonds was impacted by "rate shock" that individual investors
experienced when long term yields on municipal bonds were at or below the 5.00%
threshold. Demand by institutions, including arbitrageurs, property and casualty
insurers and corporations, was relatively mixed with some institutions actually
being net sellers over the reporting period.
Municipal bond insurance continued to be a significant influence on the
market. Approximately 59% of the municipal bonds issued in 1998 were guaranteed
by one of the mono-line municipal bond insurers, such as MBIA and AMBAC. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors have
also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
How have Michigan municipal bonds performed over the reporting period?
Credit quality remained strong throughout the state as represented by strong
employment growth, additional new business formation and a protracted low
inflation environment. Michigan debt issuance in 1998 increased significantly
over 1997 levels, while demand increased modestly, causing some widening of
spreads for Michigan bonds. Michigan municipal debt was trading with a spread of
approximately 78 basis points to the benchmark AAA municipal yield curve at the
end of February 1999. This is wider than the six month average of 68 basis
points.
How has Federated Michigan Intermediate Municipal Trust performed with respect
to total return and income for the six-month reporting period ended February 28,
1999?
For the six month reporting period ended February 28, 1999, the fund produced a
total return of 2.21% based on net asset value.1 This return lagged the total
return of the Lehman Brothers Municipal Bond Index of 2.62%,2 but beat the
Lipper States Intermediate Municipal Fund Average total return of 1.96%.3 The
income on the fund remained competitive during the reporting
1Performance 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 (0.83%).
2The Lehman Brothers Municipal Bond Index is a broad market performance
benchmark for the tax-exempt bond market. To be included in the Index, bonds
must have a minimum credit rating of at least Baa. This index is unmanaged, and
investments cannot be made in the index.
3The Lipper States Intermediate Municipal Fund Average represents the average
of the total returns reported by all mutual funds designated by Lipper
Analytical Services, Inc. as falling in the category. This figure does not
reflect sales charges.
period. On February 28, 1999, the fund's 30-day current net yield, or SEC yield,
was 3.66%4 based on net asset value. The yield represents a decrease from the
4.09% SEC yield at the beginning of the reporting period.
What accounted for the fund's performance?
The fund's duration was positioned to be neutral to the relevant municipal
benchmark. Municipal yields were generally higher over the reporting period with
the Bond Buyer Municipal Index moving from a low of 4.95% to 5.17% at the end of
the reporting period.5 The high for the index over the reporting period was
5.22% on January 11, 1999. The duration and average maturity of the fund were
structured so as to take advantage of what management expected to be a trading
range for municipal interest rates over the reporting period.
What kind of environment do you see ahead for municipal bonds?
The municipal bond market is undergoing fundamental changes that are being
driven by new technology. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and may
eventually lead to Internet trading of municipal bonds. The municipal bond
markets use of these new technologies will lead to better dissemination of
information and potentially greater market efficiency. There have also been
enormous improvements in information disclosure and the availability of
municipal bond prices to investors.
The volume of municipal issuance in 1999 is expected to be around $230
billion, with a potential increase in refunding volume in what may be a lower
interest rate environment. Municipal bond insurance may become less prevalent as
bond insurers pull away from certain sectors of the market and toughen
underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the market place may contribute to additional
credit spread widening in the coming period.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. The market does not expect any material
interruptions in the supply of necessary municipal services, although there
remains the potential for some functions to suffer temporary disruptions.
The approach of the presidential election cycle will bring potential federal
tax law changes back into the news. Potential developments such as the
introduction of a flat tax or significant changes to the top marginal brackets
could affect the trading value of municipal debt relative to taxable fixed
income alternatives, such as corporate and treasury securities.
4 The fund's 30-day SEC yield on February 28, 1999 was 3.55%, based on offering
price.
5The Bond Buyer Municipal Index is a standard against which municipal bonds are
measured.
Portfolio of Investments
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Principal Credit(1) Value
Amount Rating
LONG-TERM MUNICIPALS--98.9%
Michigan--98.9%
$ 1,000,000 Anchor Bay, MI, School District, UT GO Bonds, 5.30% (MBIA INS)/ (Original AAA $ 1,083,710
Issue Yield: 5.35%), 5/1/2008
500,000 Avondale, MI, School District, UT GO Refunding Bonds, 6.75% (Michigan State AA+ 536,235
GTD)/(Original Issue Yield: 6.95%), 5/1/2014
500,000 Battle Creek, MI, Building Authority, Revenue Bonds, 6.00%, 4/1/2002 A+ 524,700
500,000 Battle Creek, MI, Building Authority, Revenue Bonds, 6.10%, 4/1/2003 A+ 525,235
2,000,000 Battle Creek, MI, Downtown Development Authority, Refunding Bonds, 5.10% AAA 2,097,740
(MBIA INS)/(Original Issue Yield: 5.20%), 5/1/2010
1,010,000 Belding Area Schools, MI, Refunding UT GO Bonds, 4.90% (Michigan State AAA 1,020,423
GTD)/(AMBAC INS)/(Original Issue Yield: 5.00%), 5/1/2013
1,060,000 Belding Area Schools, MI, Refunding UT GO Bonds, 4.95% (Michigan State AAA 1,069,031
GTD)/(AMBAC INS)/(Original Issue Yield: 5.05%), 5/1/2014
1,500,000 Berkley, MI, CSD, Refunding UT GO Bonds, 4.75% (Q-SBLF GTD)/ (FGIC AAA 1,441,185
INS)/(Original Issue Yield: 5.05%), 1/1/2019
1,000,000 Cedar Springs Public Schools, MI, Refunding UT GO Bonds (Series 1998), AAA 1,001,750
5.00% (Michigan State GTD)/(FSA INS)/(Original Issue Yield: 5.13%), 5/1/2017
460,000 Detroit, MI, Economic Development Corp., Resource Recovery Revenue Bonds AAA 495,958
(Series A), 6.875% (FSA INS)/(Original Issue Yield: 7.00%), 5/1/2009
3,000,000 Detroit, MI, Water Supply System, Revenue Refunding Bonds, 6.00% (FGIC AAA 3,217,620
INS)/(Original Issue Yield: 6.10%), 7/1/2002
1,000,000 Detroit/Wayne County, MI, Stadium Authority, Revenue Bonds, 5.25% (FGIC AAA 1,058,270
INS)/(Original Issue Yield: 5.55%), 2/1/2011
1,000,000 Eastern Michigan University, Revenue Bonds, 6.10% (AMBAC INS)/(Original AAA 1,077,250
Issue Yield: 6.15%), 6/1/2004
200,000 Farmington Hills, MI, Hospital Finance Authority, Hospital Revenue AAA 206,642
Refunding Bonds (Series A), 6.60% (Botsford General Hospital)/(MBIA INS),
2/15/2000
425,000 Forest Hills, MI, Public School, UT GO Bonds, 7.375% (United States AA 449,540
Treasury PRF)/(Original Issue Yield: 7.397%), 5/1/2000 (@101)
250,000 Garden City, MI, School District, UT GO Refunding Bonds, 5.90% (FSA INS), AAA 274,700
5/1/2005
565,000 Garden City, MI, School District, UT GO Refunding Bonds, 6.00% (FSA INS), AAA 620,573
5/1/2006
LONG-TERM MUNICIPALS--continued
Michigan--continued
$ 515,000 Garden City, MI, School District, UT GO Refunding Bonds, 6.10% (FSA INS), AAA $ 568,040
5/1/2007
1,275,000 Hamilton, MI, Community School District, UT GO Refunding Bonds, 4.90% AAA 1,280,431
(Q-SBLF GTD)/(FGIC INS)/(Original Issue Yield: 4.95%), 5/1/2014
150,000 Huron Valley, MI, School District, UT GO Bonds, 6.50% (Michigan State NR 162,091
GTD)/(United States Treasury PRF), 5/1/2001 (@102)
360,000 Ingham County MI, Sewer Authority, Revenue Bonds, Project #4, Delhi Charter AA- 385,016
Township, 5.80%, 11/1/2004
465,000 Ingham County MI, Sewer Authority, Revenue Bonds, Project #4, Delhi Charter AA- 498,494
Township, 5.90%, 11/1/2005
1,000,000 Jenison Public Schools, UT GO School Building and Site Refunding Bonds, AAA 1,077,840
Series 1996), 5.30% (FGIC INS)/(Original Issue Yield: 5.40%), 5/1/2007
1,590,000 Kent County, MI, Building Authority, LT GO Bonds, 5.00% (Original Issue AAA 1,610,479
Yield: 5.05%), 6/1/2014
265,000 Kent Hospital Finance Authority, MI, Hospital Revenue Refunding Bonds, AAA 287,642
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 Revenue Refunding Bonds, AAA 450,458
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 Bonds, 5.90% (Michigan AAA 525,490
State GTD)/(AMBAC INS), 5/1/2001
2,000,000 Lake Orion, MI, School District, UT GO Refunding Bonds, 6.05% (AMBAC AAA 2,143,100
INS)/(Michigan State LOC), 5/1/2002
1,380,000 Lincoln Park, MI, School District, UT GO Refunding Bonds, 5.10% (FGIC AAA 1,422,766
INS)/(Q-SBLF LOC)/(Original Issue Yield: 5.15%), 5/1/2013
750,000 Livonia, MI, Public School District, UT GO Bonds (Series I), 6.00%, 5/1/2001 AA+ 789,667
1,710,000 Marquette, MI, Hospital Finance Authority, Hospital Revenue Refunding Bonds AAA 1,819,166
(Series 1996D), 5.30% (Marquette General Hospital, MI)/ (FSA INS), 4/1/2005
1,290,000 Marquette, MI, Hospital Finance Authority, Hospital Revenue Refunding Bonds AAA 1,383,693
(Series 1996D), 5.40% (Marquette General Hospital, MI)/ (FSA INS), 4/1/2006
1,350,000 Michigan Higher Education Student Loan Authority, Student Loan Revenue AAA 1,457,298
Bonds (Series XVII-A), 5.65% (AMBAC LOC), 6/1/2010
1,500,000 Michigan Municipal Bond Authority, Revenue Refunding Q-SBLF Bonds, 6.00% AA+ 1,605,090
(Michigan State)/(Michigan State GTD)/(Original Issue Yield: 6.10%),
5/1/2002
3,000,000 Michigan Public Power Agency, Revenue Refunding Bonds (Series A), Belle AA- 3,204,840
River Project, 5.70% (Original Issue Yield: 5.80%), 1/1/2003
LONG-TERM MUNICIPALS--continued
Michigan--continued
$ 1,000,000 Michigan State Comprehensive Transportation Board, Revenue Refunding Bonds AA- $ 1,056,590
(Series B), 5.50% (Michigan State)/(Original Issue Yield: 5.60%), 5/15/2002
1,000,000 Michigan State Comprehensive Transportation Board, Revenue Refunding Bonds AA- 1,077,550
(Series B), 6.00% (Michigan State)/(Original Issue Yield: 6.05%),5/15/2007
500,000 Michigan State Hospital Finance Authority, Hospital Revenue & Refunding A3 507,255
Bonds (Series 1998A), 5.30% (Hackley Hospital Obligated Group), 5/1/2013
2,000,000 Michigan State Hospital Finance Authority, Refunding Revenue Bonds (Series AAA 2,005,160
1998A), 4.90% (St. John Hospital, MI)/(AMBAC INS)/(Original Issue Yield:
5.05%), 5/15/2013
1,000,000 Michigan State Hospital Finance Authority, Revenue & Refunding Bonds A1 1,002,560
(Series 1998A), 5.10% (McLaren Health Care Corp.)/(Original Issue Yield:
5.15%), 6/1/2013
1,325,000 Michigan State Hospital Finance Authority, Revenue Bonds (Series 1997W), AA- 1,360,311
5.00% (Mercy Health Services)/(Original Issue Yield: 5.26%), 8/15/2011
415,000 Michigan State Hospital Finance Authority, Revenue Bonds (Series A), 6.15% A+ 435,314
(Crittenton Hospital, MI), 3/1/2001
440,000 Michigan State Hospital Finance Authority, Revenue Bonds (Series A), 6.25% A+ 470,188
(Crittenton Hospital, MI), 3/1/2002
1,000,000 Michigan State Hospital Finance Authority, Revenue Bonds, 5.25% (St. John AAA 997,760
Hospital, MI)/(AMBAC INS)/(Original Issue Yield: 5.65%), 5/15/2026
500,000 Michigan State Hospital Finance Authority, Revenue Bonds, Providence Aa2 554,000
Hospital, 7.00% (Daughters of Charity)/(Original Issue Yield:
7.04%),11/1/2021
1,500,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Series A+ 1,559,205
A), 5.50% (St. John Hospital, MI)/(Original Issue Yield: 5.80%),5/15/2001
800,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 5.95% AAA 850,360
(Oakwood Obligated Group)/(FGIC INS)/(Original Issue Yield: 6.05%), 5/1/2002
575,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 6.30% AAA 619,861
(Sparrow Obligated Group, MI)/(MBIA INS), 11/15/2003
375,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds, 6.85% AAA 387,457
(Oakland General Hospital, MI)/(AMBAC INS), 7/1/2000
1,000,000 Michigan State Housing Development Authority, (Series A) Rental Housing AAA 1,046,800
Revenue Bonds, 5.55% (MBIA INS), 4/1/2004
500,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), AA+ 532,265
5.90%, 12/1/2005
LONG-TERM MUNICIPALS--continued
Michigan--continued
$ 430,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), AA+ $ 450,971
6.25%, 6/1/2002
200,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), AA+ 209,776
7.00%, 12/1/2005
280,000 Michigan State Housing Development Authority, Revenue Bonds (Series B), AA+ 296,094
6.30%, 12/1/2003
1,000,000 Michigan State Housing Development Authority, Revenue Bonds (Series E), AA+ 1,051,240
5.55%, 12/1/2007
120,000 Michigan State Housing Development Authority, Single Family Mortgage AA+ 126,426
Revenue Bonds (Series B), 6.95%, 12/1/2020
1,000,000 Michigan State, UT GO Recreation Program Bonds, 5.75% (Original Issue AA+ 1,059,800
Yield: 5.80%), 11/1/2001
250,000 Michigan Strategic Fund, LT Obligation Revenue Refunding Bonds (Series A), A 293,588
7.10% (Ford Motor Co.)/(Original Issue Yield: 7.127%), 2/1/2006
500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1998), A 499,065
5.30% (Porter Hills Presbyterian Village, Inc.)/(Original Issue Yield:
5.422%),7/1/2018
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Refunding Bonds (Series AAA 1,014,750
A), 5.55% (Detroit Edison Co.)/(MBIA INS), 9/1/2029
4,250,000 Monroe County, MI, Pollution Control Authority, PCR Revenue Bonds (Series AAA 4,715,673
A), 6.35% (Detroit Edison Co.)/(AMBAC INS), 12/1/2004
1,000,000 Novi, MI, Community School District, UT GO Bonds, Q-SBLF, 5.45% (Original AA+ 1,061,380
Issue Yield: 5.50%), 5/1/2003
300,000 Oakland & Washtenaw Counties, MI, Revenue Bonds, 6.65% (Oakland Community AA- 329,805
College District, MI)/(Original Issue Yield: 6.743%), 5/1/2011
1,765,000 Oakland County, MI, EDC, Limited Obligation Revenue Bonds (Series 1997), A1 1,831,435
5.50% (Lutheran Social Services of Michigan)/(First of America Bank,
N.A.LOC), 6/1/2014
250,000 Oakland County, MI, LT GO Bonds, Evergreen-Farmington Sewer Disposal, AA+ 264,958
6.30%, 5/1/2005
610,000 Okemos, MI, Public School District, UT GO Refunding Bonds, Q-SBLF, 6.00% AA+ 654,634
(Michigan State GTD), 5/1/2002
100,000 Ottawa County, MI, LT GO Bonds, Northwest Ottawa Water System, AA 100,663
6.85%,5/1/2000
1,000,000 Petoskey, MI, Hospital Finance Authority, Limited Obligation Revenue & AAA 985,740
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 GO Bonds (Series C), AA+ 435,028
Q-SBLF, 6.00% (Michigan State GTD)/(Original Issue Yield: 6.10%), 5/1/2003
LONG-TERM MUNICIPALS--continued
Michigan--continued
$ 500,000 Plymouth-Canton, MI, Community School District, UT GO Refunding Bonds AA+ $ 539,885
(Series B), Q-SBLF, 6.80% (Michigan State GTD)/(United States Treasury
PRF)/(Original Issue Yield: 6.90%), 5/1/2001 (@101)
1,185,000 Riverview, MI, Community School District, UT GO Bonds, 6.20% (FGIC AAA 1,292,041
INS)/(United States Treasury PRF), 5/1/2002 (@101.5)
350,000 Rochester, MI, Community School District, UT GO Bonds, 6.50% (Michigan AA+ 379,621
State GTD)/(United States Treasury PRF)/(Original Issue Yield: 6.60%),
5/1/2002 (@100)
250,000 Rochester, MI, Community School District, UT GO Bonds, 6.50% (Michigan AA+ 271,158
State GTD)/(United States Treasury PRF)/(Original Issue Yield: 6.75%),
5/1/2002 (@100)
270,000 Shelby Charter Townships, MI, Building Authority, Revenue Bonds, 6.25% AAA 294,532
(AMBAC INS)/(Original Issue Yield: 6.45%), 11/1/2006
230,000 Shelby Charter Townships, MI, Building Authority, Revenue Bonds, 6.25% AAA 250,898
(AMBAC INS)/(Original Issue Yield: 6.50%), 11/1/2007
250,000 University of Michigan, Hospital Revenue Bonds, 7.00% (United States AA 270,188
Treasury PRF)/(Original Issue Yield: 7.25%), 12/1/2000 (@102)
1,500,000 University of Michigan, Hospital Revenue Refunding Bonds (Series A), 5.70% AA 1,622,535
(Original Issue Yield: 5.80%), 12/1/2004
1,000,000 Walled Lake, MI, Consolidated School District, UT GO Refunding Bonds, 5.30% AAA 1,070,780
(MBIA INS)/(Original Issue Yield: 5.35%), 5/1/2008
1,000,000 Wayne County, MI, Airport Revenue Bonds (Series 1998A), 5.00% (Detroit AAA 977,810
Metropolitan Wayne County Airport)/(MBIA INS)/(Original Issue Yield:5.29%),
12/1/2019
2,500,000 Wayne County, MI, Revenue Bonds (Series A), 5.00% (Detroit Metropolitan AAA 2,419,000
Wayne County Airport)/(MBIA INS), 12/1/2028
1,000,000 Wayne County, MI, Building Authority, LT GO Capital Improvement Bonds, AAA 1,075,120
5.35% (MBIA INS)/(Original Issue Yield: 5.40%), 6/1/2009
885,000 Wyandotte, MI, Electric Authority, Revenue Refunding Bonds, 6.10% (MBIA AAA 957,597
INS), 10/1/2002
1,000,000 Yale, MI, Public Schools District, UT GO Bonds, 5.25% (Michigan State Aaa 1,023,620
GTD)/(FSA INS)/(Original Issue Yield: 5.30%), 5/1/2017
1,000,000 Ypsilanti, MI, School District, UT GO Refunding Bonds (Series 1998), 4.95% AAA 1,000,330
(Q-SBLF GTD)/(FGIC INS)/(Original Issue Yield: 4.97%), 5/1/2015
TOTAL 80,660,940
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $76,490,892) 80,660,940
SHORT-TERM MUNICIPAL--3.0%
Puerto Rico--3.0%
$ 2,400,000 Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA AA $ 2,400,000
INS)/(Credit Suisse First Boston LIQ) (at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $78,890,892)2 $ 83,060,940
</TABLE>
Securities that are subject to alternative minimum tax represent 10.9% of the
fund's portfolio as calculated based upon total market value.
1 Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
2 The cost of investments for federal tax purposes amounts to $78,890,892. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,170,048 which is comprised of $4,202,694 appreciation and $32,646
depreciation at February 28, 1999.
Note: The categories of investments are shown as a percentage of net assets
($81,543,711) at February 28, 1999.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
CSD --Central School District
EDC --Economic Development Commission
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
GTD --Guaranty
INS --Insured
LIQ --Liquidity Agreement
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
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $78,890,892) $ 83,060,940
Income receivable 1,209,721
Receivable for shares sold 60,597
TOTAL ASSETS 84,331,258
Liabilities:
Payable for investments purchased $ 2,444,326
Payable for shares redeemed 4,000
Income distribution payable 321,757
Accrued expenses 17,464
TOTAL LIABILITIES 2,787,547
Net Assets for 7,365,294 shares outstanding $ 81,543,711
Net Assets Consist of:
Paid in capital $ 78,061,786
Net unrealized appreciation of investments 4,170,048
Accumulated net realized loss on investments (688,123)
TOTAL NET ASSETS $ 81,543,711
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($81,543,711 / 7,365,294 shares outstanding) $ 11.07
Offering Price Per Share (100/97.00 of $11.07)1 $ 11.41
Redemption Proceeds Per Share $ 11.07
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $ 2,097,083
Expenses:
Investment advisory fee $ 158,307
Administrative personnel and services fee 61,987
Custodian fees 4,076
Transfer and dividend disbursing agent fees and expenses 14,802
Directors'/Trustees' fees 1,810
Auditing fees 6,697
Legal fees 1,267
Portfolio accounting fees 26,477
Shareholder services fee 98,942
Share registration costs 9,955
Printing and postage 5,430
Insurance premiums 1,448
Miscellaneous 1,267
TOTAL EXPENSES 392,465
Waivers:
Waiver of investment advisory fee $ (121,589)
Waiver of shareholder services fee (71,238)
TOTAL WAIVERS (192,827)
Net expenses 199,638
Net investment income 1,897,445
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 78,533
Net change in unrealized appreciation of investments (238,806)
Net realized and unrealized loss on investments (160,273)
Change in net assets resulting from operations $ 1,737,172
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
(unaudited) Ended
February 28, August 31,
1999 1998
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C>
Net investment income $ 1,897,445 $ 3,483,095
Net realized gain on investments ($78,533 and $359,864, respectively, as computed 78,533 359,864
for federal tax purposes)
Net change in unrealized appreciation of investments (238,806) 1,226,386
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,737,172 5,069,345
Distributions to Shareholders:
Distributions from net investment income (1,897,445) (3,483,095)
Share Transactions:
Proceeds from sale of shares 10,597,163 25,850,735
Net asset value of shares issued to shareholders in payment of distributions 355,735 712,814
declared
Cost of shares redeemed (6,980,031) (18,010,272)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 3,972,867 8,553,277
Change in net assets 3,812,594 10,139,527
Net Assets:
Beginning of period 77,731,117 67,591,590
End of period $ 81,543,711 $ 77,731,117
</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,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning $ 11.09 $ 10.85 $ 10.70 $ 10.80 $ 10.59 $ 11.02
ofPeriod
Income from InvestmentOperations:
Net investment income 0.26 0.53 0.54 0.36 0.54 0.53
Net realized and unrealized gain (0.02) 0.24 0.15 (0.10) 0.21 (0.43)
(loss) on investments
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.77 0.69 0.26 0.75 0.10
Less Distributions:
Distributions from net (0.26) (0.53) (0.54) (0.36) (0.54) (0.53)
investmentincome
Net Asset Value, End of Period $ 11.07 $ 11.09 $ 10.85 $ 10.70 $ 10.80 $ 10.59
Total Return(1) 2.21% 7.27% 6.59% 4.13% 7.39% 0.88%
Ratios to Average Net Assets:
Expenses 0.50%(2) 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income 4.79%(2) 4.85% 5.00% 4.99% 5.19% 4.87%
Expense waiver/reimbursement(3) 0.49%(2) 0.55% 0.59% 0.63% 0.65% 0.57%
Supplemental Data:
Net assets, end of period $81,544 $77,731 $67,592 $62,785 $60,621 $58,480
(000omitted)
Portfolio turnover 4% 15% 12% 7% 23% 13%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 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
FEBRUARY 28, 1999 (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 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 taxed 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 the 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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $766,656, which will reduce the taxable incoming 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 $766,656
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 August 31,
28, 1999 Shares 1998 Shares
<S> <C> <C>
Shares sold 953,814 2,352,166
Shares issued to shareholders in payment of distributions declared 31,979 64,867
Shares redeemed (628,019) (1,639,057)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 357,774 777,976
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Investment Management Company (formerly, 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 at any time at its sole discretion.
Administrative Fee
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust 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, Inc. 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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 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 Transaction
During the period ended February 28, 1999, the Trust engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment adviser), 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 and amounted to $10,600,000 and
$10,800,000, 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, 1999, were as follows:
Purchases $2,806,029
Sales $8,118,863
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, 1999, 39.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The value of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 18.1% of total investments.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
J. SCOTT ALBRECHT
Vice President
RICHARD J. THOMAS
Treasurer
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.
Federated
Michigan
Intermediate
Municipal
Trust
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1999
[FEDERATED LOGO]
Federated Michigan Intermediate Municipal Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 625922703
3032602 (4/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C)Federated Investors, Inc.
SEMI-ANNUAL REPORT
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, 1998 through February 28, 1999. The report
begins with a discussion with the fund's portfolio manager, followed by a
complete listing of the fund's holdings and financial statements.
Federated New York Municipal Income Fund is a convenient way for tax-sensitive
New York residents to pursue income that is exempt from federal regular income
tax, state income tax, and New York City local income tax.1 This double tax-free
advantage (triple tax-free for New York City residents) gives investors the
opportunity to earn a greater after-tax yield than they could in a comparable
high-quality taxable investment.
During the six-month reporting period, the fund paid a monthly dividend stream
totaling $0.27 per share, while the share price decreased slightly from $11.00
to $10.96. As a result, the fund achieved a six-month total return of 2.06%
based on net asset value.2 The fund's net assets totaled $25.7 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 any
income from the fund or building your account by reinvesting your dividends and
compounding tax free.
Sincerely,
/S/Richard B. Fisher
Richard B. Fisher
President
April 15, 1999
1 Income may be subject to the federal alternative minimum tax.
2Performance quoted reflects 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 (3.50%).
Investment Review
What's your review of the municipal bond marketplace over the reporting period?
During the reporting period, there was an imbalance between supply and demand in
the municipal bond market. Municipal bond issuance was extremely heavy as a
result of low relative interest rates, which gave municipal entities the
opportunity to refund existing high coupon debt. In addition, many state and
local governments had significant infrastructure development needs. Demand for
municipal bonds was impacted by "rate shock" that individual investors
experienced when long term yields on municipal bonds were at or below the 5.00%
threshold. Demand by institutions, including arbitrageurs, property and casualty
insurers and corporations, was relatively mixed with some institutions actually
being net sellers over the reporting period.
Municipal bond insurance continued to be a significant influence on the
market. Approximately 59% of the municipal bonds issued in 1998 were guaranteed
by one of the mono-line municipal bond insurers, such as MBIA and AMBAC. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors have
also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
How have New York municipal bonds performed over the reporting period?
Credit quality continued to remain strong throughout the state as represented by
strong employment growth, additional new business formation and a protracted low
inflation environment. This solid economic performance and stable demand for
municipal bonds has helped New York municipal bonds perform favorably over the
reporting period. New York municipal debt was trading with a spread of
approximately 89 basis points to the benchmark AAA municipal yield curve at the
end of February 1999. This is tighter than the six month average of 83.5 basis
points.
How has Federated New York Municipal Income Fund performed with respect to total
return and income for the six-month reporting period ended February 28, 1999?
For the six month reporting period ended February 28, 1999, the fund produced a
total return of 2.06% based on net asset value.1 This return lagged the Lehman
Brothers Municipal Bond Index2 but outpaced the Lipper New York Municipal Fund
Average3 total returns of 2.62% and 1.91%, respectively. The income on the fund
was competitive during the reporting period. The fund's 30-day
1Performance 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 (3.50%).
2The Lehman Brothers Municipal Bond Index is a broad market performance
benchmark for the tax-exempt bond market. To be included in the Index, bonds
must have a minimum credit rating of at least Baa. This index is unmanaged, and
investments cannot be made in the index.
3The Lipper New York Municipal Fund Average represents the average total of the
returns reported by all mutual funds designated by Lipper Analytical Services,
Inc. as falling in the category. This figure does not reflect sales charges.
current net yield, or SEC yield, on February 28, 1999 was 4.23%4 based on net
asset value. The yield represents a decrease from the 4.50% SEC yield at the
beginning of the reporting period.
What accounted for the fund's performance?
The Fund's duration was positioned to be neutral to the relevant municipal
benchmark. Municipal yields were generally higher over the reporting period with
the Bond Buyer Municipal Index moving from a low of 4.95% to 5.17% at the end of
the reporting period.5 The high for the index over the reporting period was
5.22% on January 11, 1999. The duration and average maturity of the fund were
structured so as to take advantage of what management expected to be a trading
range for municipal interest rates over the reporting period. The fund was also
effected by spread widening in the BBB credit sector, to which it had limited
exposure.
What kind of environment do you see ahead for municipal bonds?
The municipal bond market is undergoing fundamental changes that are being
driven by new technology. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and may
eventually lead to Internet trading of municipal bonds. The municipal bond
markets use of these new technologies will lead to better dissemination of
information and potentially greater market efficiency. There have also been
enormous improvements in information disclosure and the availability of
municipal bond prices to investors.
The volume of municipal issuance in 1999 is expected to be around $230
billion, with a potential increase in refunding volume in what may be a lower
interest rate environment. Municipal bond insurance may become less prevalent as
bond insurers pull away from certain sectors of the market and toughen
underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the market place may contribute to additional
credit spread widening in the coming period.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. The market does not expect any material
interruptions in the supply of necessary municipal services. However, there
remains the potential for some State functions to suffer temporary disruptions.
The approach of the presidential election cycle will bring potential federal
tax law changes back into the news. Potential developments such as the
introduction of a flat tax or significant changes to the top marginal brackets
could affect the trading value of municipal debt relative to taxable fixed
income alternatives, such as corporate and treasury securities.
4 The fund's 30-day SEC yield on February 28, 1999, was 4.04%, based on offering
price.
5The Bond Buyer Municipal Index is a standard against which municipal bonds are
measured.
Portfolio of Investments
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Principal Credit(1) Value
Amount Rating
LONG-TERM MUNICIPALS--97.7%
New York--97.7%
$ 1,000,000 Amherst, NY IDA, Tax-Exempt Lease Revenue Bonds (Series 1997A), 5.55% A $ 1,036,850
(KeyBank, N.A. LOC)/(Original Issue Yield: 5.65%), 10/1/2017
500,000 Essex County, NY IDA, PCR Refunding Revenue Bonds (Series 1997C), 5.70% BBB+ 541,640
(International Paper Co.), 7/1/2016
500,000 Essex County, NY IDA, Solid Waste Disposal Revenue Bonds (Series A), 5.80% BBB+ 513,945
(International Paper Co.), 12/1/2019
760,000 Hamilton County, NY IDA, Civic Facilities Revenue Bond (Series 1998A), 5.25% Baa1 754,870
(Adirondack Historical Association), 11/1/2018
500,000 Long Island Power Authority, Electric System General Revenue Bonds, (Series A- 515,735
1998A), 5.50% (Original Issue Yield: 5.57%), 12/1/2029
305,000 Nassau County, NY IDA, Civic Facility Revenue Bonds, 6.85% (Hofstra A 355,523
University), 1/1/2012
330,000 Nassau County, NY IDA, Civic Facility Revenue Bonds, 6.85% (Hofstra A 384,664
University), 1/1/2013
1,000,000 New York City Municipal Water Finance Authority, Water & Sewer System A 1,001,390
Revenue Bonds (Series A), 5.125% (Original Issue Yield: 5.50%), 6/15/2021
1,000,000 New York City, NY IDA, Civic Facility Revenue Bonds (Series 1995), 6.30% Baa2 1,061,820
(College of New Rochelle)/(Original Issue Yield: 6.45%), 9/1/2015
500,000 New York City, NY IDA, Civic Facility Revenue Bonds, 7.00% (Mt. St. Vincent NR 545,935
College, NY), 5/1/2008
400,000 New York City, NY IDA, Civil Facilities Revenue Bonds, 5.80% (YMCA of Baa3 422,068
Greater NY)/(Original Issue Yield: 6.10%), 8/1/2016
400,000 New York City, NY IDA, Industrial Development Revenue Bonds (Series 1997), BBB- 411,232
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% (United Air Lines)/(Original BB+ 405,580
Issue Yield: 5.682%), 10/1/2032
1,000,000 New York City, NY IDA, Special Facilities Revenue Bonds, 5.25% (British A 997,560
Airways), 12/1/2032
750,000 New York City, NY IDA, Special Facilities Revenue Bonds, 6.90% (American BBB- 827,153
Airlines), 8/1/2024
1,000,000 New York City, NY Transitional Finance Authority, Future Tax Secured Bonds AA 965,770
(Series 1998B), 4.75% (Original Issue Yield: 4.95%), 11/15/2018
500,000 New York City, NY, GO UT Bonds, Series B, 7.25% (Original Issue Yield: A- 588,395
7.55%), 8/15/2004 (@101)
1,175,000 New York State Dormitory Authority, Capital Appreciation Revenue Bonds AAA 361,019
(Manhattanville College)/(MBIA INS)/(Original Issue Yield: 5.80%), 7/1/2022
LONG-TERM MUNICIPALS--continued
New York--continued
$ 1,000,000 New York State Dormitory Authority, FHA-Insured Mortgage Nursing Home AAA $
Revenue Bonds (Series 1999), 5.00% (Menorah Home and Hospital for the Aged 993,210
and Infirm)/(AMBAC and FHA INS), 8/1/2018
900,000 New York State Dormitory Authority, Revenue Bonds (Series A), 6.50% A+ 1,004,067
(University of Rochester, NY)/(Original Issue Yield: 6.582%), 7/1/2019
1,000,000 New York State Dormitory Authority, Revenue Bonds, 5.50% (Long Island AA 1,030,990
University)/(Asset Guaranty INS)/(Original Issue Yield: 5.75%), 9/1/2020
500,000 New York State Dormitory Authority, Revenue Bonds, 6.25% (Nyack 532,720
Hospital)/(Original Issue Yield: 6.50%), 7/1/2013 Baa2
1,000,000 New York State Environmental Facilities Corp., Solid Waste Disposal Revenue BBB 1,044,880
Bonds, 6.10% (Occidental Petroleum Corp.)/(Original Issue Yield: 6.214%),
11/1/2030
900,000 New York State Environmental Facilities Corp., Water Facilities Revenue AAA 991,611
Refunding Bonds (Series A), 6.30% (Spring Valley Water Co., NY)/(AMBAC INS),
8/1/2024
1,000,000 New York State HFA, Service Contract Obligation Revenue Bonds (Series BBB+ 1,111,550
1995A), 6.375% (Original Issue Yield: 6.45%), 9/15/2015
1,000,000 New York State Medical Care Facilities Finance Agency, FHA-Mortgage Revenue AA 1,099,910
Bonds (Series A), 6.50% (Lockport Memorial Hospital, NY)/ (FHA GTD),
2/15/2035
1,000,000 New York State Medical Care Facilities Finance Agency, Revenue Bonds (Series AA 1,106,960
B), 6.60% (FHA GTD)/(Original Issue Yield: 6.625%), 8/15/2034
2,000,000 New York State Mortgage Agency, Revenue Bonds (Series 40A), 6.70%,4/1/2025 Aaa 2,160,200
300,000 New York State Power Authority, Revenue Bonds (Series 1998A), 5.00% AA- 303,660
(Original Issue Yield: 5.13%), 2/15/2015
500,000 New York State Thruway Authority, Local Highway and Bridge Service Contract BBB+ 568,025
Revenue Bonds, (Series 1995), 6.25% (Original Issue Yield: 6.435%), 4/1/2014
400,000 Niagara Falls, NY City School District, Certificates of Participation BBB- 401,648
(Series 1998), 5.375% (Original Issue Yield: 5.42%), 6/15/2028
500,000 Port Authority of New York and New Jersey, Revenue Bonds (Series 96), 6.60% AAA 561,245
(FGIC INS)/(Original Issue Yield: 6.65%), 10/1/2023
500,000 Suffolk County, NY IDA, Industrial Development Revenue Bonds (Series 1998), NR 502,860
5.50% (Nissequogue Cogen Partners Facility)/(Original Issue Yield: 5.528%),
1/1/2023
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $23,463,755) 25,104,685
SHORT-TERM MUNICIPALS--0.4%
Puerto Rico--0.4%
$ 100,000 Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA AA $ 100,000
INS)/(Credit Suisse First Boston LIQ) (at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $23,563,755)(2) $ 25,204,685
</TABLE>
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited. At
February 28, 1999, 30.0% of the total investments at market value were subject
to alternative minimum tax.
2 The cost of investments for federal tax purposes amounts to $23,563,755. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,640,930 which is comprised of $1,676,920 appreciation and $35,990
depreciation at February 28, 1999. Note: The categories of investments are
shown as a percentage of net assets ($25,681,863) at February 28, 1999.
The following acronyms are used throughout this portfolio:
AMBAC --Aerican Municipal Bond Assurance Corporation
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
GO --General Obligation
GTD --Guaranty
HFA --Housing Finance Authority
IDA --Industrial Development Authority
INS --Insured
LIQ --Liquidity Agreement
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
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $23,563,755) $ 25,204,685
Cash 102,028
Income receivable 373,251
Receivable for shares sold 87,206
Prepaid expenses 18,205
TOTAL ASSETS 25,785,375
Liabilities:
Payable for shares redeemed $ 494
Income distribution payable 103,018
TOTAL LIABILITIES 103,512
Net Assets for 2,342,916 shares outstanding $ 25,681,863
Net Assets Consist of:
Paid in capital $ 24,914,592
Net unrealized appreciation of investments 1,640,930
Accumulated net realized loss on investments (873,659)
TOTAL NET ASSETS $ 25,681,863
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($25,681,863 / 2,342,916 shares outstanding) $ 10.96
Offering Price Per Share (100/95.50 of $10.96)1 $ 11.48
Redemption Proceeds Per Share $ 10.96
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $ 696,468
Expenses:
Investment advisory fee $ 49,821
Administrative personnel and services fee 61,987
Custodian fees 859
Transfer and dividend disbursing agent fees and expenses 12,281
Directors'/Trustees' fees 1,267
Auditing fees 7,240
Legal fees 905
Portfolio accounting fees 23,728
Distribution services fee 62,277
Shareholder services fee 31,138
Share registration costs 7,783
Printing and postage 5,973
Insurance premiums 1,448
Miscellaneous 2,534
TOTAL EXPENSES 269,241
Waivers and Reimbursements:
Waiver of investment advisory fee $ (49,821)
Waiver of distribution services fee (59,786)
Waiver of shareholder services fee (2,491)
Reimbursement of other operating expenses (69,408)
TOTAL WAIVERS AND REIMBURSEMENTS (181,506)
Net expenses 87,735
Net investment income 608,733
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 113,681
Net change in unrealized appreciation of investments (203,467)
Net realized and unrealized loss on investments (89,786)
Change in net assets resulting from operations $ 518,947
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
(unaudited) Ended
February 28, August 31,
1999 1998
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C>
Net investment income $ 608,733 $ 1,145,349
Net realized gain on investments ($113,681 and $146,593, respectively as computed 113,681 146,593
for federal tax purposes.)
Net change in unrealized appreciation of investments (203,467) 660,446
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 518,947 1,952,388
Distributions to Shareholders:
Distributions from net investment income (608,733) (1,145,349)
Share Transactions:
Proceeds from sale of shares 3,414,663 4,905,471
Net asset value of shares issued to shareholders in payment of distributionsdeclared 224,022 548,237
Cost of shares redeemed (2,218,456) (4,295,799)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,420,229 1,157,909
Change in net assets 1,330,443 1,964,948
Net Assets:
Beginning of period 24,351,420 22,386,472
End of period $ 25,681,863 $ 24,351,420
</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,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, BeginningofPeriod $ 11.00 $ 10.62 $ 10.17 $ 10.13 $ 10.10 $ 10.92
Income from InvestmentOperations:
Net investment income 0.27 0.54 0.56 0.58 0.57 0.57
Net realized and unrealized (0.04) 0.38 0.45 0.04 0.03 (0.82)
gain(loss) on investments
TOTAL FROM INVESTMENT OPERATIONS 0.23 0.92 1.01 0.62 0.60 (0.25)
Less Distributions:
Distributions from net (0.27) (0.54) (0.56) (0.58) (0.57) (0.57)
investmentincome
Net Asset Value, End of Period $ 10.96 $ 11.00 $ 10.62 $ 10.17 $ 10.13 $ 10.10
Total Return(1) 2.06% 8.83% 10.13% 6.18% 6.41% (2.31%)
Ratios to Average Net Assets:
Expenses 0.70%(2) 0.71% 0.66% 0.60% 0.59% 0.39%
Net investment income 4.89%(2) 4.96% 5.34% 5.62% 5.94% 5.49%
Expense waiver/reimbursement(3) 1.46%(2) 1.60% 1.75% 1.93% 1.74% 2.07%
Supplemental Data:
Net assets, end of period $25,682 $24,351 $22,386 $21,932 $21,600 $23,152
(000omitted)
Portfolio turnover 11% 30% 59% 11% 55% 37%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 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
FEBRUARY 28, 1999 (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.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $987,340, 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 $ 3,143
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 shares were as follows:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended August 31,
February 28, 1998
1999
<S> <C> <C>
Shares sold 310,321 452,550
Shares issued to shareholders in payment of distributions declared 20,305 50,557
Shares redeemed (201,432) (396,777)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 129,194 106,330
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Investment Management Company (formerly, 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 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, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC") the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses up to 0.50% of
the average daily net assets of the Fund 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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 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, 1999, 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 and amounted to $4,000,000 and $4,700,000,
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, 1999, were as follows:
Purchases $4,681,570
Sales $2,722,930
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, 1999, 20.1% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The value of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 7.9% of total investments.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President, and Secretary
J. SCOTT ALBRECHT
Vice President
RICHARD J. THOMAS
Treasurer
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.
Federated
New York
Municipal
Income Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1999
[FEDERATED LOGO]
Federated New York Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 625922208
4031009 (4/99)
Federated is a registered mark of Federated Investors, Inc.
1999 (C)Federated Investors, Inc. [RECYCLED PAPER LOGO]
SEMI-ANNUAL REPORT
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, 1998 through February 28, 1999. 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.
Federated Ohio Municipal Income Fund is a convenient way for tax-sensitive Ohio
residents to pursue income that is exempt from federal regular income tax and
state income tax.1 This double tax-free advantage gives investors the
opportunity to earn a greater after-tax yield than they could in a comparable
high-quality taxable investment.
During the six-month reporting period, the fund paid a monthly dividend stream
totaling $0.28 per share and capital gains totaling $0.12 per share, while the
share price decreased from $11.91 to $11.73. As a result, the fund achieved a
six-month total return of 1.91%2 based on net asset value. The fund's net assets
reached $82 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 any income from the fund or building your account by
reinvesting your dividends and compounding tax free.
Sincerely,
/S/Richard B. Fisher
Richard B. Fisher
President
April 15, 1999
1 Income may be subject to the federal alternative minimum tax.
2Performance quoted reflects 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 (0.08%)
Investment Review
What's your review of the municipal bond marketplace over the reporting period?
During the reporting period, there was an imbalance between supply and demand in
the municipal bond market. Municipal bond issuance was extremely heavy as a
result of low relative interest rates, which gave municipal entities the
opportunity to refund existing high coupon debt. In addition, many state and
local governments had significant infrastructure development needs. Demand for
municipal bonds was impacted by "rate shock" that individual investors
experienced when long term yields on municipal bonds were at or below the 5.00%
threshold. Demand by institutions, including arbitrageurs, property and casualty
insurers and corporations, was relatively mixed with some institutions actually
being net sellers over the reporting period.
Municipal bond insurance continued to be a significant influence on the
market. Approximately 59% of the municipal bonds issued in 1998 were guaranteed
by one of the mono-line municipal bond insurers, such as MBIA and AMBAC. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors have
also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
How have Ohio municipal bonds performed over the period?
Credit quality continued to remain strong throughout the State as represented by
strong employment growth, additional new business formation and a protracted low
inflation environment. This solid economic performance and stable demand for
municipal bonds has helped Ohio municipal bonds perform favorably over the
reporting period. Ohio municipal debt was trading with a spread of approximately
92 basis points to the benchmark AAA municipal yield curve at the end of
February 1999. This is tighter than the six month average of 87.1 basis points.
How has Federated Ohio Municipal Income Fund performed with respect to total
return and income for the six-month reporting period ended February 28, 1999?
For the six month period ended February 28, 1999, the fund's Class F shares
produced a total return of 1.91% based on net asset value.1 This return lagged
both the Lehman Brothers Municipal Bond Index2 and the Lipper Ohio Municipal
Funds Average3 total returns of 2.62% and 1.96%, respectively. The income on the
fund
1Performance 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 (0.08%).
2Lehman Brothers Municipal Bond Index is a broad market performance benchmark
for the tax-exempt bond market. To be included in the Index, bonds must have a
minimum credit rating of at least Baa. This index is unmanaged, and investments
cannot be made in the index.
3The Lipper Ohio Municipal Funds Average represents the average of the total
returns reported by all mutual funds designated by Lipper Analytical Services,
Inc. as falling in the category. This figure does not reflect sales charges.
was competitive during the reporting period. The fund's 30-day current net
yield, or SEC yield, on February 28, 1999 was 4.14% for Class F Shares based on
net asset value.4 The yield represents a decrease from the 4.20% SEC yield at
the beginning of the reporting period.
What accounted for the fund's performance?
The Fund's duration was positioned to be neutral to the relevant municipal
benchmark. Municipal yields were generally higher over the reporting period with
the Bond Buyer Municipal Index moving from a low of 4.95% to 5.17% at the end of
the reporting period.5 The high for the index over the reporting period was
5.22% on January 11, 1999. The duration and average maturity of the fund were
structured so as to take advantage of what management expected to be a trading
range for municipal interest rates over the reporting period. The fund was also
effected by spread widening in the BBB credit sector, to which it had limited
exposure.
What kind of environment do you see ahead for municipal bonds?
The municipal bond market is undergoing fundamental changes that are being
driven by new technology. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and may
eventually lead to Internet trading of municipal bonds. The municipal bond
markets use of these new technologies will lead to better dissemination of
information and potentially greater market efficiency. There have also been
enormous improvements in information disclosure and the availability of
municipal bond prices to investors.
The volume of municipal issuance in 1999 is expected to be around $230
billion, with a potential increase in refunding volume in what may be a lower
interest rate environment. Municipal bond insurance may become less prevalent as
bond insurers pull away from certain sectors of the market and toughen
underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the marketplace may contribute to additional credit
spread widening in the coming period.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. The market does not expect any material
interruptions in the supply of necessary municipal services. However, there
remains the potential for some State functions to suffer temporary disruptions.
The approach of the presidential election cycle will bring potential federal
tax law changes back into the news. Potential developments such as the
introduction of a flat tax or significant changes to the top marginal brackets
could affect the trading value of municipal debt relative to taxable fixed
income alternatives, such as corporate and treasury securities.
4 The 30-day SEC yield for Class F shares on February 28, 1999 was 4.10% based
on offering price.
5 The Bond Buyer Municipal Index is a standard against which municipal bonds
are measured.
Portfolio of Investments
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Principal Creddit(1) Value
Amount Rating
LONG-TERM MUNICIPALS--98.3%
Ohio --92.7%
$ 1,000,000 Barberton, OH, City School District, UT GO Bonds (Series 1998), 5.00% AAA $ 1,012,740
(FGIC INS)/(Original Issue Yield: 5.23%), 11/1/2015
300,000 Bellefontaine, OH, Storm Water Utility LT GO Bonds, 7.05%, 6/1/2011 A 323,316
2,000,000 Brecksville-Broadview Heights City School District, OH, UT GO Bonds, AAA 2,041,980
5.25% (FGIC INS)/(Original Issue Yield: 5.825%), 12/1/2021
500,000 Brunswick, OH, UT GO Bonds, 7.35% (Original Issue Yield: 7.446%), 544,795
12/1/2010 A2
1,000,000 Clermont County, OH, Hospital Facilities Refunding & Revenue Bonds AAA 1,051,870
(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 (Series 1997A), 5.125% (FSA AAA 988,000
INS)/(Original Issue Yield: 5.41%), 1/1/2022
2,500,000 Cleveland, OH, Airport System, Revenue Bonds (Series A), 6.00% (FGIC AAA 2,709,225
INS)/(Original Issue Yield: 6.378%), 1/1/2024
2,000,000 Cleveland, OH, Public Power System, Revenue Bonds, First Mortgage (Series AAA 2,357,760
A), 7.00% (MBIA INS)/(United States Treasury PRF)/(Original Issue Yield:
7.15%), 11/15/2024
2,600,000 Columbus, OH, Municipal Airport Authority, Improvement Revenue Bonds, AAA 2,851,628
6.25% (Port Columbus International Airport)/(MBIA INS)/(OriginalIssue
Yield: 6.35%), 1/1/2024
500,000 Cuyahoga County, OH, Health Care Facilities, Revenue Refunding Bonds, NR 480,175
5.50% (Benjamin Rose Institute)/(Original Issue Yield: 5.75%), 12/1/2028
1,500,000 Cuyahoga County, OH, Hospital Authority, Improvement & Refunding Revenue AAA 1,568,160
Bonds (Series A), 5.625% (University Hospitals Health System, Inc.)/(MBIA
INS LOC)/(Original Issue Yield: 5.90%), 1/15/2026
1,500,000 Cuyahoga County, OH, Hospital Authority, Revenue Bonds, 6.25% (Meridia AAA 1,723,650
Health System)/(Original Issue Yield: 6.80%), 8/15/2024
1,000,000 Forest Hills, OH, Local School District, UT GO Bonds, 5.70% (MBIA INS), AAA 1,077,420
12/1/2016
1,500,000 Franklin County, OH, Health Care Facilities, Revenue Refunding Bonds, NR 1,465,935
5.50% (Ohio Presbyterian Retirement Services)/(Original Issue Yield:
5.69%), 7/1/2021
500,000 Franklin County, OH, Hospital Facility Authority, Hospital Revenue AAA 533,400
Refunding & Improvement Bonds, 7.25% (Riverside United Methodist
Hospital)/(MBIA INS)/(Original Issue Yield: 7.29%), 5/15/2020
LONG-TERM MUNICIPALScontinued
Ohio--continued
$ 2,000,000 Franklin County, OH, Hospital Facility Authority, Revenue Refunding Bonds Aa3 $ 2,082,960
(Series A), 5.75% (Riverside United Methodist Hospital)/(Original Issue
Yield: 6.10%), 5/15/2020
1,000,000 Franklin County, OH, Revenue Bonds (Series 1998A), 5.20% (OCLC Online A 1,003,760
Computer Library Center, Inc.), 10/1/2020
1,300,000 Hamilton County, OH, Health System, Revenue Refunding Bonds, Providence BBB 1,390,168
Hospital, 6.875% (Franciscan Sisters of Christian Charity HealthCare
Ministry, Inc.)/(Original Issue Yield: 7.05%), 7/1/2015
700,000 Hamilton County, OH, Hospital Facilities Authority, Revenue Refunding & A- 765,254
Improvement Bonds, 7.00% (Deaconess Hospital)/(Original Issue Yield:
7.046%), 1/1/2012
2,000,000 Hamilton County, OH, Hospital Facilities Authority, Revenue Refunding A 2,174,100
Bonds (Series A), 6.25% (Bethesda Hospital, OH)/(Original Issue Yield:
6.55%), 1/1/2012
1,000,000 Hamilton County, OH, Sales Tax Bonds (Series 1998A), 4.75% (Hamilton AAA 972,690
County, OH Football Project)/(MBIA INS)/(Original Issue Yield: 4.93%),
12/1/2017
1,580,000 Hancock County, OH, LT GO Bonds (Series 1997), 5.45%, 12/1/2017 AA- 1,666,536
1,000,000 Lake County, OH, Hospital Facilities Revenue Bonds, 5.00% (Lake Hospital AAA 982,660
System, Inc.)/(AMBAC INS)/(Original Issue Yield: 5.15%), 8/15/2023
440,000 Lakewood, OH, Hospital Improvement Authority, Revenue Refunding Bonds AAA 440,999
(Series One), 6.00% (Lakewood Hospital, OH)/(MBIA INS)/(Original Issue
Yield: 6.90%), 2/15/2010
1,500,000 Lorain County, OH, Health Care Facilities Revenue Refunding Bonds (Series BBB 1,423,230
1998A), 5.25% (Kendal at Oberlin)/(Original Issue Yield: 5.53%), 2/1/2021
3,000,000 Lorain County, OH, Hospital Facilities Revenue Bonds (Series 1997B), AAA 3,193,530
5.625% (Catholic Healthcare Partners)/(MBIA INS)/(Original Issue Yield:
5.825%), 9/1/2016
1,000,000 Mahoning County, OH, Hospital Facilities, Revenue Bonds, 5.50% (Western AAA 1,054,840
Reserve Care System)/(MBIA INS)/(Original Issue Yield: 5.75%), 10/15/2025
1,000,000 Marion County, OH, Hospital Authority, Hospital Refunding & Improvement BB+ 1,088,110
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, 7.15%, 12/1/2011 A 458,598
1,000,000 Mason, OH, City School District, UT GO Bonds, 5.30%, 12/1/2017 Aa3 1,040,720
1,000,000 Miami County, OH, Hospital Facilities Revenue Refunding & Improvement BBB 1,062,140
Bonds (Series 1996A), 6.375% (Upper Valley Medical Center, OH)/(Original
Issue Yield: 6.62%), 5/15/2026
LONG-TERM MUNICIPALScontinued
Ohio--continued
$ 1,500,000 Montgomery County, OH, Health Care Facilities, Revenue Refunding Bonds BBB $ 1,484,040
(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, Revenue Bonds, 6.75% A 1,199,670
(General Motors Corp.)/(Original Issue Yield: 6.80%), 7/1/2014
9,990,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series B-2), 6.70% (GNMA AAA 10,672,517
COL), 3/1/2025
1,360,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.65% (GNMA COL)/(Original Issue AAA 1,394,571
Yield: 7.669%), 3/1/2029
135,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80% (GNMA COL), 3/1/2030 AAA 139,764
500,000 Ohio State Air Quality Development Authority, PCR Refunding Bonds (Series AAA 528,145
A), 7.45% (Ohio Edison Co.)/(FGIC INS), 3/1/2016
3,000,000 Ohio State Air Quality Development Authority, Revenue Refunding Bonds, AAA 3,340,380
6.375% (JMG Funding Limited Partnership)/(AMBAC INS)/(Original Issue
Yield: 6.493%), 1/1/2029
2,000,000 Ohio State Turnpike Commission, Turnpike Revenue Refunding Bonds (Series AAA 2,161,160
1998A), 5.50% (FGIC INS), 2/15/2024
1,500,000 Ohio State, Education Loan Revenue Bonds (Series 1997A), 5.85% (AMBAC AAA 1,568,760
INS), 12/1/2019
1,500,000 Ohio State, Solid Waste Disposal Revenue Bonds, 5.60% (USG Corp.), BBB 1,490,955
8/1/2032
2,000,000 Olentangy, OH, Local School District, UT GO Bonds, 5.25% (Original Issue AA- 2,058,560
Yield: 5.46%), 12/1/2017
1,000,000 Parma, OH, Hospital Improvement and Refunding Revenue Bonds, 5.375% A- 1,012,040
(Parma Community General Hospital Association)/(Original Issue Yield:
5.45%), 11/1/2029
730,000 Reynoldsburg, OH, City School District, UT GO Capital Appreciation AAA 406,997
Refunding Bonds (FGIC INS)/(Original Issue Yield: 5.30%), 12/1/2011
2,000,000 South-Western City School District, OH, UT GO Bonds, 4.75% (AMBAC AAA 1,934,460
INS)/(Original Issue Yield: 5.03%), 12/1/2019
500,000 Tiffin, OH, LT GO Bonds, 7.10%, 12/1/2011 A 553,225
2,000,000 Toledo-Lucas County, OH, Port Authority, Port Facilities Revenue Aa3 2,121,600
Refunding Bonds, 5.90% (Cargill, Inc.)/(Original Issue Yield: 5.981%),
12/1/2015
1,500,000 University of Cincinnati, OH, General Receipts Revenue Bonds (Series AA 1,491,630
1998AA), 5.00% (Original Issue Yield: 5.15%), 6/1/2018
1,115,000 Warren County, OH, Special Assessment UT GO Bonds, 5.50%, 12/1/2017 Aa2 1,175,634
TOTAL 76,264,457
LONG-TERM MUNICIPALScontinued
Puerto Rico--4.6%
$ 1,200,000 Puerto Rico Electric Power Authority, Revenue Bonds (Series T), 6.375% BB+ $ 1,368,744
(Original Issue Yield: 6.58%), 7/1/2024
1,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest Tax- NR 1,201,800
Exempt Securites (Series PA 331A), 8.76% (AMBAC INS), 7/1/2013
1,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest Tax- NR 1,190,680
Exempt Securities (Series PA 331B), 8.76% (AMBAC INS), 7/1/2014
TOTAL 3,761,224
Virgin Islands--1.0%
750,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A), 6.50% (GNMA AAA 800,580
COL)/(Original Issue Yield: 6.522%), 3/1/2025
TOTAL INVESTMENTS (IDENTIFIED COST $75,442,468)2 $ 80,826,261
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 33.6% of the
portfolio as calculated based upon total portfolio market value.
1 Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
2 The cost of investments for federal tax purposes amounts to $75,442,468. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,383,793 which is comprised of $5,432,217 appreciation and $48,424
depreciation at February 28, 1999.
Note: The categories of investments are shown as a percentage of net assets
($82,229,736) at February 28, 1999.
The following acronyms are used throughout this portfolio:
AMBAC American Municipal Bond Assurance Corporation
COL Collateralized
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GO General Obligation
HFA Housing Finance Authority
INS Insured
LOC Letter of Credit
LT Limited Tax
MBIA Municipal Bond Investors Assurance
PCR Pollution Control Revenue
PRF Prerefunded
SFM Single Family Mortgage
UT Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $75,442,468) $ 80,826,261
Income receivable 1,259,357
Receivable for investments sold 575,000
Receivable for shares sold 28,101
TOTAL ASSETS 82,688,719
Liabilities:
Payable for shares redeemed $ 110,520
Income distribution payable 143,519
Payable to Bank 182,156
Accrued expenses 22,788
TOTAL LIABILITIES 458,983
Net Assets for 7,011,679 shares outstanding $ 82,229,736
Net Assets Consist of:
Paid in capital $ 76,935,168
Net unrealized appreciation of investments 5,383,793
Accumulated net realized loss on investments (64,757)
Distributions in excess of net investment income (24,468)
TOTAL NET ASSETS $ 82,229,736
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($82,229,736 / 7,011,679 shares outstanding) $ 11.73
Offering Price Per Share (100/99.00 of $11.73)1 $ 11.85
Redemption Proceeds Per Share (99.00/100 of $11.73)2 $ 11.61
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
2 See " Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Interest $ 2,300,404
Expenses:
Investment advisory fee $ 163,563
Administrative personnel and services fee 61,987
Custodian fees 3,353
Transfer and dividend disbursing agent fees and expenses 21,958
Directors'/Trustees' fees 2,534
Auditing fees 6,697
Legal fees 1,448
Portfolio accounting fees 25,188
Distribution services fee 163,563
Shareholder services fee 102,227
Share registration costs 9,593
Printing and postage 7,964
Insurance premiums 1,448
Miscellaneous 905
TOTAL EXPENSES 572,428
Waivers:
Waiver of investment advisory fee $ (100,386)
Waiver of distribution services fee (98,138)
Waiver of shareholder services fee (4,089)
TOTAL WAIVERS (202,613)
Net expenses 369,815
Net investment income 1,930,589
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 299,756
Net change in unrealized appreciation of investments (680,396)
Net realized and unrealized loss on investments (380,640)
Change in net assets resulting from operations $ 1,549,949
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
(unaudited) Ended
February 28, 1999 August 31, 1998
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C>
Net investment income $ 1,930,589 $ 3,674,204
Net realized gain on investments ($299,756 and $780,248, respectively, as computed 299,756 780,248
for federal tax purposes)
Net change in unrealized appreciation of investments (680,396) 1,810,941
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,549,949 6,265,393
Distributions to Shareholders
Distributions from net investment income (1,960,367) (3,668,894)
Distributions from net realized gains (848,733) (134,059)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (2,809,100) (3,802,953)
Share Transactions:
Proceeds from sale of shares 6,861,919 13,003,558
Net asset value of shares issued to shareholders in payment of distributions 1,712,965 2,205,539
declared
Cost of shares redeemed (5,360,402) (12,903,472)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 3,214,482 2,305,625
Change in net assets 1,955,331 4,768,065
Net Assets:
Beginning of period 80,274,405 75,506,340
End of period (including undistributed net investment income of $5,310 for the $ 82,229,736 $ 80,274,405
period ended August 31, 1998)
</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,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning ofPeriod $ 11.91 $ 11.53 $ 11.21 $ 11.22 $ 11.01 $ 11.65
Income from Investment Operations:
Net investment income 0.28 0.56 0.59 0.60 0.60 0.56
Net realized and unrealized gain (0.06) 0.40 0.32 (0.01) 0.02 (0.64)
(loss) on investments
TOTAL FROM INVESTMENT OPERATIONS 0.22 0.96 0.91 0.59 0.80 (0.08)
Less Distributions:
Distributions from net investment (0.28) (0.56) (0.59) (0.60) (0.59) (0.56)
income
Distributions from net realized (0.12) (0.02)
gain on investments
TOTAL DISTRIBUTIONS (0.40) (0.58) (0.59) (0.60) (0.59) (0.56)
Net Asset Value, End of Period $ 11.73 $ 11.91 $ 11.53 $ 11.21 $ 11.22 $ 11.01
Total Return(1) 1.91% 8.56% 8.34% 5.34% 7.65% (0.72%)
Ratios to Average Net Assets:
Expenses 0.90(2) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income 4.72(2) 4.80% 5.19% 5.28% 5.53% 5.02%
Expense waiver/reimbursement(3) 0.50(2) 0.51% 0.58% 0.58% 0.60% 0.55%
Supplemental Data:
Net assets, end of period $82,230 $80,274 $75,506 $70,568 $70,532 $81,566
(000omitted)
Portfolio turnover 6% 23% 38% 11% 33% 20%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 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
FEBRUARY 28, 1999 (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 exempt from federal regular income tax and the personal income taxes
imposed by the state of Ohio and Ohio 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. These distributions from net investment income do not represent a return
of capital for federal tax purposes.
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.
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 August 31,
February 28, 1998
1999
<S> <C> <C>
Shares sold 578,329 1,105,266
Shares issued to shareholders in payment of distributions declared 145,116 187,876
Shares redeemed (452,547) (1,101,260)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 270,898 191,882
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Investment Management Company (formerly, 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, Inc. 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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 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, 1999, 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 and amounted to $7,600,000 and $6,800,000,
respectively.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1999, were as follows:
Purchases $7,049,980
Sales $4,847,590
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, 1999, 42.2% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The value of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 14.1% of total investments.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
J. SCOTT ALBRECHT
Vice President
RICHARD J. THOMAS
Treasurer
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 the
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[FEDERATED LOGO]
Federated
Ohio
Municipal
Income Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1999
[FEDERATED LOGO]
Federated Ohio Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 625922307
2032305 (4/99)
Federated is a registered mark of Federated Investors, Inc.
1999 (C)Federated Investors, Inc. [RECYCLED PAPER LOGO]
SEMI-ANNUAL REPORT
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, 1998 through February 28, 1999. 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.
Federated Pennsylvania Municipal Income Fund is a convenient way for
tax-sensitive Pennsylvania residents to pursue income that is exempt from
federal regular income tax and state income tax./1/ This double tax-free
advantage gives investors the opportunity to earn a greater after-tax yield than
they could in a comparable high-quality taxable investment.
During the six-month reporting period, the fund paid a monthly dividend stream
totaling $0.28 per share for Class A Shares and $0.24 for Class B Shares. Each
share class also paid a capital gains distribution totaling $0.10 per share. The
share price decreased from $12.08 to $11.87. As a result, the fund's Class A
Shares and Class B Shares achieved six-month total returns of 1.41% and 1.02%,
respectively, based on net asset value.2 The fund's net assets reached $277.6
million at the end of the 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 any income from the fund or building your
account by reinvesting your dividends and compounding tax free.
Sincerely,
/s/ Richard B. Fisher
Richard B. Fisher
President
April 15, 1999
1 Income may be subject to the federal alternative minimum tax.
2 Performance quoted reflects 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 returns for the six-month reporting period based on
offering price were (3.15%) for Class A Shares and (4.51%) for Class B
Shares.
Investment Review
What's your review of the municipal bond marketplace over the reporting period?
During the reporting period, there was an imbalance between supply and demand in
the municipal bond market. Municipal bond issuance was extremely heavy as a
result of low relative interest rates, which gave municipal entities the
opportunity to refund existing high coupon debt. In addition, many state and
local governments had significant infrastructure development needs. Demand for
municipal bonds was impacted by "rate shock" that individual investors
experienced when long term yields on municipal bonds were at or below the 5.00%
threshold. Demand by institutions, including arbitrageurs, property and casualty
insurers and corporations, was relatively mixed with some institutions actually
being net sellers over the reporting period.
Municipal bond insurance continued to be a significant influence on the
market. Approximately 59% of the municipal bonds issued in 1998 were guaranteed
by one of the mono-line municipal bond insurers, such as MBIA and AMBAC. The
prevalence of bond insurance combined with a low nominal interest rate
environment allowed credit spreads to remain historically tight. However,
particular credit concerns have developed within specific sectors of the
municipal market. The hospital sector has shown specific vulnerability as a
result of the Medicare reimbursement reductions included in the last federal
budget reconciliation bill. The electric utility and public power sectors have
also been vulnerable to credit deterioration as a result of the continuing
effects of deregulation.
How have Pennsylvania municipal bonds performed over the period?
Credit quality continued to remain strong throughout the Commonwealth as
represented by strong employment growth, additional new business formation and a
protracted low inflation environment. This solid economic performance and stable
demand for municipal bonds has helped Pennsylvania municipal bonds perform
favorably over the reporting period. Pennsylvania municipal debt was trading
with a spread of approximately 65 basis points to the benchmark AAA municipal
yield curve at the end of February 1999. This is tighter than the six month
average of 76.7 basis points.
How has Federated Pennsylvania Municipal Income Fund performed with respect to
total return and income for the six-month reporting period ended February 28,
1999?
For the six month period ended February 28, 1999, the fund's Class A Shares
produced a total return of 1.41% based on net asset value./1/ This return lagged
both the Lehman Brothers Municipal Bond Index/2/ and the Lipper Pennsylvania
Municipal Funds Average/3/ total returns of 2.62% and 1.76%, respectively. The
income on the fund was competitive during the reporting period.
1 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 (3.15%). Total return for the
six-month reporting period for Class B Shares, based on net asset value and
offering price, was 1.02% and (4.51%), respectively.
2 Lehman Brothers Municipal Bond Index is a broad market performance benchmark
for the tax-exempt bond market. To be included in the Index, bonds must have
a minimum credit rating of at least Baa. This index is unmanaged, and
investments cannot be made in the index.
3 The Lipper Pennsylvania Municipal Funds Average represents the average total
returns reported by all mutual funds designated by Lipper Analytical
Services, Inc. as falling in the category. This figure does not reflect sales
charges.
The fund's 30-day current net yield, or SEC yield, on February 28, 1999 was
4.28% for Class A Shares based on net asset value./4/ The yield represents a
decrease from the 4.40% SEC yield at the beginning of the reporting period.
What accounted for the fund's performance?
The Fund's duration was positioned to be neutral to the relevant municipal
benchmark. Municipal yields were generally higher over the reporting period with
the Bond Buyer Municipal Index moving from a low of 4.95% to 5.17% at the end of
the period./5/ The high for the index over the period was 5.22% on January 11,
1999. The duration and average maturity of the fund were structured so as to
take advantage of what management expected to be a trading range for municipal
interest rates over the period. The fund was also affected by spread widening in
the BBB credit sector, to which it had limited exposure.
What kind of environment do you see ahead for municipal bonds?
The municipal bond market is undergoing fundamental changes that are being
driven by new technology. These changes include technology based initiatives
such as competitive bidding for municipal bond issues over the Internet and may
eventually, lead to Internet trading of municipal bonds. The municipal bond
markets use of these new technologies will lead to better dissemination of
information and potentially greater market efficiency. There have also been
enormous improvements in information disclosure and the availability of
municipal bond prices to investors.
The volume of municipal issuance in 1999 is expected to be around $230
billion, with a potential increase in refunding volume in what may be a lower
interest rate environment. Municipal bond insurance may become less prevalent as
bond insurers pull away from certain sectors of the market and toughen
underwriting standards, especially for hospitals. The prevalence of more
uninsured municipal bonds in the market place may contribute to additional
credit spread widening in the coming period.
Year 2000 (Y2K) spending by municipal governments is a potential credit factor
which must be taken into consideration as far as both the cost and the
effectiveness of their Y2K preparedness. The market does not expect any material
interruptions in the supply of necessary municipal services. However, there
remains the potential for some State functions to suffer temporary disruptions.
The approach of the presidential election cycle will bring potential federal
tax law changes back into the news. Potential developments such as the
introduction of a flat tax or significant changes to the top marginal brackets
could affect the trading value of municipal debt relative to taxable fixed
income alternatives, such as corporate and treasury securities.
4 The 30-day SEC yield for Class A Shares on February 28, 1999, was 4.09%,
based on offering price. The 30-day SEC yield for Class B shares on February
28, 1999, was 3.51%, based on net asset value.
5 The Bond Buyer Municipal Index is a standard against which municipal bonds
are measured.
Portfolio of Investments
FEBRUARY 28, 1999 (UNAUDITED
<TABLE>
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Principal Credit
Amount Rating/1/ Value
LONG-TERM MUNICIPALS--99.3%
Pennsylvania--98.4%
$ 2,000,000 Allegheny County, PA, HDA, Health & Education Revenue Bonds, 7.00%
(Rehabilitation Institute of Pittsburgh)/(United States Treasury
PRF)/(Original Issue Yield: 7.132%), 6/1/2002 (@102) NR $ 2,232,880
1,500,000 Allegheny County, PA, HDA, Hospital Revenue Bonds (Series 1997), 5.75%
(St. Francis Medical Center, PA)/(Original Issue Yield: 6.00%), 5/15/2017 A3 1,562,820
2,000,000 Allegheny County, PA, HDA, Refunding Revenue Bonds (Series 1998A), 5.125%
(South Hills Health System)/(Original Issue Yield: 5.34%), 5/1/2023 A2 1,930,000
1,500,000 Allegheny County, PA, HDA, Refunding Revenue Bonds (Series 1998A), 5.125%
(South Hills Health System)/(Original Issue Yield: 5.40%), 5/1/2029 A2 1,433,415
4,000,000 Allegheny County, PA, HDA, Revenue Bonds (Series 1997B), 5.00% (UPMC
Health System)/(MBIA INS)/(Original Issue Yield: 5.43%), 7/1/2016 AAA 3,965,400
300,000 Allegheny County, PA, HDA, Revenue Bonds (Series A), 5.90% (South Hills
Health System)/(Original Issue Yield: 6.00%), 5/1/2003 A2 322,464
300,000 Allegheny County, PA, HDA, Revenue Bonds (Series A), 6.00% (South Hills
Health System)/(Original Issue Yield: 6.10%), 5/1/2004 A2 326,121
1,500,000 Allegheny County, PA, HDA, Revenue Bonds, 5.30% (Children's Hospital of
Pittsburgh)/(MBIA INS)/(Original Issue Yield: 5.70%), 7/1/2026 AAA 1,508,130
1,500,000 Allegheny County, PA, HDA, Revenue Bonds, 5.375% (Ohio Valley General
Hospital, PA)/(Original Issue Yield: 5.50%), 1/1/2018 Baa1 1,482,390
4,000,000 Allegheny County, PA, HDA, Revenue Bonds (Series 1997A), 5.60% (UPMC
Health System)/(MBIA INS)/(Original Issue Yield: 5.85%), 4/1/2017 AAA 4,223,000
2,920,000 Allegheny County, PA, Hospital Development Authority, Refunding Revenue
Bonds, 6.625% (Allegheny General Hospital), 7/1/2009 AAA 3,235,564
3,185,000 Allegheny County, PA, IDA, Environmental Improvement Refunding Revenue
Bonds (Series 1998), 5.50% (USX Corp.), 12/1/2029 BBB- 3,139,136
1,250,000 Allegheny County, PA, IDA, Environmental Improvement Refunding Revenue
Bonds (Series 1998), 5.60% (USX Corp.), 9/1/2030 BBB- 1,254,775
1,500,000 Allegheny County, PA, IDA, Health Care Facilities Revenue Refunding Bonds
(Series 1998), 5.75% (Presbyterian Senior Care-Westminister Place Project),
1/1/2023 NR 1,472,205
500,000 Allegheny County, PA, Institution District, GO UT Bonds, 7.30% (MBIA
INS)/(Original Issue Yield: 7.375%), 4/1/2009 AAA 521,025
365,000 Allegheny County, PA, Residential Finance Agency, SFM Revenue Bonds
(Series K), 7.75% (GNMA COL), 12/1/2022 Aaa 373,972
$ 620,000 Allegheny County, PA, Residential Finance Agency, SFM Revenue Bonds
(Series Q), 7.40% (GNMA COL), 12/1/2022 Aaa $ 652,389
1,500,000 Allegheny County, PA, Residual Interest Tax-Exempt Securities (Series
329B), 9.01452% (Pittsburgh International Airport)/(MBIA INS), 1/1/2011 NR 1,805,010
3,000,000 Allegheny County, PA, Residual Interest Tax-Exempt Securities (Series
329C), 9.01452% (Pittsburgh International Airport)/(MBIA INS), 1/1/2014 NR 3,596,520
3,000,000 Allegheny County, PA, Residual Interest Tax-Exempt Securities (Series PA,
329A), 9.01452% (Pittsburgh International Airport)/(MBIA INS), 1/1/2010 NR 3,607,980
100,000 Allegheny County, PA, UT GO Bonds (Series C-39), 6.00% (AMBAC
INS)/(Original Issue Yield: 6.098%), 5/1/2012 AAA 107,909
2,060,000 Allentown, PA, Area Hospital Authority, Revenue Bonds (Series B), 6.75%
(Sacred Heart Hospital of Allentown), 11/15/2015 BBB 2,230,547
100,000 Altoona, PA, City Authority, Water Revenue Bonds, 5.60% (FGIC
INS)/(Original Issue Yield: 5.699%), 11/1/2004 AAA 108,873
6,000,000 Beaver County, PA, IDA, Exempt Facilities Revenue Bonds (Series 1998A),
5.375% (Shippingport Project)/(AMBAC INS), 6/1/2028 AAA 6,055,020
1,000,000 Berks County, PA, Municipal Authority, Health Care Revenue Bonds (Series
1998), 5.00% (Reading Hospital & Medical Center and the Highlands at
Wyomissing)/(Original Issue Yield: 5.23%), 3/1/2028 AA- 962,240
100,000 Berks County, PA, Municipal Authority, Hospital Revenue Bonds, 5.60%
(Reading Hospital & Medical Center)/(MBIA INS)/(Original Issue Yield:
5.65%), 10/1/2006 AAA 108,735
1,170,000 Bethlehem, PA, UT GO Bonds, 6.15% (MBIA INS LOC), 6/1/2002 AAA 1,258,967
4,250,000 Bradford County, PA, IDA, Solid Waste Disposal Revenue Bonds (Series A),
6.60% (International Paper Co.), 3/1/2019 BBB+ 4,632,415
1,000,000 Bucks County, PA, Community College Authority, College Building Revenue
Bonds (Series 1996), 5.50% (Original Issue Yield: 5.70%), 6/15/2017 Aa2 1,039,410
100,000 Central Bucks, PA, School District, UT GO Bonds, 5.40% (FGIC INS),
5/15/2003 AAA 100,539
100,000 Central Bucks, PA, School District, UT GO Bonds, 6.00%, 11/15/2003 Aa3 109,575
2,110,000 Chartiers Valley, PA, Refunding Revenue Bonds, 6.15%, 3/1/2007 AAA 2,354,359
1,100,000 Chester County, PA, HEFA, Mortgage Refunding Revenue Bonds, 5.50% (Tel Hai
Obligated Group Project)/(Original Issue Yield: 5.60%), 6/1/2025 BBB 1,059,971
7,000,000 Chester County, PA, HEFA, Revenue Bonds (Series B), 5.375%
(Jefferson Health System)/(Original Issue Yield: 5.63%), 5/15/2027 AA- 6,969,130
1,035,000 Chester County, PA, UT GO Bonds, 6.40%, 12/15/2001 Aa2 1,105,049
$ 1,500,000 Clarion County, PA, Hospital Authority, Revenue Refunding Bonds (Series
1997), 5.75% (Clarion County Hospital)/(Original Issue Yield: 5.95%),
7/1/2017 BBB- $ 1,504,515
745,000 Cocalico Lancaster County, PA, School District, GO UT Bonds, 6.40% (MBIA
INS), 3/1/2001 AAA 786,891
1,575,000 Commonwealth of Pennsylvania, GO UT Bonds, 6.00% (Original Issue Yield:
6.15%), 7/1/2007 AA 1,775,734
150,000 Dauphin County, PA, Revenue Bonds, 6.00% (MBIA INS), 6/1/2002 AAA 153,429
150,000 Dauphin County, PA, Revenue Bonds, 6.10% (MBIA INS), 6/1/2003 AAA 153,541
2,900,000 Delaware County, PA, Authority, College Revenue Refunding Bonds (Series
1998A), 5.375% (Neumann College)/(Original Issue Yield: 5.48%), 10/1/2018 BBB- 2,889,415
300,000 Delaware County, PA, Authority, Hospital Revenue Bonds, 5.90%
(Riddle Memorial Hospital)/(Original Issue Yield: 6.10%), 1/1/2002 A- 317,289
1,000,000 Delaware County, PA, Authority, Revenue Bonds (Series 1996), 5.50% (Elwyn,
Inc.)/(Connie Lee INS)/(Original Issue Yield: 5.69%), 6/1/2020 AAA 1,041,530
10,000,000 Delaware Valley, PA, Regional Finance Authority, Local Government Revenue
Bonds (Series 1997B), 5.60% (AMBAC INS), 7/1/2017 AAA 10,846,500
2,200,000 Erie County, PA, Hospital Authority Weekly VRDNs (St. Vincent Health
System)/(Mellon Bank NA, Pittsburgh LOC) A 2,200,000
500,000 Erie County, PA, Prison Authority, Lease Revenue Bonds, 6.45%
(MBIA LOC)/(Original Issue Yield: 6.50%), 11/1/2001 AAA 538,660
2,890,000 Erie, PA, School District, Refunding GO Bonds (Series 1998)
(FSA INS)/(Original Issue Yield: 5.36%), 9/1/2021 AAA 909,021
5,780,000 Erie, PA, School District, Refunding GO Bonds (Series 1998)
(FSA INS)/(Original Issue Yield: 5.38%), 9/1/2023 AAA 1,635,856
1,380,000 Erie, PA, School District, Refunding GO Bonds (Series 1998)
(FSA INS)/(Original Issue Yield: 5.38%), 9/1/2025 AAA 351,251
1,000,000 Fayette County, PA, Hospital Authority, Healthcare Facility Revenue Bonds
(Series 1996A), 6.00% (Mount Macrina Manor)/(National City, Pennsylvania
LOC), 9/1/2018 Aa3 1,023,930
2,000,000 Fayette County, PA, Hospital Authority, Hospital Revenue Bonds
(Series1996A), 5.75% (Uniontown Hospital)/(Connie Lee INS)/ (Original Issue
Yield: 6.05%), 6/15/2015 AAA 2,127,940
2,750,000 Harrisburg, PA, Authority, Pooled Bond Program Revenue Bonds (Series I),
5.625% (MBIA INS)/(Original Issue Yield: 5.98%), 4/1/2015 AAA 2,931,170
750,000 Harrisburg, PA, Water Authority, Revenue Bonds, 6.65% (FGIC LOC), 7/15/2001 AAA 805,290
500,000 Indiana County, PA, Hospital Authority, Revenue Refunding Bonds (Series B),
6.20% (Indiana Hospital, PA)/(Connie Lee INS)/ (Original
Issue Yield:
6.30%), 7/1/2006 AAA 538,725
$ 800,000 Jeannette Health Services Authority, PA, Hospital Revenue Bonds
(Series1996A), 6.00% (Jeannette District Memorial Hospital)/
(Original Issue Yield: 6.15%), 11/1/2018 BBB+ $ 832,688
2,915,000 Jim Thorpe Area School District, PA, UT GO Bonds (Series A), 5.75% (MBIA
INS), 3/15/2017 AAA 3,104,154
1,000,000 Lackawanna Trail School District, PA, UT GO Refunding Bonds, 6.90% (AMBAC
INS), 3/15/2010 AAA 1,076,230
3,000,000 Lancaster, PA, School District, GO Bonds (Series 1997), 5.40%
(FGIC INS)/(Original Issue Yield: 5.50%), 2/15/2014 AAA 3,132,330
1,380,000 Latrobe, PA, IDA, College Revenue Bonds, 6.75% (St. Vincent College,
PA)/(Original Issue Yield: 7.00%), 5/1/2024 Baa1 1,591,361
1,500,000 Lebanon County, PA, Good Samaritan Hospital Authority, Hospital Revenue
Bonds, 6.00% (Good Samaritan Hospital)/(Original Issue Yield: 6.10%),
11/15/2018 BBB+ 1,555,800
1,000,000 Lehigh County, PA, General Purpose Authority, Hospital Refunding Revenue
Bonds (Series 1996A), 5.75% (Muhlenberg Hospital Center)/(Original Issue
Yield: 5.85%), 7/15/2010 A 1,097,870
200,000 Lehigh County, PA, General Purpose Authority, Revenue Bonds, 5.625%
(Lehigh Valley Hospital, Inc.)/(MBIA INS)/(Original Issue Yield: 5.775%),
7/1/2025 AAA 221,456
2,300,000 Lehigh County, PA, General Purpose Authority, Revenue Bonds, 5.625%
(Lehigh Valley Hospital, Inc.)/(MBIA INS)/(Original Issue Yield: 5.775%),
7/1/2025 AAA 2,407,341
325,000 Lower Dauphin, PA, School District, UT GO Bonds, 5.75% (AMBAC INS)/(United
States Treasury PRF), 3/15/2000 (@100) AAA 333,866
1,000,000 Luzerne County, PA, UT GO Bonds, 5.625% (FGIC INS)/(Original Issue Yield:
5.78%), 12/15/2021 AAA 1,050,890
2,500,000 Luzerne County, PA, IDA, Revenue Refunding Bonds (Series A), 7.00%
(Pennsylvania Gas & Water Co.)/(AMBAC INS), 12/1/2017 AAA 2,869,875
4,000,000 Lycoming County, PA, Authority, Hospital Lease Revenue Bonds (Series B),
6.50% (Divine Providence Hospital, PA)/(Original Issue Yield: 6.70%),
7/1/2022 A- 4,298,520
1,000,000 Lycoming County, PA, Authority, Hospital Revenue Bonds, 5.50% (Divine
Providence Hospital, PA)/(Connie Lee INS)/(Original Issue Yield: 5.90%),
11/15/2022 AAA 1,030,980
1,000,000 Manheim, PA, Central School District, GO UT Bonds, 6.40% (FGIC INS),
3/1/2001 AAA 1,056,830
1,000,000 McKeesport, PA, Area School District, GO UT Bonds, 6.25% accrual
(FSA INS)/(Original Issue Yield: 6.25%), 10/1/2016 AAA 421,520
$ 2,360,000 Monroe County, PA, Hospital Authority, Hospital Revenue Bonds, 5.125%
(Pocono Medical Center)/(AMBAC INS)/(Original Issue Yield: 5.40%), 7/1/2015 AAA $ 2,385,394
2,000,000 Montgomery County, PA, Higher Education and Health Authority, Revenue
Bonds, 5.00% (Pottstown Healthcare Corporation Project)/
(FSA INS)/(Original Issue Yield: 5.30%), 1/1/2027 AAA 1,939,920
3,250,000 Montgomery County, PA, IDA, Retirement Community Revenue Bonds (Series
1996B), 5.75% (Adult Communities Total Services, Inc.)/ (Original Issue
Yield: 5.98%), 11/15/2017 A- 3,343,502
1,000,000 Montgomery County, PA, IDA, Retirement Community Revenue Refunding Bonds
(Series 1996A), 5.875% (Adult Communities Total Services, Inc.)/(Original
Issue Yield: 6.125%), 11/15/2022 A- 1,035,840
500,000 Mt. Pleasant Borough, PA, Business District Authority, Hospital Revenue
Bonds (Series 1997), 5.75% (Frick Hospital)/(Original Issue Yield: 5.85%),
12/1/2017 BBB 504,945
1,300,000 Mt. Pleasant Borough, PA, Business District Authority, Hospital Revenue
Bonds (Series 1997), 5.75% (Frick Hospital)/(Original Issue Yield: 5.90%),
12/1/2027 BBB 1,302,249
2,250,000 North Allegheny, PA, School District, UT GO Bonds (Series D), 5.00% (State
Aid Withholding GTD)/(FGIC INS)/(Original Issue Yield: 5.50%), 5/1/2021 Aaa 2,221,627
1,235,000 North Penn, PA, School District, Refunding Revenue Bonds, 6.20%, 3/1/2007 Aaa 1,325,464
110,000 North Penn, PA, Water Authority, Revenue Bonds, 6.10% (FGIC INS), 11/1/2003 AAA 121,169
500,000 Northeastern, PA, Hospital & Education Authority, Health Care Revenue
Bonds (Series 1994A), 6.10% (Wyoming Valley Health Care, PA)/(AMBAC
INS)/(Original Issue Yield: 6.25%), 1/1/2003 AAA 538,565
500,000 Northern Cambria, PA, School District, GO UT Bonds, 7.10% (AMBAC INS),
1/15/2000 (@100) AAA 517,510
500,000 Pennsylvania Convention Center Authority, Refunding Revenue Bonds (Series
A), 6.25%, 9/1/2004 BBB 534,655
1,000,000 Pennsylvania Convention Center Authority, Revenue Bonds, 6.70%
(FGIC INS)/(Original Issue Yield: 6.843%), 9/1/2016 AAA 1,220,340
5,000,000 Pennsylvania EDFA, Exempt Facilities Revenue Bonds (Series 1997B), 6.125%
(National Gypsum Co.), 11/1/2027 NR 4,921,150
4,000,000 Pennsylvania EDFA, Resource Recovery Revenue Bonds (Series A), 6.40%
(Northampton Generating), 1/1/2009 BBB- 4,205,080
4,230,000 Pennsylvania EDFA, Revenue Bonds (Series 1998A), 5.25% (Northwestern Human
Services, Inc.)/(Original Issue Yield: 5.668%), 6/1/2028 BBB 4,035,293
$ 765,000 Pennsylvania HFA, Refunding Revenue Bonds, 5.375% (FHA INS), 10/1/2028 AA+ $ 790,444
970,000 Pennsylvania HFA, Revenue Bonds, 5.375%, 10/1/2016 AA+ 1,001,215
1,000,000 Pennsylvania HFA, Revenue Bonds, 5.40%, 10/1/2027 AA+ 1,029,680
575,000 Pennsylvania HFA, Revenue Bonds, 5.55% (FHA/VA mtgs GTD), 10/1/2012 AA+ 595,476
975,000 Pennsylvania HFA, Revenue Bonds, 5.65%, 4/1/2020 AA+ 1,014,244
530,000 Pennsylvania HFA, SFM Revenue Bonds (Series 33), 6.90%, 4/1/2017 AA+ 561,816
100,000 Pennsylvania HFA, SFM Revenue Bonds (Series 41-B), 5.90%, 10/1/2005 AA+ 104,879
100,000 Pennsylvania HFA, SFM Revenue Bonds (Series 42), 5.90%, 10/1/2004 AA+ 104,634
345,000 Pennsylvania HFA, SFM Revenue Bonds (Series 43), 6.35%, 4/1/2001 AA+ 354,746
1,425,000 Pennsylvania HFA, SFM Revenue Bonds, Series62A, 5.50%, 10/1/2022 AA+ 1,449,795
2,000,000 Pennsylvania Intergovernmental Coop Authority, Special Tax Revenue Bonds,
5.625% (MBIA INS)/(Original Issue Yield: 97.245%), 6/15/2023 AAA 2,082,620
5,500,000 Pennsylvania State Higher Education Facilities Authority, Health Services
Revenue Bonds (Series A of 1996), 5.75% (University of Pennsylvania Health
Services)/(Original Issue Yield: 6.035%), 1/1/2022 AA 5,698,110
2,000,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series 1996), 7.20% (Thiel College), 5/15/2026 NR 2,193,840
3,000,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series 1999A), 4.875% (UPMC Health System)/(FSA INS)/(Original Issue
Yield: 5.12%), 8/1/2019 AAA 2,879,910
4,000,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series A), 7.375% (Medical College of Pennsylvania)/(United States
Treasury PRF)/(Original Issue Yield: 7.45%), 3/1/2021 AAA 4,378,240
200,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series L), 5.50% (State System of Higher Education, Commonwealth of
PA)/(AMBAC INS)/(Original Issue Yield: 5.55%), 6/15/2005 AAA 216,028
2,000,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds
(Series N), 5.875% (MBIA INS)/(Original Issue Yield: 5.913%), 6/15/2021 AAA 2,132,880
2,000,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds,
6.375% (Drexel University)/(Original Issue Yield: 6.415%), 5/1/2017 A- 2,163,740
750,000 Pennsylvania State Higher Education Facilities Authority, Revenue Bonds,
6.80% (MBIA LOC)/(Original Issue Yield: 6.85%), 6/15/2001 AAA 784,193
1,500,000 Pennsylvania State Higher Education Facilities Authority, University
Revenue Bonds (Series 1997), 5.45% (University of the Arts)/
(Asset Guaranty INS)/(Original Issue Yield: 5.58%), 3/15/2017 AA 1,531,785
500,000 Pennsylvania State IDA, Economic Development Revenue Bonds (Series A),
6.80% (Original Issue Yield: 6.85%), 1/1/2001 AAA 529,930
$ 2,000,000 Pennsylvania State Turnpike Commission, Oil Franchise Tax Senior Revenue
Bonds (Series 1998A), 5.00% (AMBAC INS)/ (Original Issue Yield: 5.20%),
12/1/2023 AAA $ 1,973,280
1,000,000 Pennsylvania State Turnpike Commission, Refunding Revenue Bonds (Series
L), 6.00% (MBIA INS)/(Original Issue Yield: 6.85%), 6/1/2015 AAA 1,067,060
125,000 Perkiomen Valley School District, PA, UT GO Bonds, 5.50%, 2/1/2004 A1 132,617
300,000 Philadelphia, PA, Gas Works, Revenue Bonds (14th Series), 5.50%
(FSA INS)/(Original Issue Yield: 6.10%), 7/1/2004 AAA 321,975
1,500,000 Philadelphia, PA, Gas Works, Revenue Bonds, 5.80% (Original Issue Yield:
5.90%), 7/1/2001 BBB 1,562,910
500,000 Philadelphia, PA, Gas Works, Revenue Bonds, 7.40%, 6/15/2000 BBB 523,395
2,565,000 Philadelphia, PA, Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series 1997), 5.50% (Temple University
Hospital)/(Original Issue Yield: 5.85%), 11/15/2015 BBB+ 2,568,591
1,655,000 Philadelphia, PA, Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series 1997), 5.75% (Jeanes Hospital,
PA)/(Original Issue Yield: 5.80%), 7/1/2008 BBB+ 1,734,572
1,700,000 Philadelphia, PA, Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series 1997), 5.875% (Jeanes Hospital,
PA)/(Original Issue Yield: 6.10%), 7/1/2017 BBB+ 1,733,524
325,000 Philadelphia, PA, Hospitals & Higher Education Facilities Authority,
Refunding Revenue Bonds, 6.15% (Pennsylvania Hospital)/(Original Issue
Yield: 6.25%), 7/1/2005 Baa3 361,787
250,000 Philadelphia, PA, Hospitals & Higher Education Facilities Authority,
Revenue Bonds, 7.75% (Children's Seashore House, PA)/(AMBAC INS),
8/15/2000 (@100) AAA 266,023
1,245,000 Philadelphia, PA, Redevelopment Authority, Multifamily Housing Refunding
Revenue Bonds (Series 1998), 5.45% (Woodstock Mutual Homes, Inc.)/(FHA
INS)/(Original Issue Yield: 5.468%), 2/1/2023 Aa2 1,255,172
1,000,000 Philadelphia, PA, Water & Sewer, Revenue Bonds, 7.40%, 8/1/1999 BBB 1,018,140
4,000,000 Philadelphia, PA, (Series 1995A) Airport Revenue Bonds,
6.10% (Philadelphia, PA, Airport System)/(AMBAC
INS)/(Original Issue Yield:
6.40%), 6/15/2025 AAA 4,333,240
9,500,000 Philadelphia, PA, Airport Revenue Bonds (Series 1997B), 5.50%
(Philadelphia, PA, Airport System)/(AMBAC INS)/(Original Issue Yield:
5.65%), 6/15/2017 AAA 9,858,720
910,000 Philadelphia, PA, Refunded Revenue Bonds, 10.875%, 7/1/2005 (@100) Aaa 1,130,620
765,000 Pittsburgh, PA, Urban Redevelopment Authority, Mortgage Revenue Bonds
(Series 1997A), 6.15%, 10/1/2016 AAA 815,911
420,000 Pittsburgh, PA, Urban Redevelopment Authority, Mortgage Revenue Bonds
(Series 1997C), 5.35%, 10/1/2009 AAA 436,304
$ 1,260,000 Pittsburgh, PA, Urban Redevelopment Authority, Mortgage Revenue Bonds
(Series 1997C), 5.90%, 10/1/2022 AAA $ 1,325,848
1,430,000 Pittsburgh, PA, Urban Redevelopment Authority, Revenue Bonds, 5.45% (FGIC
INS)/(PNC Bank, N.A. LOC), 6/1/2028 AAA 1,478,734
1,000,000 Pittsburgh, PA, Water & Sewer Authority, Series A Revenue Bonds, 6.50%
(FGIC LOC)/(Original Issue Yield: 6.60%), 9/1/2001 AAA 1,073,960
2,000,000 Pittsburgh, PA, Water & Sewer Authority, Water & Sewer System Revenue
Bonds (Series C), 5.25% (FSA INS), 9/1/2022 AAA 2,027,940
4,950,000 Pottsville, PA, Hospital Authority, Hospital Revenue Bonds, 5.625%
(Pottsville Hospital and Warne Clinic)/(Original Issue Yield: 5.75%),
7/1/2024 BBB 4,828,874
1,000,000 Schuylkill, PA, Redevelopment Authority, Revenue Bonds, 6.75% (FGIC LOC),
6/1/2002 AAA 1,084,100
2,500,000 Scranton-Lackawanna, PA, Health & Welfare Authority, Revenue Bonds (Series
1994-A), 7.60% (Allied Services Rehabilitation Hospitals, PA), 7/15/2020 NR 2,764,800
1,000,000 Seneca Valley, PA, School District, Refunding UT GO Bonds (Series 1998AA),
5.15% (FGIC INS)/(Original Issue Yield: 5.20%), 2/15/2020 AAA 1,004,620
2,090,000 Shaler, PA, School District Authority, GO UT Bonds, 6.25%, 4/15/2008 AAA 2,285,791
2,650,000 Sharon, PA, General Hospital Authority, Hospital Revenue Bonds, 6.875%
(Sharon Regional Health System), 12/1/2022 AAA 2,993,573
125,000 Solanco, PA, School District, UT GO Bonds, 5.60% (FGIC INS), 2/15/2004 AAA 135,013
2,000,000 Somerset County, PA, Hospital Authority, Hospital Refunding Revenue Bonds
(Series 1997B), 5.375% (Somerset Community Hospital)/(Asset Guaranty
INS)/(Original Issue Yield: 5.68%), 3/1/2017 AA 2,038,760
2,000,000 Southeastern, PA, Transportation Authority, Special Revenue Bonds (Series
1999A), 5.00% (FGIC INS)/(Original Issue Yield: 5.03%), 3/1/2020 AAA 1,980,740
2,000,000 Southeastern, PA, Transportation Authority, Special Revenue Bonds, 5.375%
(FGIC INS)/(Original Issue Yield: 5.70%), 3/1/2017 AAA 2,072,060
8,000,000 Southeastern, PA, Transportation Authority, Special Revenue Bonds, 5.375%
(FGIC INS)/(Original Issue Yield: 5.75%), 3/1/2022 AAA 8,237,200
100,000 Spring Ford, PA, School District, UT GO Refunding Bonds (Series AA), 5.80%
(FGIC INS), 8/1/2005 AAA 103,191
500,000 State Public School Building Authority, PA, College Revenue Bonds, 6.50%
(Harrisburg Area Community College-D)/(MBIA LOC), 4/1/2002 AAA 541,125
40,000 Swarthmore Boro Authority PA, Refunded Revenue Bonds, 6.00% (Original Issue
Yield: 6.10%), 9/15/2006 AA+ 43,858
160,000 Swarthmore Boro Authority PA, Unrefunded Revenue Bonds, 6.00% (Original
Issue Yield: 6.10%), 9/15/2006 AA+ 174,112
$ 1,000,000 University of Pittsburgh, Higher Education Refunding Revenue Bonds (Series
A), 6.40% (MBIA INS), 4/1/2000 AAA $ 1,019,070
7,000,000 University of Pittsburgh, University Refunding Revenue Bonds (Series
1997B), 5.00% (MBIA INS)/(Original Issue Yield: 5.287%), 6/1/2017 AAA 7,002,240
3,000,000 Upper Darby School District, PA, UT GO Bonds, 5.00% (AMBAC INS)/(Original
Issue Yield: 5.10%), 5/1/2019 Aaa 2,979,060
1,000,000 Warren County, PA, Hospital Authority, Revenue Bonds (Series A), 7.00%
(Warren General Hospital, PA)/(Original Issue Yield: 7.101%), 4/1/2019 BBB 1,089,850
185,000 Warren County, PA, School District, UT GO Bonds, 5.85% (FGIC INS), 9/1/2001 AAA 187,760
110,000 Warren County, PA, School District, UT GO Bonds, 6.10% (FGIC INS), 9/1/2003 AAA 111,781
680,000 Washington County, PA, Authority, Lease Revenue Bonds, 7.00% (AMBAC INS),
6/15/2000 (@103) AAA 724,696
400,000 Washington County, PA, Authority, Lease Revenue Bonds, 7.875%, 12/15/2018 AAA 546,876
2,675,000 West Mifflin, PA, Sanitary Sewer Municipal Authority, Revenue Bonds, 5.00%
(MBIA INS)/(Original Issue Yield: 5.21%), 8/1/2028 AAA 2,624,362
1,000,000 West View, PA, Municipal Authority, Special Obligation Bonds, 9.50%,
11/15/2014 AAA 1,416,630
740,000 Westmoreland County, PA, Municipal Authority, Special Obligation Bonds,
9.125%, 7/1/2010 AAA 878,387
TOTAL 273,080,093
Puerto Rico--0.9%
1,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest
Tax-Exempt Securities (Series PA, 331A), 8.76% (AMBAC INS), 7/1/2013 NR 1,201,800
1,000,000 Puerto Rico Highway and Transportation Authority, Residual Interest
Tax-Exempt Securities (Series PA, 331B), 8.76% (AMBAC INS), 7/1/2014 NR 1,190,680
TOTAL 2,392,480
Virgin Islands--0.0%
$ 75,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A), 5.80% (GNMA
COL), 3/1/2005 AAA $ 78,411
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $261,767,456) 275,550,984
SHORT-TERM MUNICIPALS0.2%
700,000 Puerto Rico Government Development Bank (GDB) Weekly VRDNs (MBIA
INS)/(Credit Suisse First Boston LIQ) (at amortized cost) AA 700,000
TOTAL INVESTMENTS (IDENTIFIED COST $262,467,456)/2/ $276,250,984
</TABLE>
Securities that are subject to alternative minimum tax represent 16.7% of the
portfolio as calculated based upon total portfolio market value.
1 Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
2 The cost of investments for federal tax purposes amounts to $262,467,456. The
net unrealized appreciation of investments on a federal tax basis amounts to
$13,783,528 which is comprised of $14,185,967 appreciation and $402,439
depreciation at February 28, 1999.
Note: The categories of investments are shown as a percentage of net assets
($277,585,208) at February 28, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation COL -- Collateralized
EDFA -- Economic Development Financing Authority FGIC -- Financial Guaranty
Insurance Company FHA -- Federal Housing Administration 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 HFA -- Housing Finance 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
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified and tax cost $262,467,456) $ 276,250,984
Cash 8,828
Income receivable 4,171,342
Receivable for investments sold 15,000
Receivable for shares sold 621,716
TOTAL ASSETS 281,067,870
Liabilities:
Payable for investments purchased $ 2,920,856
Payable for shares redeemed 52,732
Income distribution payable 455,788
Accrued expenses 53,286
TOTAL LIABILITIES 3,482,662
Net Assets for 23,390,709 shares outstanding $ 277,585,208
Net Assets Consist of:
Paid in capital $ 264,143,431
Net unrealized appreciation of investments 13,783,528
Accumulated net realized loss on investments (55,441)
Distributions in excess of net investment income (286,310)
TOTAL NET ASSETS $ 277,585,208
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($237,503,544 / 20,013,550 shares outstanding) $11.87
Offering Price Per Share (100/95.50 of $11.87)/1/ $12.43
Redemption Proceeds Per Share $11.87
Class B Shares:
Net Asset Value Per Share ($40,081,664 / 3,377,159 shares outstanding) $11.87
Offering Price Per Share $11.87
Redemption Proceeds Per Share (94.50/100 of $11.87)/2/ $11.22
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 7,537,590
Expenses:
Investment advisory fee $ 544,158
Administrative personnel and services fee 102,574
Custodian fees 5,986
Transfer and dividend disbursing agent fees and expenses 52,783
Directors'/Trustees' fees 2,715
Auditing fees 8,145
Legal fees 2,715
Portfolio accounting fees 51,287
Distribution services fee Class B Shares 131,440
Shareholder services fee Class A Shares 296,286
Shareholder services fee Class B Shares 43,813
Share registration costs 16,833
Printing and postage 17,376
Insurance premiums 2,172
Miscellaneous 3,439
TOTAL EXPENSES 1,281,722
Waivers:
Waiver of investment advisory fee $ (96,792)
Waiver of Shareholder services fee--Class A Shares (23,703)
TOTAL WAIVERS (120,495)
Net expenses 1,161,227
Net investment income 6,376,363
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 155,789
Net change in unrealized appreciation of investments (2,871,021)
Net realized and unrealized loss on investments (2,715,232)
Change in net assets resulting from operations $ 3,661,131
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
(unaudited) Ended
February 28, August 31,
1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 6,376,363 $ 11,625,708
Net realized gain on investments ($155,789 and $2,643,156, respectively, as 155,789 2,643,156
computed for federal tax purposes)
Net change in unrealized appreciation of investments (2,871,021) 6,503,027
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3,661,131 20,771,891
Distributions to Shareholders:
Distributions from net investment income
Class A Shares (5,601,812) (11,176,550)
Class B Shares (702,736) (807,283)
Distributions from net realized gains
Class A Shares (1,929,442) (692,628)
Class B Shares (280,378) (44,936)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (8,514,368) (12,721,397)
Share Transactions:
Proceeds from sale of shares 26,957,876 53,698,762
Net asset value of shares issued to shareholders in payment of distributions 5,010,732 7,262,803
declared
Net asset value of shares issued in connection with the acquisition of Federated -- 20,752,947
Pennsylvania Intermediate Municipal Trust
Cost of shares redeemed (17,864,183) (42,128,847)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 14,104,425 39,585,665
Change in net assets 9,251,188 47,636,159
Net Assets:
Beginning of period 268,334,020 220,697,861
End of period $ 277,585,208 $ 268,334,020
</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,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning $ 12.08 $ 11.71 $ 11.35 $ 11.23 $ 10.94 $ 11.68
of Period
Income from Investment Operations:
Net investment income 0.29 0.62 0.62 0.65 0.65 0.60
Net realized and unrealized gain (0.12) 0.43 0.39 0.12 0.27 (0.75)
(loss) on investments
TOTAL FROM INVESTMENT OPERATIONS 0.17 1.05 1.01 0.77 0.92 (0.15)
Less Distributions:
Distributions from net (0.28) (0.64) (0.65) (0.65) (0.63) (0.59)
investment income
Distributions from net realized (0.10) (0.04) -- -- -- --
gain on investments
TOTAL DISTRIBUTIONS (0.38) (0.68) (0.65) (0.65) (0.63) (0.59)
Net Asset Value, End of Period $ 11.87 $ 12.08 $ 11.71 $ 11.35 $ 11.23 $ 10.94
Total Return/1/ 1.41% 8.72% 9.12% 6.99% 8.76% (1.34%)
Ratios to Average Net Assets:
Expenses 0.75%/2/ 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income 4.78%/2/ 4.84% 5.34% 5.73% 5.92% 5.27%
Expense waiver/reimbursement3 0.09%/2/ 0.10% 0.22% 0.25% 0.28% 0.45%
Supplemental Data:
Net assets, end of period $237,503 $237,705 $212,792 $84,116 $83,722 $85,860
(000omitted)
Portfolio turnover 5% 24% 30% 23% 59% 17%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 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) Year Ended
February 28, August 31,
1999 1998 1997/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.08 $ 11.71 $11.52
Income from Investment Operations:
Net investment income 0.24 0.54 0.30
Net realized and unrealized gain (loss) on investments (0.11) 0.42 0.20
TOTAL FROM INVESTMENT OPERATIONS 0.13 0.96 0.50
Less Distributions:
Distributions from net investment income (0.24) (0.55) (0.31)
Distributions from net realized gain on investments (0.10) (0.04)
TOTAL DISTRIBUTIONS (0.34) (0.59) (0.31)
Net Asset Value, End of Period $ 11.87 $ 12.08 $11.71
Total Return/2/ 1.02% 7.92% 4.41%
Ratios to Average Net Assets:
Expenses 1.53%/3/ 1.53% 1.25%/3/
Net investment income 4.03%/3/ 4.06% 4.62%/3/
Expense waiver/reimbursement/4/ 0.07%/3/ 0.08% 0.47%/3/
Supplemental Data:
Net assets, end of period (000omitted) $40,082 $30,629 $7,906
Portfolio turnover 5% 24% 30%
</TABLE>
1 Reflects operations for the period from March 4, 1997 (date of initial public
investment) to August 31, 1997.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 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
FEBRUARY 28, 1999 (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 March 20, 1998, the Fund acquired all the net assets of the Federated
Pennsylvania Intermediate Municipal Trust ("Acquired Fund") pursuant to a plan
of reorganization approved by the Acquired Fund's shareholders. The acquisition
was accomplished by a tax-free exchange of 1,735,196 Class A Shares of the Fund
(valued at $20,752,947) for the 1,988,867 Shares of the Acquired Fund
outstanding on March 20, 1998. The Acquired Fund's net assets of $20,771,587
(which consist of $20,070,707 of Paid in Capital and $700,880 of unrealized
appreciation; and $4,659 of net realized loss on investments) were combined with
those of the Fund. The aggregate net assets of the Fund and the Acquired Fund
immediately before the acquisition were $239,150,801 and $20,111,587,
respectively. Immediately after the acquisition, the combined aggregate net
assets of the Fund were $259,922,388.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short- term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date. These distributions from net investment income do not represent a return
of capital for federal tax purposes.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $22,390, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2003 $ 7,562
2004 14,828
</TABLE>
When-Issued and Delayed
Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 Ended Year Ended
February 28, 1999 August 31, 1998
Class A Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,302,843 $ 15,675,294 2,592,539 $ 30,277,416
Shares issued to shareholders in payment of distributions 364,038 4,356,759 566,650 6,739,691
declared
Shares issued in connection with the acquisition of -- -- 1,735,196 20,752,947
Federated Pennsylvania Intermediate Municipal Trust
Shares redeemed (1,334,681) (16,041,400) (3,391,170) (40,368,961)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS 332,200 $ 3,990,653 1,503,215 $ 17,401,093
<CAPTION>
Six Months Ended Year Ended
February 28, 1999 August 31, 1998
Class B Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 938,534 $ 11,282,582 1,964,044 $ 23,421,346
Shares issued to shareholders in payment of distributions 54,667 653,973 43,929 523,112
declared
Shares redeemed (151,887) (1,822,783) (147,500) (1,759,886)
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS 841,314 $ 10,113,772 1,860,473 $ 22,184,572
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 1,173,514 $ 14,104,425 3,363,688 $ 39,585,665
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Investment Management Company (formerly, 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, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A
and Class B shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
Share Class Name Percentage of
Average Daily Net
Assets of Class
<S> <C>
Class A Shares 0.40%
Class B Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
Class A did not incur a distribution services fee for the period ended
February 28, 1999, and has no present intention of paying or accruing a
distribution services fee.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 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, 1999, 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 and amounted to $34,772,450 and $32,465,000,
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, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $29,471,706
Sales $14,287,325
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
February 28, 1999, 53.5% 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 value of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 17.2% of total investments.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President, Treasurer, and Secretary
J. SCOTT ALBRECHT
Vice President
RICHARD J. THOMAS
Treasurer
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.
Notes
Notes
Notes
[FEDERATED LOGO]
Federated Pennsylvania Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 625922505
Cusip 625922836
2032304 (4/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLED LOGO]
[FEDERATED LOGO]
World-Class Investment Manager
Federated
Pennsylvania
Municipal
Income Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1999
