1933 Act File No. 33-36729
1940 Act File No. 811-6165
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. .................................
Post-Effective Amendment No. 30 ................................ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 29 ............................................... X
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FEDERATED MUNICIPAL SECURITIES INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b) X on OCTOBER 29, 1999,
pursuant to paragraph (b) _ 60 days after filing pursuant to paragraph (a)(i)
on _________________ pursuant to paragraph (a)(i) 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, DC 20037
PROSPECTUS
Federated California Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
A mutual fund seeking 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 California
and California municipalities by investing primarily in a portfolio of
long-term, investment grade California tax exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities
in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 8
What Do Shares Cost? 9
How is the Fund Sold? 12
How to Purchase Shares 12
How to Redeem and Exchange Shares 14
Account and Share Information 16
Who Manages the Fund? 17
Financial Information 18
Independent Auditors' Report 34
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of
California and California municipalities. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of California and California
municipalities. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations (AMT). The
Fund's portfolio securities will be primarily long-term, investment grade
securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
INTEREST RATE RISKS
Prices of tax exempt securities generally fall when interest rates rise.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below their current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from California, the Fund may be
subject to additional risks compared to funds that invest in multiple states.
California's economy is dependent upon high technology, entertainment, trade and
construction. A downturn in any of these industries could have a negative impact
on the economy of the state. Moreover, the ability of California state and local
governments to issue debt and raise taxes is limited by certain initiatives.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect payment
of any sales charges or recurring shareholder account fees. If these charges or
fees had been included, the returns shown would have been lower.
The Fund's Class A Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was (2.99%).
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 9.04% (quarter ended March 31, 1995). Its lowest quarterly
return was (7.76%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares and Class B Shares
Average Annual Total Returns, reduced to reflect applicable sales charges, for
the calendar periods ended December 31, 1998. The table shows the Fund's total
returns averaged over a period of years relative to Lehman Brothers Revenue Bond
Index (LBRBI) and Lehman Brothers Municipal Bond Index (LBMBI), both broad-based
market indexes. The LBRBI is a total return performance benchmark for the
long-term, investment grade, revenue bond market. The LBMBI is a broad market
performance benchmark for the tax exempt bond market. To be included in the
LBMBI, bonds must have a minimum credit rating of Baa. Total returns for the
indexes shown do not reflect sales charges, expenses or other fees that the SEC
requires to be reflected in the Fund's performance. Indexes are unmanaged, and
it is not possible to invest directly in an index.
CLASS A CLASS B
CALENDAR PERIOD SHARES SHARES LBRBI LBMBI
1 Year 0.63% 0.13% 6.33% 6.22%
5 Years 4.86% N/A 6.39% 6.49%
Start of Performance 1 6.66% 2.12% 7.56% N/A
1 The Fund's start of performance dates for Class A Shares and Class B Shares
were December 2, 1992 and December 1, 1997, respectively.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
SHAREHOLDER FEES CLASS A CLASS B
<S> <C> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) None 5.50%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage of offering
price) None None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursements) 1 Expenses
That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.40% 0.40%
Distribution (12b-1) Fee 3 0.25% 0.75%
Shareholder Services Fee 0.25% 0.25%
Other Expenses 4 0.67% 0.67%
Total Annual Fund
Operating Expenses 1.57% 2.07% 5
1 Although not contractually obligated to do so, the adviser and distributor
waived and reimbursed certain amounts. These are shown
below along with the net expenses the Fund actually paid for the fiscal year
ended August 31, 1999.
Total Waivers and
Reimbursements of Fund
Expenses 1.07% 0.82%
Total Actual Annual Fund
Operating Expenses (after
waivers and
reimbursements) 0.50% 1.25%
2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. The management fee paid by the Fund (after
the voluntary waiver) was 0.00% for the fiscal year ended August 31, 1999.
3 The distributor voluntarily waived the distribution (12b-1) fee for the Class
A Shares. The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Fund's Class A Shares (after the voluntary
waiver) was 0.00% for the fiscal year ended August 31, 1999.
4 The adviser has voluntarily reimbursed other operating expenses of the Fund.
The adviser can terminate this voluntary reimbursement of other operating
expenses at any time. Total other operating expenses paid by the Fund for Class
A Shares and Class B Shares (after the voluntary reimbursement) were 0.25% and
0.25%, respectively, for the fiscal year ended August 31, 1999.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A Shares and Class B Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Class A Shares and
Class B Shares for the time periods indicated and then redeem all of your Shares
at the end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A Shares and Class B Shares operating expenses are BEFORE WAIVERS
AND REIMBURSEMENTS as shown in the table and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS A
Expenses assuming redemption $603 $923 $1,267 $2,233
Expenses assuming no redemption $603 $923 $1,267 $2,233
CLASS B
Expenses assuming redemption $760 $1,049 $1,134 $2,385
Expenses assuming no redemption $210 $649 $1,114 $2,340
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of California and California
municipalities. As a matter of operating policy, the Fund ordinarily will invest
so that 100% of its annual interest income is exempt from such taxes. Interest
income from the Fund's investments may be subject to AMT.
The Fund invests at least 65% of its assets in investment grade securities. The
Fund does not limit itself to securities of a particular maturity range, but
currently focuses on long-term securities with maturities greater than 10 years.
The Fund's investment adviser (Adviser) actively manages the Fund's portfolio,
seeking to manage the interest rate risk and credit risk assumed by the Fund and
to provide superior levels of after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings;
* the financial condition of the issuer or guarantor; and
* political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use futures contracts that cover a narrow range of circumstances
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the state of California and California municipalities. It
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by California issuers or credit enhanced by insurance companies or companies
with similar characteristics. As a result, the Fund will be more susceptible to
any economic, business, political or other developments which generally affect
these entities.
California's economy is dependent upon high technology, entertainment, trade and
construction. A downturn in any of these industries could have a negative impact
on the economy of the state. Moreover, the ability of California state and local
governments to issue debt and raise taxes is limited by certain initiatives.
Specifically, Proposition 13 limits the valuation of real property for tax
purposes and the power of local authorities to increase property tax rates and
revenues; Proposition 62 requires that a majority of voters approve new general
taxes; and Proposition 218 requires two-thirds voter approval for the imposition
of new special taxes. Finally, since many local revenues are dependent upon real
property taxation, fluctuations in real estate prices can affect local revenues.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater interest rate, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic and financial
setbacks may affect their prices more negatively, and their trading market may
be more limited. The Fund may invest up to 35% of its assets in noninvestment
grade securities.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
recorded any credit ratings, have recorded ratings below investment grade or are
not widely held.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
MINIMUM MAXIMUM SALES CHARGE
INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED
INVESTMENT SALES SALES
SHARES OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
Class A $1,500/$100 4.50% 0.00%
Class B $1,500/$100 None 5.50%
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund. Orders for
$250,000 or more will be invested in Class A Shares instead of Class B Shares to
maximize your return and minimize the sales charges and marketing fees. Accounts
held in the name of an investment professional may be treated differently. Class
B Shares will automatically convert into Class A Shares after eight full years
from the purchase date. This conversion is a non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
CLASS A SHARES
SALES CHARGE
AS A PERCENTAGE SALES CHARGE
OF PUBLIC AS A PERCENTAGE
PURCHASE AMOUNT OFFERING PRICE OF NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than
$1 million 2.00% 2.04%
$1 million or greater 1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. To determine whether your Contingent Deferred Sales Charge
may be waived, see "Sales Charge When You Redeem."
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
* within 120 days of redeeming Shares of an equal or lesser amount;
* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
* through wrap accounts or other investment programs where you pay the
investment professional directly for services;
* through investment professionals that receive no portion of the sales
charge;
* as a Federated Life Member (Class A Shares only) and their immediate
family members; or
* as a Trustee, Director or employee of the Fund, the Adviser, the Distributor
and their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor at the
time of purchase. If the Distributor is not notified, you will receive the
reduced sales charge only on additional purchases, and not retroactively on
previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS A SHARES
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
<TABLE>
<CAPTION>
CLASS B SHARES
Shares Held Up To: CDSC
<S> <C>
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
</TABLE>
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* purchased through investment professionals who did not receive advanced
sales payments;
* if, after you purchase Shares, you become disabled as defined by the IRS;
* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement; or
* upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers two share classes: Class A Shares and Class B Shares, each
representing interests in a single portfolio of securities.
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions, such as
broker/dealers, banks, fiduciaries or investment advisers, or to individuals,
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-California taxpayers because it
invests in California municipal securities.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares and Class B Shares. Because
these Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check) you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you
purchased Shares through an investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration; * amount
to be redeemed or exchanged; * signatures of all shareholders exactly as
registered; and * IF EXCHANGING, the Fund Name and Share Class, account number
and account registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of record; *
your redemption will be sent to an address of record that was changed within the
last 30 days; * a redemption is payable to someone other than the shareholder(s)
of record; or * IF EXCHANGING (TRANSFERRING) into another fund with a different
shareholder registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is an
ACH member; or * wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
* ensure that the account registrations are identical; * meet any minimum
initial investment requirements; and * receive a prospectus for the fund into
which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Class A Shares subject to
a sales charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES
You will not be charged a CDSC on SWP redemptions if:
* you redeem 12% or less of your account value in a single year; * you reinvest
all dividends and capital gains distributions; and * your account has at least a
$10,000 balance when you establish the SWP. (You cannot aggregate multiple Class
B Share accounts to meet this minimum balance.)
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated
California Municipal Income Fund's dividends will be exempt from the California
taxes discussed above to the extent they are derived from interest on
obligations exempt from such taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
LEE R. CUNNINGHAM II
Lee R. Cunningham II has been a portfolio manager of the Fund since
May 1998. Mr. Cunningham joined Federated in 1995 as an Investment Analyst
and has been a Portfolio Manager since 1998. He was named an Assistant Vice
President of the Fund's Adviser in January 1998. From 1986 through 1994,
Mr. Cunningham was a Project Engineer with Pennsylvania Power and Light
Company. Mr. Cunningham received his M.B.A. with concentrations in finance
and operations from the University of Pittsburgh.
MARY JO OCHSON
Mary Jo Ochson has been the Fund's portfolio manager since April 1997.
Ms. Ochson joined Federated in 1982 and has been a Senior Portfolio Manager
and a Senior Vice President of the Fund's Adviser since 1996. From 1988
through 1995, Ms. Ochson served as a Portfolio Manager and a Vice President
of the Fund's Adviser. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in
this prospectus.
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 34.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.13 $10.73 $10.27 $10.13 $10.01
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.52 0.53 0.55 0.58 0.59
Net realized and
unrealized gain (loss) on
investments (0.64) 0.40 0.46 0.14 0.12
TOTAL FROM INVESTMENT
OPERATIONS (0.12) 0.93 1.01 0.72 0.71
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.52) (0.53) (0.55) (0.58) (0.59)
NET ASSET VALUE, END OF
PERIOD $10.49 $11.13 $10.73 $10.27 $10.13
TOTAL RETURN 1 (1.20%) 8.84% 10.11% 7.21% 7.48%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.57% 2.11% 2.63% 2.98% 2.96%
Net investment income 2 3.63% 3.42% 3.28% 3.23% 3.63%
Expenses (after waivers
and reimbursements) 0.50% 0.69% 0.66% 0.60% 0.55%
Net investment income
(after waivers
and reimbursements) 4.70% 4.84% 5.25% 5.61% 6.04%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $28,054 $28,792 $22,000 $17,148 $14,400
Portfolio turnover 35% 6% 29% 21% 63%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated. See Notes which are an integral part of the
Financial Statements Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 34.
<TABLE>
<CAPTION>
YEAR ENDED 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 0.44 0.33
Net realized and
unrealized gain (loss) on
investments (0.64) 0.26
TOTAL FROM INVESTMENT
OPERATIONS (0.20) 0.59
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.44) (0.33)
NET ASSET VALUE, END OF
PERIOD $10.49 $11.13
TOTAL RETURN 2 (1.92%) 5.53%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 2.07% 2.56% 4
Net investment income 3 3.14% 2.98% 4
Expenses (after waivers
and reimbursements) 1.25% 1.40% 4
Net investment income
(after waivers and
reimbursements) 3.96% 4.14% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $35,594 $10,020
Portfolio turnover 35% 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 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-85.9%
CALIFORNIA-84.7%
$ 500,000 ABAG Finance Authority for
Non-Profit Corporations,
Refunding Revenue
Certificates of
Participation, 5.125%
(Episcopal Homes
Foundation)/(Original
Issue Yield: 5.35%),
7/1/2018 A- $ 461,325
2,000,000 Alameda Corridor
Transportation Authority,
CA, Senior Lien Revenue
Bonds (Series 1999A),
5.125% (MBIA INS),
10/1/2018 AAA 1,913,100
500,000 Anaheim, CA, Public
Financing Authority, Lease
Revenue Bonds
(Series 1997C), 6.00%
(Anaheim Public
Improvements Project),
(FSA INS)/ 9/1/2010 AAA 545,675
500,000 Anaheim, CA, Public
Financing Authority, Lease
Revenue Bonds
(Series 1997C), 6.00%
(Anaheim Public
Improvements Project),
9/1/2016 AAA 535,120
995,000 Antioch, CA, Public
Financing Authority,
Reassessment Revenue Bonds
(Series 1998A), 5.00%
(AMBAC INS)/(Original
Issue Yield: 5.08%),
9/2/2018 AAA 926,265
1,000,000 Beverly Hills, CA, Public
Finance Authority, Lease
Revenue Bonds
(Series 1998A), 5.25%,
6/1/2028 AA 938,660
605,000 Blythe, CA, Financing
Authority, Sewer Revenue
Bonds (Series 1998),
5.75%, 4/1/2028 NR 574,913
500,000 Bonita Canyon, CA, Public
Facilities Financing
Authority, Community
Facilities District No.
98-1 Special Tax Bonds
(Series 1998), 5.375%
(Original Issue Yield:
5.50%), 9/1/2028 NR 446,940
1,000,000 California Educational
Facilities Authority,
Revenue Bonds (Series
1999A), 5.00% (Pepperdine
University)/(Original
Issue Yield: 5.05%),
11/1/2018 AA 920,580
1,000,000 California Educational
Facilities Authority,
Revenue Bonds (Series
1999B), 5.875% (Pomona
College), 7/1/2019 AAA 1,020,430
625,000 California Educational
Facilities Authority,
Revenue Bonds (Series B),
6.60% (Loyola Marymount
University), 10/1/2002
(@102) A1 681,781
1,000,000 California Educational
Facilities Authority,
Revenue Bonds (Series N),
5.35% (Stanford
University)/(Original
Issue Yield: 5.43%),
6/1/2027 AAA 957,450
600,000 California Educational
Facilities Authority,
Revenue Bonds, 6.70%
(Southwestern
University)/(Original
Issue Yield: 6.838%),
11/1/2024 A3 651,120
500,000 California Educational
Facilities Authority,
Student Loan Revenue Bonds
(Series 1998), 5.55%
(AMBAC INS), 4/1/2028 AAA 493,970
675,000 California HFA, SFM
Revenue Bonds (Series C),
6.75%, 2/1/2025 AA- 699,415
745,000 California HFA, SFM
Revenue Bonds (Series F-
1), 7.00%, 8/1/2026 AA- 783,569
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 1,000,000 California Health
Facilities Financing
Authority, Insured Health
Facilities Refunding
Revenue Bonds (Series
1997), 5.50% (Valley Care
Hospital
Corp.)/(California
Mortgage Insurance
INS)/(Original Issue
Yield: 5.737%), 5/1/2020 AA- $ 961,150
500,000 California Health
Facilities Financing
Authority, Insured Health
Facility Revenue Bonds
(Series 1998A), 5.25%
(Casa De Las Campanas)/
(California Mortgage
Insurance INS)/(Original
Issue Yield: 5.35%),
8/1/2020 A+ 463,760
1,000,000 California Health
Facilities Financing
Authority, Revenue Bonds
(Series 1998), 5.40%
(Northern California
Presbyterian Homes,
Inc.)/(Original Issue
Yield: 5.417%), 7/1/2028 A- 917,460
1,000,000 California Health
Facilities Financing
Authority, Revenue Bonds
(Series 1998B), 5.00%
(Kaiser
Permanente)/(Original
Issue Yield: 5.20%),
10/1/2020 A 896,060
400,000 California Health
Facilities Financing
Authority, Revenue Bonds
(Series A), 6.50% (Kaiser
Permanente Medical Care
Program)/(Original Issue
Yield: 7.097%), 12/1/2020 A 420,780
700,000 California Health
Facilities Financing
Authority, Revenue
Refunding Bonds (1996
Series A), 6.00% (Catholic
Healthcare West)/(MBIA
INS)/ (Original Issue
Yield: 6.15%), 7/1/2017 AAA 723,429
900,000 California PCFA, Exempt
Facilities Revenue Bonds
(Series 1996), 5.50%
(Mobil Corp.)/(Original
Issue Yield: 5.72%),
12/1/2029 AA 863,469
500,000 California PCFA, PCR
Revenue Bonds (Series B),
6.40% (Southern California
Edison Co.)/ (Original
Issue Yield: 6.55%),
12/1/2024 A+ 526,990
900,000 California PCFA, Sewer &
Solid Waste Disposal
Revenue Bonds, 5.75%
(Anheuser-Busch Cos.,
Inc.)/(Original Issue
Yield: 5.818%), 12/1/2030 A+ 900,198
700,000 California PCFA, Solid
Waste Disposal Revenue
Bonds, 6.875% (Browning-
Ferris Industries,
Inc.)/(Original Issue
Yield: 6.95%), 11/1/2027 BB- 711,893
1,000,000 California PCFA, Solid
Waste Refunding Revenue
Bonds (Series 1999A),
5.125% (West County
Resource Recovery,
Inc.)/(Comerica Bank,
N.A., California
LOC)/(Original Issue
Yield: 5.323%), 1/1/2014 NR 932,520
970,000 California Rural Home
Mortgage Finance Authority, SFM Revenue Bonds, Series 1998 B-4,
5.75% (GNMA COL),
12/1/2029 AAA 1,015,338
1,000,000 California State Public
Works Board, Lease Revenue
Bonds
(Series 1998A), 4.875%
(Department of Forestry
and Fire Protection
Telecommunication Towers
and Vaults)/ (Original
Issue Yield: 5.01%),
10/1/2018 A 903,120
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 580,000 California State, GO UT
Bonds, 5.75% (Original
Issue Yield: 6.25%),
3/1/2019 A+ $ 622,595
20,000 California State, GO UT
Bonds, 5.75% (Original
Issue Yield: 6.25%),
3/1/2019 A+ 20,298
1,000,000 California State,
Refunding UT GO Bonds,
4.75% (Original Issue
Yield: 4.82%), 2/1/2016 AAA 915,000
500,000 California State,
Refunding UT GO Bonds,
5.00% (Original Issue
Yield: 5.06%), 2/1/2021 A+ 459,025
400,000 California Statewide
Communities Development
Authority, Certificates of
Participation, 5.25% (St.
Joseph Health System
Group, CA)/(Original Issue
Yield: 5.47%), 7/1/2021 AA 372,220
1,000,000 California Statewide
Communities Development
Authority, Certificates
of Participation, Series
1999, 5.375% (Internext
Group)/(Original Issue
Yield: 5.52%), 4/1/2017 BBB 931,590
600,000 California Statewide
Communities Development
Authority, Revenue
Certificates of
Participation, 6.625% (St.
Joseph Health System
Group, CA)/(Original Issue
Yield: 6.674%), 7/1/2021 AA 670,722
400,000 California Statewide
Communities Development
Authority, Special
Facilities Revenue Bonds,
5.625% (United Air
Lines)/(Original Issue
Yield: 5.75%), 10/1/2034 BB+ 367,500
500,000 Chula Vista, CA IDA,
Revenue Bonds (Series A),
6.40% (San Diego Gas &
Electric)/(Original Issue
Yield: 6.473%), 12/1/2027 AA- 524,685
1,000,000 Contra Costa County, CA
Public Financing
Authority, Tax Allocation
Revenue Bonds (Series
1999), 5.125% (Pleasant
Hill BART, North Richmond,
Bay Point, Oakley, and
Rodeo Redevelopment
Project Areas)/(Original
Issue Yield: 5.27%),
8/1/2019 BBB 907,130
2,000,000 Corona, CA Community
Facilities District No.
86-2, Refunding Special
Tax Allocation Bonds,
5.125% (AMBAC
INS)/(Original Issue
Yield: 5.37%), 9/1/2019 AAA 1,871,740
1,000,000 Eden Township, CA Hospital
District, Hospital Revenue
Bonds, 7.40% (Original
Issue Yield: 7.40%),
11/1/2019 (@102) BBB+ 1,026,120
500,000 El Dorado Cnty, CA Public
Agency Financing
Authority, Revenue Bonds,
5.50% (Original Issue
Yield: 5.85%), 2/15/2021 AAA 495,945
790,000 El Monte, CA Public
Financing Authority, Tax
Allocation Revenue Bonds
(Series 1998), 5.75% (El
Monte, CA Community
Redevelopment Agency),
6/1/2028 NR 746,621
700,000 Foothill/Eastern
Transportation Corridor
Agency, CA, (Series 1995A)
Senior Lien Toll Road
Revenue Bonds, 6.50%
(United States Treasury
GTD)/(Original Issue
Yield: 6.78%), 1/1/2032 BBB- 778,946
1,760,000 Fresno, CA Unified School
District, Refunding UT GO
Bonds
(Series 1999C), 5.90%,
2/1/2017 AAA 1,857,416
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 500,000 Inland Empire Solid Waste
Financing Authority, CA,
Revenue Bonds (Series B),
6.25% (FSA INS), 8/1/2011 AAA $ 538,560
2,750,000 Los Angeles County, CA,
Metropolitan
Transportation Authority,
Sales Tax Revenue Bonds
(Series 1993B), 4.75%
(AMBAC INS)/ (Original
Issue Yield: 5.35%),
7/1/2013 AAA 2,593,828
600,000 Los Angeles, CA, Community
Redevelopment Agency,
Housing Revenue Refunding
Bonds (Series A), 6.55%
(AMBAC INS), 1/1/2027 AAA 624,000
2,000,000 Los Angeles, CA, Unified
School District, UT GO
Bonds (Series C), 5.50%,
7/1/2013 AAA 2,046,560
1,000,000 Pico Rivera, CA, Water
Authority, Revenue Bonds,
5.50% (MBIA INS), 5/1/2019 AAA 998,130
460,000 Pomona, CA, Redevelopment
Agency, Tax Allocation
Bonds (Series 1998X), 5.40%
(Mountain Meadows
Redevelopment Project),
12/1/2024 BBB+ 424,014
900,000 Port of Oakland, CA,
Revenue Bonds (Series 1997G), 5.50% (MBIA INS)/ (Original Issue
Yield:
5.83%), 11/1/2017 AAA 892,278
1,000,000 Redlands, CA, Financing
Authority, Water Revenue
Refunding Bonds, Series A,
5.00% (FSA INS)/(Original
Issue Yield: 5.15%),
9/1/2015 AAA 963,210
1,000,000 Riverside County, CA,
Asset Leasing Corp.,
Leasehold Revenue Bonds
(Riverside County
Hospital)/(MBIA
INS)/(Original Issue
Yield: 5.98%), 6/1/2021 AAA 286,110
600,000 Sacramento, CA, Municipal
Utility District, Electric
Revenue Bonds (Series J),
5.50% (AMBAC
INS)/(Original Issue
Yield: 5.80%), 8/15/2021 AAA 595,074
1,500,000 San Francisco, CA, City &
County Airport Commission,
International Airport
Revenue Bonds (Series
18A), 5.00% (FGIC
INS)/(Original Issue
Yield: 5.24%), 5/1/2022 AAA 1,357,485
300,000 San Francisco, CA, City &
County Airport Commission,
Second Series Revenue
Bonds (Issue 12A), 5.90%
(San Francisco
International
Airport)/(Original Issue
Yield: 5.97%), 5/1/2026 A+ 302,085
1,000,000 Sierra Madre, CA,
Financing Authority, Tax
Increment Revenue
Refunding Bonds (Series
1998A), 5.00% (MBIA
INS)/(Original Issue
Yield: 5.35%), 11/1/2019 AAA 920,590
1,000,000 Sierra View Local Health
Care District, CA,
Refunding Revenue Bonds
(Series 1998), 5.25%
(American Capital Access
INS)/(Original Issue
Yield: 5.40%), 7/1/2018 A 933,600
400,000 Stockton, CA, Health
Facility Revenue Bonds
(Series 1997A), 5.70%
(Dameron Hospital
Association), 12/1/2014 BBB+ 387,688
500,000 Stockton, CA, Revenue
Certificates of Participation (Series 1998A), 5.00% (MBIA INS)/
(Original Issue Yield:
5.15%), 9/1/2023 AAA 456,055
700,000 University of California,
Research Facilities
Revenue Bonds (1995
Series B), 6.55%, 9/1/2024 A+ 773,626
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
CALIFORNIA-CONTINUED
$ 745,000 Vista, CA, Joint Powers
Financing Authority,
Revenue Bonds
(Series 1997B), 5.50%
(Original Issue Yield:
5.57%), 9/1/2020 NR $ 707,243
500,000 Watsonville, CA, Insured
Hospital Revenue Refunding
Bonds (Series 1996A),
6.20% (Watsonville
Community
Hospital)/(California
State INS)/(Original Issue
Yield: 6.225%), 7/1/2012 A+ 542,445
700,000 West Basin, CA, Municipal
Water District, Refunding
Revenue Certificates of
Participation (Series A),
5.375% (AMBAC
INS)/(Original Issue
Yield: 5.50%), 8/1/2014 AAA 697,837
1,000,000 West Sacramento, CA,
Limited Obligation
Refunding Improvement
Bonds, 5.60% (West
Sacramento Reassessment
District of
1998)/(Original Issue
Yield: 5.70%), 9/2/2017 NR 948,950
1,000,000 Whisman, CA, School
District, UT GO Bonds
(Series B) (MBIA INS)/
(Original Issue Yield:
5.48%), 8/1/2021 AAA 285,740
1,000,000 Whisman, CA, School District, UT GO Bonds (Series B) (MBIA INS)/
(Original Issue Yield:
5.48%), 8/1/2022 AAA 269,510
TOTAL 53,898,651
PUERTO RICO-1.2%
700,000 Puerto Rico Electric Power Authority, Revenue Bonds (Series T),
6.375% (Original Issue Yield:
6.58%), 7/1/2024 BBB+ 772,030
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST
$55,722,610) 54,670,681
SHORT-TERM INVESTMENTS-
14.0%
CALIFORNIA-10.1%
3,900,000 California PCFA, (Series
1996 E) Daily VRDNs
(Pacific Gas & Electric
Co.)/(Morgan Guaranty
Trust Co., New York LOC),
2.55%, 11/1/2026 AA+ 3,900,000
2,500,000 California PCFA, Series A
Daily VRDNs (Southern
California Edison Co.),
2.60%, 2/28/2008 A+ 2,500,000
TOTAL 6,400,000
PUERTO RICO-3.9%
2,500,000 Puerto Rico Commonwealth
Infrastructure Financing
Authority, Floater
Certificates (Series 1998-
139) Weekly VRDNs (AMBAC
INS)/(Morgan Stanley, Dean
Witter Municipal Funding,
Inc. LIQ), 2.99%, 7/1/2028 AAA 2,500,000
TOTAL SHORT-TERM
INVESTMENTS (AT AMORTIZED
COST) $ 8,900,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$64,622,610) 2 $ 63,570,681
</TABLE>
Securities that are subject to alternative minimum tax represent 17.00% of the
Fund's 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 $64,622,610. The
net unrealized depreciation of investments on a federal tax basis amounts to
$(1,051,929) which is comprised of $911,619 appreciation and $1,963,548
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($63,647,960) at August 31, 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 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 PCFA -Pollution Control
Finance Authority SFM -Single Family Mortgage UT -Unlimited Tax VRDNs -Variable
Rate Demand Notes See Notes which are an integral part of the Financial
Statements
Statement of Assets and Liabilities
AUGUST 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$64,622,610) $ 63,570,681
Cash 187,345
Income receivable 809,390
Receivable for investments
sold 860,471
Receivable for shares sold 330,178
Receivable for daily
variation margin 10,938
TOTAL ASSETS 65,769,003
LIABILITIES:
Payable for investments
purchased $ 1,839,420
Payable for shares
redeemed 131,905
Income distribution
payable 120,475
Accrued expenses 29,243
TOTAL LIABILITIES 2,121,043
Net assets for 6,068,350
shares outstanding $ 63,647,960
NET ASSETS CONSIST OF:
Paid in capital $ 65,942,835
Net unrealized
depreciation of
investments and futures
transactions (1,083,366)
Accumulated net realized
loss on investments (1,211,509)
TOTAL NET ASSETS $ 63,647,960
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($28,053,845 / 2,674,691
shares outstanding) $10.49
Offering Price Per Share
(100/95.50 of $10.49) 1 $10.98
Redemption Proceeds Per
Share (100.00/100 of
$10.49) 2 $10.49
CLASS B SHARES:
Net Asset Value Per Share
($35,594,115 / 3,393,659
shares outstanding) $10.49
Offering Price Per Share
(100/100.00 of $10.49) 1 $10.49
Redemption Proceeds Per
Share (94.50/100 of
$10.49) 2 $9.91
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,775,073
EXPENSES:
Investment advisory fee $ 213,175
Administrative personnel
and services fee 155,000
Custodian fees 4,185
Transfer and dividend
disbursing agent fees and
expenses 55,827
Directors'/Trustees' fees 4,075
Auditing fees 13,923
Legal fees 2,669
Portfolio accounting fees 63,143
Distribution services fee-
Class A Shares 70,667
Distribution services fee-
Class B Shares 187,703
Shareholder services fee-
Class A Shares 70,667
Shareholder services fee-
Class B Shares 62,568
Share registration costs 27,952
Printing and postage 17,859
Insurance premiums 2,855
Miscellaneous 6,364
TOTAL EXPENSES 958,632
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (213,175)
Waiver of distribution
services fee-Class A
Shares (70,667)
Reimbursement of other
operating expenses (218,268)
TOTAL WAIVERS AND
REIMBURSEMENTS (502,110)
Net expenses 456,522
Net investment income 2,318,551
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES TRANSACTIONS:
Net realized gain (loss) on
investments and futures
transactions (474,546)
Net change in unrealized
depreciation of
investments and
futures transactions (3,186,111)
Net realized and
unrealized gain (loss) on
investments and
futures transactions (3,660,657)
Change in net assets
resulting from operations $ (1,342,106)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 2,318,551 $ 1,319,281
Net realized gain (loss) on
investments and futures
transactions (($474,546)
and $16,809, respectively,
as computed for federal
tax purposes) (474,546) 16,809
Net change in unrealized
appreciation/(depreciation) (3,186,111) 1,036,136
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (1,342,106) 2,372,226
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (1,327,405) (1,204,810)
Class B Shares (991,146) (114,471)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (2,318,551) (1,319,281)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 41,012,918 19,344,464
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,269,456 671,591
Cost of shares redeemed (13,785,402) (4,257,476)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 28,496,972 15,758,579
Change in net assets 24,836,315 16,811,524
NET ASSETS:
Beginning of period 38,811,645 22,000,121
End of period $ 63,647,960 $ 38,811,645
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six portfolios. The
financial statements included herein are only those of Federated California
Municipal Income Fund (the "Fund"), a non-diversified portfolio. The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The investment objective of the Fund is to
provide current income exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax) and personal
income taxes imposed by the state of California and California municipalities.
The Fund offers two classes of shares: Class A Shares and Class B Shares.
Effective December 1, 1997, the Fund added Class B Shares and designated the
existing share class as Class A Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of 60
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 31,1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $732,129, 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
EXPIRATION YEAR AMOUNT
2003 $513,799
2004 $218,330
FUTURES CONTRACTS
The Fund purchases stock index futures contracts to manage cashflows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. For the year ended August 31, 1999, the Fund had realized
gains of $178,368 on future contracts.
At August 31, 1999, the Fund had outstanding futures contracts as set forth
below:
CONTRACTS UNREALIZED
EXPIRATION DATE TO RECEIVE POSITION DEPRECIATION
December 1999 25 Municipal Bond Short ($31,437)
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTION
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>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
CLASS A SHARES:
Shares sold 900,962 850,058
Shares issued to
shareholders in payment of
distributions declared 61,949 55,492
Shares redeemed (874,803) (370,125)
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS 88,108 535,425
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1
<S> <C> <C>
CLASS B SHARES:
Shares sold 2,818,762 912,747
Shares issued to
shareholders in payment of
distributions declared 53,752 5,755
Shares redeemed (379,001) (18,356)
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS 2,493,513 900,146
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 2,581,621 1,435,571
</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, 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 according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
Class A 0.25%
Class B 0.75%
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 Fund's 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 August 31, 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 amounting to $45,760,000 and $40,000,000 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 August 31, 1999, were as follows:
Purchases $41,543,875
Sales $17,333,490
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 1999, 33.7% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 16.2% of total investments.
YEAR 2000 (UNAUDITED)
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.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL SECURITIES INCOME TRUST AND
SHAREHOLDERS OF FEDERATED CALIFORNIA MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated California Municipal Income Fund as
of August 31, 1999, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended August 31, 1999 and
1998, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated California
Municipal Income Fund as of August 31, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
PROSPECTUS
[Graphic]
Federated World Class Investment Manager
Federated California Municipal Income Fund
A Portfolio of Federated
Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
and Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at
1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
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
Investment Company Act File No. 811-6165
Cusip 625922109
Cusip 625922828
2092918A (10/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated California Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated California Municipal Income
Fund (Fund), dated October 31, 1999. Obtain the prospectus and the Annual
Report's Management Discussion & Analysis without charge by calling
1-800-341-7400.
OCTOBER 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated California Municipal Income
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
2092918B (10/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 6
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 7
Tax Information 7
Who Manages and Provides Services to the Fund? 8
How Does the Fund Measure Performance? 11
Who is Federated Investors, Inc.? 14
Investment Ratings 15
Addresses 18
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. The Fund changed its name from California
Municipal Income Fund to Federated California Municipal Income Fund on February
26, 1996. Effective October 1, 1999, the Trust changed its name from Municipal
Securities Income Trust to Federated Municipal Securities Income Trust.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Class A Shares and Class B Shares (Shares). This SAI relates to
both classes of Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). The Adviser, formerly known as Federated Advisers,
changed its name effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to the
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a AAA municipal security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICY
The Fund's investment objective is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of
California and California municipalities.
The Fund pursues its investment objective by investing its assets so that at
least 80% of its annual interest income is exempt from federal regular income
tax and the personal income taxes imposed by the state of California and
California municipalities.
The investment objective and policy may not be changed by the Fund's Trustees
without shareholder approval.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED BY THE BOARD UNLESS AUTHORIZED BY THE
"VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE
CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED
BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
RESTRICTED SECURITIES
The Fund may invest its securities subject to restrictions on resale under the
Securities Act of 1933.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In applying the Fund's commodities limitation, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the Securities and Exchange
Commission (SEC) staff that only domestic bank instruments may be excluded from
industry concentration limitations, the Fund will not exclude foreign bank
instruments from industry concentration limits as long as the policy of the SEC
remains in effect. The Fund will consider concentration to be the investment of
more than 25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker/dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce the sales charge you pay. You
can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT (CLASS A SHARES)
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees or Directors, employees and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* of Shares that represent a reinvestment within 120 days of a
previous redemption;
* of Shares held by the Trustees or Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities;
* which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN (CLASS A SHARES AND CLASS B SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses. Federated and its subsidiaries may benefit from
arrangements where the Rule 12b-1 Plan fees related to Class B Shares may be
paid to third parties who have advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% and 1.00%, respectively, of the
NAV of Class B Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
ADVANCE PAYMENTS AS A
AMOUNT PERCENTAGE OF PUBLIC OFFERING PRICE
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of October 7, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class A Shares for its clients), Jacksonville, Florida,
owned approximately 769,135 Class A Shares (12.54%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.
STATE TAXES
CALIFORNIA INCOME TAXES
Under existing California laws, distributions made by the Fund will not be
subject to California individual income taxes provided that such distributions
qualify as "exempt-interest dividends" under the California Revenue and Taxation
Code, and provided further that at the close of each quarter, at least 50
percent of the value of the total assets of the Fund consists of obligations the
interest on which is exempt from California taxation under either the
Constitution or laws of California or the Constitution or laws of the United
States. The Fund will furnish its shareholders with a written note designating
exempt- interest dividends within 60 days after the close of its taxable year.
Conversely, to the extent that distributions made by the Fund are derived from
other types of obligations, such distributions will be subject to California
individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
California. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of October 7, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A and Class B Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN and TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some $331.87 $0 for the Trust
Birth Date: March 5, 1943 of the Federated Fund and 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist and Internist,
University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State Street
Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust
Birth Date: April 10, 1945 of the Federated Fund and 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust
Birth Date: November 28, 1957 of the Federated Fund and 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Trust
Birth Date: April 11, 1949 Vice President of the and 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT and TRUSTEE Federated Fund Complex;
President, Chief Executive Officer and
Director, Federated Investors, Inc.;
President and Trustee, Federated
Investment Management Company and
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust
Birth Date: October 22, 1930 of the Funds in the and 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust
Birth Date: October 26, 1938 and Secretary of the and 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp., Federated Services Company and
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust
Birth Date: June 17, 1954 Fund Complex; Vice and 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust
Birth Date: May 17, 1923 President of some of the and 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust
Birth Date: March 3, 1949 of this Fund and various and 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust
Birth Date: June 1, 1960 the Fund's portfolio and 1 other investment
Federated Investors Tower manager since March 1995. company in the
1001 Liberty Avenue He is Vice President of the Fund Complex
Pittsburgh, PA Trust. Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees on January 1,
1999. Messrs. Cunningham and Walsh became members of the Board of
Trustees on July 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar
year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
AVERAGE AGGREGATE DAILY
MAXIMUM ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS 0.150 of 1% on the
first $250 million 0.125 of 1% on the next $250 million 0.100 of 1% on the next
$250 million 0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus
out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
Advisory Fee Earned $213,175 $110,704 $ 76,824
Advisory Fee Reduction 213,175 110,704 76,824
Administrative Fee 155,000 147,521 125,002
12B-1 FEE
Class A Shares 0 - -
Class B Shares 187,703 - -
SHAREHOLDER SERVICES FEE
Class A Shares 70,667 - -
Class B Shares 62,658 - -
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year and Start of Performance
periods ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period ended August 31,
1999.
<TABLE>
<CAPTION>
30-DAY START OF PERFORMANCE
PERIOD 1 YEAR 5 YEARS ON DECEMBER 2, 1992
<S> <C> <C> <C> <C>
CLASS A SHARES:
Total Return NA (6.51%) 5.44% 5.54%
Yield 4.78% NA NA NA
Tax-Equivalent Yield 9.35% NA NA NA
<CAPTION>
30-DAY START OF PERFORMANCE
PERIOD 1 YEAR 5 YEARS ON DECEMBER 1, 1997
CLASS B SHARES:
<S> <C> <C> <C> <C>
Total Return NA (7.10%) NA (0.61%)
Yield 4.02% NA NA NA
Tax-Equivalent Yield 7.87% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
TAX EQUIVALENCY TABLE
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
FOR 1999 - STATE OF
CALIFORNIA
COMBINED FEDERAL AND STATE
INCOME TAX BRACKET: 23.00% 37.30% 40.30% 45.30% 48.90%
<S> <C> <C> <C> <C> <C>
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over 283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.50% 1.95% 2.39% 2.51% 2.74% 2.94%
2.00% 2.60% 3.19% 3.35% 3.66% 3.91%
2.50% 3.25% 3.99% 4.19% 4.57% 4.89%
3.00% 3.90% 4.78% 5.03% 5.48% 5.87%
3.50% 4.55% 5.58% 5.86% 6.40% 6.85%
4.00% 5.19% 6.38% 6.70% 7.31% 7.83%
4.50% 5.84% 7.18% 7.54% 8.23% 8.81%
5.00% 6.49% 7.97% 8.38% 9.14% 9.78%
5.50% 7.14% 8.77% 9.21% 10.05% 10.76%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
FOR 1999 - STATE OF
CALIFORNIA
COMBINED FEDERAL AND STATE
INCOME TAX BRACKET: 21.00% 37.30% 40.30% 45.30% 48.90%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over 283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.50% 1.90% 2.39% 2.51% 2.74% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91%
2.50% 3.16% 3.99% 4.19% 4.57% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78%
5.50% 6.96% 8.77% 9.21% 10.05% 10.76%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS REVENUE BOND INDEX
Lehman Brothers Revenue Bond Index is a total return performance benchmark for
the long-term, investment grade, revenue bond market. Returns and attributes for
the index are calculated semi-monthly.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in NAV over a specific period of time. From time to
time, the Fund will quote its Lipper ranking in the "general municipal bond
funds" category in advertising and sales literature.
MORNINGSTAR, INC.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998,
Federated managed 9 money market funds and 15 bond funds with assets
approximating $22.8 billion and $7.1 billion, respectively. Federated's
corporate bond decision making-based on intensive, diligent credit analysis-is
backed by over 26 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the asset
backed securities market, a market totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND
Class A Shares
Class B Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Federated Michigan Intermediate Municipal Trust
A Portfolio of Federated Municipal Securities Income Trust
A mutual fund seeking to provide current income exempt from federal regular
income tax and the personal income taxes imposed by the state of Michigan and
Michigan municipalities by investing primarily in a portfolio of investment
grade Michigan tax exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 6
What are the Specific Risks of Investing in the Fund? 9
What Do Shares Cost? 10
How is the Fund Sold? 12
How to Purchase Shares 12
How to Redeem and Exchange Shares 14
Account and Share Information 16
Who Manages the Fund? 17
Financial Information 19
Independent Auditors' Report 34
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
Michigan and Michigan municipalities. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
state of Michigan and Michigan municipalities personal income taxes. Interest
from the Fund's investments may be subject to the federal alternative minimum
tax for individuals and corporations (AMT). The Fund's portfolio securities will
be investment grade or of comparable quality. The Fund's dollar-weighted average
portfolio maturity is between three and ten years, and its average-weight
duration is between three and seven years.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
INTEREST RATE RISKS
Prices of the tax exempt securities generally fall when interest rates rise.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below their current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from Michigan, the Fund may be
subject to additional risks compared to funds that invest in multiple states.
Although it has diversified, Michigan's economy is still heavily dependent upon
certain industries, especially automobile, manufacturing and related industries.
Any downturn in these industries may adversely affect the economy of the state.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic]
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was (1.16%).
Within the period shown in the Chart, the Fund's highest quarterly return was
5.72% (quarter ended March 31, 1995). Its lowest quarterly return was (4.60%)
(quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns, reduced
to reflect applicable sales charges, for the calendar periods ended December 31,
1998. The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers 7 Year State General Obligation Index
(LB7YRSGOI) and the Lehman Brothers Municipal Bond Index (LBMBI), both
broad-based market indexes. The LB7YRSGOI is an index of general obligation
bonds rated A or better with six to eight years to maturity. The LBMBI is a
broad market performance benchmark for the tax exempt bond market. To be
included in the LBMBI, bonds must have a minimum credit rating of Baa. Total
returns for the indexes shown do not reflect sales charges, expenses or other
fees that the SEC requires to be reflected in the Fund's performance. Indexes
are unmanaged, and it is not possible to invest directly in an index.
CALENDAR PERIOD FUND LB7YRSGOI LBMBI
1 Year 2.41% 6.48% 6.22%
5 Years 4.35% 5.96% 6.49%
Start of Performance 1 6.26% 6.68% NA
1 The Fund's start of performance date was September 18, 1991.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 3.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions)
(as a percentage of
offering price). None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waivers)
1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.35%
Total Annual Fund
Operating Expenses 1.00%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended August 31, 1999.
Total Waiver of Fund
Expenses 0.50%
Total Actual Annual Fund
Operating Expenses (after
waivers) 0.50%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.08% for the fiscal year ended August 31,
1999. 3 The shareholder services provider voluntarily waived a portion of the
shareholder services fee. The shareholder services provider can terminate this
voluntary waiver at any time. The shareholder services fee paid by the Fund
(after the voluntary waiver) was 0.07% for the fiscal year ended August 31,
1999.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares operating expenses are BEFORE WAIVERS as shown in the
table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year $ 399
3 Years $ 609
5 Years $ 836
10 Years $1,488
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
state of Michigan and Michigan municipalities personal income taxes. As a matter
of operating policy, the Fund ordinarily will invest so that 100% of its annual
interest income is exempt from such taxes. Interest income from the Fund's
investments may be subject to AMT.
The Fund's portfolio securities will be investment grade or of comparable
quality. Under normal market conditions, the Fund's dollar-weighted average
portfolio maturity is between three and ten years, and its average- weight
duration is between three and seven years. The Fund's investment adviser
(Adviser) actively manages the Fund's portfolio, seeking to manage the interest
rate risk and credit risk assumed by the Fund and to provide superior levels of
after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings; * the financial condition of the issuer or guarantor; and *
political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use futures contracts that cover a narrow range of circumstances;
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the state of Michigan and Michigan municipalities. It may
do this to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to receive
and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed
above, the Adviser will reevaluate the security, but will not be required
to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by Michigan issuers or credit enhanced by insurance companies or companies with
similar characteristics. As a result, the Fund will be more susceptible to any
economic, business, political or other developments which generally affect these
entities. Although it has diversified, Michigan's economy is still heavily
dependent upon certain industries, especially automobile, manufacturing and
related industries. Any downturn in these industries may adversely affect the
economy of the state.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
LIQUIDITY RISKS
Liquidity risk refers to the possibility that the Fund may not be able to sell a
security or close out a futures contract when it wants to. If this happens, the
Fund will be required to continue to hold the security or keep the position
open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in this prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE
MINIMUM INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED
INVESTMENT SALES SALES
AMOUNTS 1 CHARGE 2 CHARGE 3
<S> <C> <C>
$1,500/$100 3.00% 0.00%
</TABLE>
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE SALES CHARGE
OF PUBLIC AS A PERCENTAGE
PURCHASE AMOUNT OFFERING PRICE OF NAV
<S> <C> <C>
Less than $50,000 3.00% 3.09%
$50,000 but less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1 million 1.00% 1.01%
$1 million or greater 1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Shares redeemed up to 24 months after purchase under certain investment
programs where an investment professional received an advance payment on the
transaction.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
* within 120 days of redeeming Shares of an equal or lesser amount;
* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
* through wrap accounts or other investment programs where you pay the
investment professional directly for services;
* through investment professionals that receive no portion of the sales
charge;
* as a Federated Life Member (Class A Shares only) and their immediate
family members; or
* as a Trustee, Director or employee of the Fund, the Adviser, the
Distributor and their affiliates, and the immediate family members of
these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor at the
time of purchase. If the Distributor is not notified, you will receive the
reduced sales charge only on additional purchases, and not retroactively on
previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* purchased through investment professionals who did not receive advanced
sales payments;
* if, after you purchase Shares, you become disabled as defined by the IRS;
* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement; or
* upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions, such as banks,
fiduciaries or investment advisers, broker/dealers, or to individuals, directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Michigan taxpayers because it invests in
Michigan municipal securities.
When the Distributor receives sales charges, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed or exchanged;
* signatures of all shareholders exactly as registered; and
* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days;
* a redemption is payable to someone other than the shareholder(s) of
record; or
* IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated fund. To do this, you must:
* ensure that the account registrations are identical;
* meet any minimum initial investment requirements; and
* receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated
Michigan Intermediate Municipal Trust's dividends will be exempt from the
Michigan taxes discussed above to the extent they are derived from interest on
obligations exempt from such taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
LEE R. CUNNINGHAM II
Lee R. Cunningham II has been a portfolio manager of the Fund since May
1998. Mr. Cunningham joined Federated in 1995 as an Investment Analyst and
has been a Portfolio Manager since 1998. He was named an Assistant Vice
President of the Fund's Adviser in January 1998. From 1986 through 1994,
Mr. Cunningham was a Project Engineer with Pennsylvania Power and Light
Company. Mr. Cunningham received his M.B.A. with concentrations in finance
and operations from the University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report,
along with the Fund's audited financial statements, is included in this
prospectus.
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Reference is made to the Independent Auditors' Report on page 34.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.09 $10.85 $10.70 $10.80 $10.59
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.53 0.53 0.54 0.36 0.54
Net realized and
unrealized gain (loss) on
investments (0.47) 0.24 0.15 (0.10) 0.21
TOTAL FROM INVESTMENT
OPERATIONS 0.06 0.77 0.69 0.26 0.75
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.53) (0.53) (0.54) (0.36) (0.54)
NET ASSET VALUE, END OF
PERIOD $10.62 $11.09 $10.85 $10.70 $10.80
TOTAL RETURN 1 0.47% 7.27% 6.59% 4.13% 7.39%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.00% 1.05% 1.09% 1.13% 1.15%
Net investment income 2 4.31% 4.30% 4.41% 4.36% 4.54%
Expenses (after waivers) 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income
(after waivers) 4.81% 4.85% 5.00% 4.99% 5.19%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $74,510 $77,731 $67,592 $62,785 $60,621
Portfolio turnover 17% 15% 12% 7% 23%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated. See
Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-96.0%
MICHIGAN-96.0%
$ 500,000 Avondale, MI, School
District, UT GO Refunding
Bonds, 6.75% (Michigan
State GTD)/ (Original
Issue Yield: 6.95%),
5/1/2014 AA+ $ 522,925
500,000 Battle Creek, MI, Building
Authority, Revenue Bonds,
6.00%, 4/1/2002 A+ 516,270
500,000 Battle Creek, MI, Building
Authority, Revenue Bonds,
6.10%, 4/1/2003 A+ 516,555
2,000,000 Battle Creek, MI, Downtown
Development Authority,
Refunding Bonds, 5.10%
(MBIA INS)/(Original Issue
Yield: 5.20%), 5/1/2010 AAA 1,981,220
1,060,000 Belding Area Schools, MI,
Refunding UT GO Bonds,
4.95% (Original Issue
Yield: 5.05%), 5/1/2014 AAA 1,001,647
1,500,000 Berkley, MI, CSD,
Refunding UT GO Bonds,
4.75% (FGIC INS)/(Original
Issue Yield: 5.05%),
1/1/2019 AAA 1,323,810
1,360,000 Chippewa Hills, MI, School
District, UT GO Bonds,
5.25% (Original
Issue Yield: 5.30%),
5/1/2014 AAA 1,341,436
460,000 Detroit, MI, Economic
Development Corp.,
Resource Recovery
Revenue Bonds (Series A),
6.875% (FSA INS)/(Original
Issue Yield: 7.00%),
5/1/2009 AAA 484,182
3,000,000 Detroit, MI, Water Supply
System, Revenue Refunding
Bonds, 6.00% (FGIC
INS)/(Original Issue
Yield: 6.10%), 7/1/2002 AAA 3,137,340
1,000,000 Detroit, MI, UT GO Bonds
(Series 1999A), 5.00% (FSA
INS)/(Original Issue
Yield: 5.16%), 4/1/2019 AAA 919,660
1,000,000 Detroit/Wayne County, MI,
Stadium Authority, Revenue
Bonds, 5.25% (FGIC
INS)/(Original Issue
Yield: 5.55%), 2/1/2011 AAA 1,001,060
1,000,000 Eastern Michigan
University, Revenue Bonds,
6.10% (AMBAC INS)
(Original Issue Yield:
6.15%), 6/1/2004 AAA 1,049,670
200,000 Farmington Hills, MI,
Hospital Finance
Authority, Hospital
Revenue Refunding Bonds
(Series A), 6.60%
(Botsford General
Hospital)/ (MBIA INS),
2/15/2000 AAA 202,666
425,000 Forest Hills, MI, Public
School, UT GO Bonds, 7.375%
(United States Treasury
PRF)/(Original Issue
Yield: 7.397%), 5/1/2115
(@101) AA 439,301
250,000 Garden City, MI, School District, UT GO Refunding Bonds, 5.90%
(FSA INS),
5/1/2005 AAA 265,675
565,000 Garden City, MI, School District, UT GO Refunding Bonds, 6.00%
(FSA INS),
5/1/2006 AAA 598,990
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-CONTINUED
$ 515,000 Garden City, MI, School
District, UT GO Refunding
Bonds, 6.10% (FSA INS),
5/1/2007 AAA $ 548,295
150,000 Huron Valley, MI, School
District, UT GO Bonds,
6.50%(Michigan State GTD)
(United States Treasury
PRF), 5/1/2002 (@102) NR 158,267
465,000 Ingham County MI, Sewer
Authority, Revenue Bonds,
Project #4, Delhi Charter
Township, 5.90%, 11/1/2005 AA- 485,967
850,000 Jenison, MI, Public
Schools, UT GO School
Buillding and Site
Refunding Bonds, (Series
1996), 5.30% (FGIC
LOC)/(Original
Issue Yield: 5.40%),
5/1/2007 AAA 886,321
150,000 Jenison, MI, Public Schools, GO UT School Improvements, 5.30%
(FGIC LOC)/(Original Issue
Yield: 5.40%), 5/1/2007 AAA 154,899
265,000 Kent Hospital Finance
Authority, MI,, Hospital
Revenue Refunding Bonds,
6.30% (Pine Rest Christian
Hospital, MI)/(FGIC
INS)/(Original Issue
Yield: 6.40%), 11/1/2003 AAA 280,214
415,000 Kent Hospital Finance
Authority, MI, Hospital
Revenue Refunding Bonds,
6.30% (Pine Rest Christian
Hospital, MI)/(FGIC
INS)/(Original Issue
Yield: 6.45%), 11/1/2004 AAA 438,825
500,000 Lake Orion, MI, School
District, UT GO Refunding
Bonds, 5.90% (Michigan
State GTD), (AMBAC INS)
5/1/2001 AAA 514,095
2,000,000 Lake Orion, MI, School District, UT GO Refunding Bonds, 6.05%
(Michigan State LOC), (AMBAC INS)
5/1/2002 AAA 2,088,740
1,380,000 Lincoln Park, MI, School
District, UT GO Refunding
Bonds, 5.10%
(FGIC INS)/(Q-SBLF
LOC)/(Original Issue
Yield: 5.15%), 5/1/2013 AAA 1,348,715
750,000 Livonia, MI, Public School
District, UT GO Bonds
(Series I),
6.00%, 5/1/2001 AA+ 772,343
1,710,000 Marquette, MI, Hospital
Finance Authority,
Hospital Revenue
Refunding Bonds (1996
Series D), 5.30%
(Marquette General
Hospital, MI), 4/1/2005 AAA 1,754,323
1,290,000 Marquette, MI, Hospital
Finance Authority,
Hospital Revenue
Refunding Bonds (1996
Series D), 5.40%
(Marquette General
Hospital, MI), 4/1/2006 AAA 1,326,817
1,350,000 Michigan Higher Education
Student Loan Authority,
Student Loan Revenue
Bonds, Series XVII-A,
5.65% (AMBAC LOC),
6/1/2010 AAA 1,381,860
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-CONTINUED
$ 1,500,000 Michigan Municipal Bond
Authority, Revenue
Refunding Q-SBLF Bonds,
6.00% (Michigan
State)/(Michigan State
GTD)/(Original
Issue Yield: 6.10%),
5/1/2002 AA+ $ 1,564,845
3,000,000 Michigan Public Power
Agency, Revenue Refunding
Bonds (Series A) Belle
River Project, 5.70%
(Original Issue Yield:
5.80%), 1/1/2003 AA- 3,121,860
1,000,000 Michigan State
Comprehensive
Transportation Board,
Revenue Refunding Bonds
(Series B), 5.50%
(Michigan State)/(Original
Issue Yield: 5.60%),
5/15/2002 AA- 1,031,170
1,000,000 Michigan State
Comprehensive
Transportation Board,
Revenue Refunding Bonds
(Series B), 6.00%
(Michigan State)/(Original
Issue Yield: 6.05%),
5/15/2007 AA- 1,051,270
2,000,000 Michigan State Hospital
Finance Authority,
Refunding Revenue Bonds
(Series 1998A), 4.90% (St.
John Hospital, MI)/(AMBAC
INS) (Original Issue
Yield: 5.05%), 5/15/2013 AAA 1,860,760
1,000,000 Michigan State Hospital
Finance Authority, Revenue
& Refunding Bonds (Series
1998A), 5.10% (McLaren
Health Care
Corp.)/(Original Issue
Yield: 5.15%), 6/1/2013 NR 940,070
1,325,000 Michigan State Hospital
Finance Authority, Revenue
Bonds (Series 1997W),
5.00% (Mercy Health
Services)/(Original Issue
Yield: 5.26%), 8/15/2011 AA- 1,277,022
415,000 Michigan State Hospital
Finance Authority, Revenue
Bonds (Series A), 6.15%
(Crittenton Hospital, MI),
3/1/2001 A+ 425,421
440,000 Michigan State Hospital
Finance Authority, Revenue
Bonds (Series A), 6.25%
(Crittenton Hospital, MI),
3/1/2002 A+ 457,226
1,000,000 Michigan State Hospital
Finance Authority, Revenue
Bonds, 5.25% (St. John
Hospital, MI)/(Original
Issue Yield: 5.65%),
5/15/2026 AAA 927,590
500,000 Michigan State Hospital
Finance Authority, Revenue
Bonds,
Providence Hospital, 7.00%
(Daughters of
Charity)/(Original Issue
Yield: 7.04%), 11/1/2021 NR 538,075
1,500,000 Michigan State Hospital
Finance Authority, Revenue
Refunding Bonds (Series
A), 5.50% (St. John
Hospital, MI)/(Original
Issue Yield: 5.80%),
5/15/2001 A+ 1,526,850
800,000 Michigan State Hospital
Finance Authority, Revenue
Refunding Bonds, 5.95%
(Oakwood Obligated
Group)/(Original Issue
Yield: 6.05%), 5/1/2002 AAA 830,112
575,000 Michigan State Hospital
Finance Authority, Revenue
Refunding Bonds, 6.30%
(Sparrow Obligated Group,
MI)/(MBIA INS), 11/15/2003 AAA 606,269
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-CONTINUED
$ 1,000,000 Michigan State Housing
Development Authority,
(Series A), Rental Housing
Revenue Bonds, 5.55%,
4/1/2004 AAA $ 1,025,480
500,000 Michigan State Housing
Development Authority,
Revenue Bonds (Series A),
5.90%, 12/1/2005 AA+ 520,565
430,000 Michigan State Housing
Development Authority,
Revenue Bonds (Series A),
6.25%, 6/1/2002 AA+ 443,833
200,000 Michigan State Housing
Development Authority,
Revenue Bonds (Series A),
7.00%, 12/1/2005 AA+ 206,898
280,000 Michigan State Housing
Development Authority,
Revenue Bonds (Series B),
6.30%, 12/1/2003 AA+ 291,976
1,000,000 Michigan State Housing
Development Authority,
Revenue Bonds (Series E),
5.55%, 12/1/2007 AA+ 1,018,580
95,000 Michigan State Housing
Development Authority,
Single Family Mortgage
Revenue Bonds (Series B),
6.95%, 12/1/2020 AA+ 98,294
1,000,000 Michigan State, UT GO
Recreation Program Bonds,
5.75% (Original Issue
Yield: 5.80%), 11/1/2001 AA+ 1,034,130
250,000 Michigan Strategic Fund,
LT Obligation Revenue
Refunding Bonds (Series
A), 7.10% (Ford Motor
Co.)/(Original Issue
Yield: 7.127%), 2/1/2006 A 281,743
500,000 Michigan Strategic Fund,
Limited Obligation Revenue
Bonds (Series 1998), 5.30%
(Porter Hills Presbyterian
Village, Inc.)/(Original
Issue Yield: 5.422%),
7/1/2018 A 456,310
4,250,000 Monroe County, MI,
Pollution Control
Authority, PCR Revenue
Bonds (Series A), 6.35%
(Detroit Edison
Co.)/(AMBAC INS),
12/1/2004 AAA 4,551,538
1,000,000 Novi, MI, Community School
District, UT GO Bonds, Q-
SBLF, 5.45% (Original
Issue Yield: 5.50%),
5/1/2003 AA+ 1,033,250
300,000 Oakland & Washtenaw
Counties, MI, Revenue
Bonds, 6.65% (Oakland
Community College
District, MI)/(Original
Issue Yield: 6.743%),
5/1/2011 AA- 321,030
1,765,000 Oakland County, MI, EDC,
Limited Obligation Revenue
Bonds (Series 1997), 5.50%
(Lutheran Social Services
of Michigan)/(First of
America Bank LOC),
6/1/2014 NR 1,730,794
250,000 Oakland County, MI, LT GO
Bonds, Evergreen-
Farmington Sewer Disposal,
6.30%, 5/1/2005 AAA 258,778
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-CONTINUED
$ 610,000 Okemos, MI, Public School
District, UT GO Refunding
Bonds, Q-SBLF, 6.00%,
5/1/2002 AA+ $ 637,310
100,000 Ottawa County, MI,, LT GO
Bonds, Northwest Ottawa
Water System, 6.85%,
5/1/2000 AA 100,487
1,000,000 Petoskey, MI, Hospital
Finance Authority, Limited
Obligation Revenue &
Refunding Bonds, 5.00%
(Northern Michigan
Hospital Obligated
Group)/(MBIA
INS)/(Original Issue
Yield: 5.22%), 11/15/2018 AAA 907,450
400,000 Plymouth-Canton, MI,
Community School District,
UT GO Bonds (Series C), Q-
SBLF, 6.00% (Original
Issue Yield: 6.10%),
5/1/2003 AA+ 424,336
500,000 Plymouth-Canton, MI,
Community School District,
UT GO Refunding Bonds
(Series B), Q-SBLF, 6.80%
(United States Treasury
PRF)/(Original Issue
Yield: 6.90%), 5/1/2017
(@101) AA+ 525,855
615,000 Riverview, MI, Community
School District, UT GO
Bonds, 6.20% (United
States Treasury PRF),
5/1/2004 (@101.5) AAA 653,376
570,000 Riverview, MI, Community
School District, UT GO
Bonds, 6.20% (United
States Treasury PRF),
5/1/2003 (@101.5) AAA 605,568
350,000 Rochester, MI, Community
School District, UT GO
Bonds, 6.50% (United
States Treasury
PRF)/(Original Issue
Yield: 6.60%), 5/1/2007
(@100) AA+ 369,404
250,000 Rochester, MI, Community
School District, UT GO
Bonds, 6.50% (United
States Treasury
PRF)/(Original Issue
Yield: 6.75%), 5/1/2011
(@100) AA+ 263,860
270,000 Shelby Charter Townships,
MI, Building Authority,
Revenue Bonds, 6.25%
(Original Issue Yield:
6.45%), 11/1/2006 AAA 286,815
230,000 Shelby Charter Townships,
MI, Building Authority,
Revenue Bonds, 6.25%
(Original Issue Yield:
6.50%), 11/1/2007 AAA 244,323
250,000 University of Michigan,
Hospital Revenue Bonds,
7.00% (United States
Treasury PRF)/ (Original
Issue Yield: 7.25%),
12/1/2021 (@102) AA 263,834
1,500,000 University of Michigan,
Hospital Revenue Refunding
Bonds (Series A), 5.70%
(Original Issue Yield:
5.80%), 12/1/2004 AA 1,581,345
1,000,000 Walled Lake, MI,
Consolidated School
District, UT GO Refunding
Bonds, 5.30% (MBIA
INS)/(Original Issue
Yield: 5.35%), 5/1/2008 AAA 1,024,280
1,000,000 Wayne County, MI, Airport
Revenue Bonds (Series
1998A), 5.00% (Detroit
Metropolitan Wayne County
Airport)/(Original Issue
Yield: 5.29%), 12/1/2019 AAA 902,560
1,000,000 Wayne County, MI, Building
Authority, LT GO Capital
Improvement Bonds, 5.35%
(MBIA INS)/(Original Issue
Yield: 5.40%), 6/1/2009 AAA 1,023,410
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
MICHIGAN-CONTINUED
$ 2,000,000 Wayne State University,
MI, General Revenue Bonds
(Series 1999), 5.375%,
11/15/2014 AAA $ 1,995,720
885,000 Wyandotte, MI, Electric
Authority, Revenue
Refunding Bonds,
6.10%, 10/1/2002 AAA 931,204
1,000,000 Yale, MI, Public Schools
District, UT GO Bonds,
5.25% (FSA INS)/(Original
Issue Yield: 5.30%),
5/1/2017 NR 965,870
1,000,000 Ypsilanti, MI, School District, UT GO Refunding Bonds (Series
1998), 4.95% (Q-SBLF GTD)/(FGIC INS)/(Original Issue
Yield: 4.97%), 5/1/2015 AAA 930,640
TOTAL 71,511,474
TOTAL INVESTMENT
(IDENTIFIED COST
$70,288,865) 2 $ 71,511,474
</TABLE>
Securities that are subject to alternative minimum tax represent 7.1% 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 $70,288,865. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,222,609 which is comprised of $2,048,448 appreciation and $825,839
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($74,509,883) at August 31, 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 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 See Notes which are an
integral part of the Financial Statements Statement of Assets and
Liabilities
AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$70,288,865) $ 71,511,474
Income receivable 1,146,575
Receivable for investments
sold 3,158,341
Prepaid expenses 16,441
TOTAL ASSETS 75,832,831
LIABILITIES:
Payable for investments
purchased $ 1,000,000
Payable for shares
redeemed 58,834
Income distribution
payable 245,577
Payable to bank 18,537
TOTAL LIABILITIES 1,322,948
Net assets for 7,013,942
shares outstanding $ 74,509,883
NET ASSETS CONSIST OF:
Paid in capital $ 74,308,459
Net unrealized
appreciation of
investments 1,222,609
Accumulated net realized
loss on investments (1,021,185)
TOTAL NET ASSETS $ 74,509,883
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
Net Asset Value Per Share
($74,509,883 / 7,013,942
shares outstanding) $10.62
Offering Price Per Share
(100/97.00 of $10.62) 1 $10.95
Redemption Proceeds Per
Share (100.00/100 of
$10.62) 2 $10.62
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus. See Notes which are
an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,222,290
EXPENSES:
Investment advisory fee $ 317,944 Administrative personnel and services fee
125,000 Custodian fees 5,467 Transfer and dividend disbursing agent fees and
expenses 28,359 Directors'/Trustees' fees 2,964 Auditing fees 13,927 Legal fees
5,507 Portfolio accounting fees 56,604 Shareholder services fee 198,715 Share
registration costs 16,666 Printing and postage 19,057 Insurance premiums 1,391
Miscellaneous 3,237 TOTAL EXPENSES 794,838 WAIVERS: Waiver of investment
advisory fee $ (250,823) Waiver of shareholder services fee (143,075) TOTAL
WAIVERS (393,898) Net expenses 400,940 Net investment income 3,821,350 REALIZED
AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on investments (254,529)
Net change in unrealized depreciation of investments (3,186,245) Net realized
and unrealized loss on investments (3,440,774) Change in net assets resulting
from operations $ 380,576 </TABLE> See Notes which are an integral part of
the Financial Statements Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 3,821,350 $ 3,483,095
Net realized gain (loss) on
investments (($254,529)
and $359,864,
respectively, as computed
for federal tax purposes) (254,529) 359,864
Net change in unrealized
appreciation/(depreciation) (3,186,245) 1,226,386
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 380,576 5,069,345
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (3,821,350) (3,483,095)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 19,980,873 25,850,735
Net asset value of shares
issued to shareholders in
payment of
distributions declared 859,921 712,814
Cost of shares redeemed (20,621,254) (18,010,272)
CHANGE IN NET ASSETS
RESULTING FROM
SHARE TRANSACTIONS 219,540 8,553,277
Change in net assets (3,221,234) 10,139,527
NET ASSETS:
Beginning of period 77,731,117 67,591,590
End of period $ 74,509,883 $ 77,731,117
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six 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 exempt from federal regular income tax and the
personal income taxes imposed by the state of Michigan and Michigan
municipalities.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At August 31, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $649,939, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2004 $649,939
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
Shares sold 1,815,843 2,352,166
Shares issued to
shareholders in payment of
distributions declared 78,349 64,867
Shares redeemed (1,887,770) (1,639,057)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,422 777,976
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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.
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 August 31, 1999, the Trust engaged in purchase and sales
transactions with funds that have a common investment adviser (or affiliated
advisers), common Directors/Trustees, and/or common officers. These purchase and
sales transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $19,400,000 and $22,000,000, 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 (and in-kind
contributions), for the period ended August 31, 1999, were as follows:
Purchases $ 13,449,748
Sales $ 14,005,836
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 1999, 39.2% 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 percentage 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 (UNAUDITED)
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. Independent Auditors'
Report TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL SECURITIES INCOME
TRUST AND SHAREHOLDERS OF FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated Michigan Intermediate Municipal Trust
as of August 31, 1999, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended August 31,
1999 and 1998, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Michigan
Intermediate Municipal Trust as of August 31, 1999, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated Michigan Intermediate Municipal Trust
A Portfolio of Federated Municipal Securities Income Trust
PROSPECTUS
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
& Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
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
Investment Company Act File No. 811-6165
Cusip 625922703
G01389-01 (10/99)
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STATEMENT OF ADDITIONAL INFORMATION
Federated Michigan Intermediate Municipal Trust
A Portfolio of Federated Municipal Securities Income Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Michigan Intermediate
Municipal Trust (Fund), dated October 31, 1999. Obtain the prospectus and the
Annual Report's Management Discussion and Analysis without charge by calling
1-800-341-7400.
OCTOBER 31, 1999
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Federated
World-Class Investment Manager
Federated Michigan Intermediate
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
1041202B (10/99)
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CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 5
Redemption in Kind 5
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 11
Investment Ratings 13
Addresses 15
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. The Fund changed its name from Michigan
Intermediate Municipal Trust to Federated Michigan Intermediate Municipal Trust
on March 31, 1996. Effective October 1, 1999, the Trust changed its name from
Municipal Securities Income Trust to Federated Municipal Securities Income
Trust. The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to the
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a AAA municipal security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings or are not widely held.
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of
Michigan and Michigan municipalities. The investment objective may not be
changed by the Fund's Trustees without shareholder approval.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
INVESTMENT COMPANY ACT 1940. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE CHANGED
BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED BEFORE
ANY MATERIAL CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
RESTRICTED SECURITIES
The Fund may not invest its securities subject to restrictions on resale under
the Securities Act of 1933.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In applying the Fund's commodities limitation, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities.
To conform to the current view of the SEC that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limits as long as the policy of the SEC remains in
effect. The Fund will consider concentration to be the investment of more than
25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT
You can sign a Letter of Intent committing to purchase a certain amount of
Shares within a 13-month period to combine such purchases in calculating the
sales charge. The Fund's custodian will hold Shares in escrow equal to the
maximum applicable sales charge. If you complete the Letter of Intent, the
Custodian will release the Shares in escrow to your account. If you do not
fulfill the Letter of Intent, the Custodian will redeem the appropriate amount
from the Shares held in escrow to pay the sales charges that were not applied to
your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees or Directors, employees and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* of Shares that represent a reinvestment within 120 days of a
previous redemption;
* of Shares held by the Trustees or Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities; and
* which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Shares that its customer has not
redeemed over the first year.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares.
As of October 7, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Enbanco, Traverse City, MI, owned
approximately 2,492,416 Shares (35.23%); First Mar & Co., Marquette, Michigan,
owned approximately 1,055,239 Shares (14.91%); Charles Schwab & Co., Inc., San
Francisco, California, owned approximately 546,500 Shares (7.72%); Shoreline
Co., South Haven, Michigan, owned approximately 535,917 Shares (7.57%); and
First Mar & Co., Marquette, Michigan, owned approximately 507,500 Shares
(7.17%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The Fund is entitled to a loss carryforward, which may reduce the taxable income
or gain that the Fund would realize, and to which the shareholder would be
subject, in the future.
STATE TAXES
MICHIGAN TAXES
Under existing Michigan laws, distributions made by the Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as "exempt-interest dividends" under the Code and represent (i) income and
dividends from obligations of Michigan, which obligations are excluded from
federal adjusted gross income; or (ii) income from obligations of the United
States government which Michigan is prohibited by law from subjecting to a net
income tax.
Distributions by the Fund are not subject to the Michigan Single Business Tax to
the extent that such distributions are derived from interest on obligations that
would be exempt if owned directly by the shareholder, such as obligations of
Michigan and the United States government.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Funds are
exempt from federal regular income taxes, such dividends also will be exempt
from Michigan municipal income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of October 7, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN and TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center-Downtown; Hematologist,
Oncologist and Internist, University of
Pittsburgh Medical Center; Member,
National Board of Trustees, Leukemia
Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman and
Director, Massachusetts
Bankers Association;
Director, Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Trust and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT and TRUSTEE Federated Fund Complex;
President, Chief Executive Officer and
Director, Federated Investors, Inc.;
President and Trustee, Federated
Investment Management Company and
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust and
Birth Date: October 22, 1930 of the Funds in the 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp., Federated Services Company and
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President-Funds Financial companies in the
1001 Liberty Avenue Services Division, Fund Complex
Pittsburgh, PA Federated Investors, Inc.;
TREASURER formerly: various
management positions
within Funds Financial
Services Division of
Federated Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust and
Birth Date: June 1, 1960 the Fund's portfolio 1 other investment
Federated Investors Tower manager since March 1995. company in the
1001 Liberty Avenue He is Vice President of the Fund Complex
Pittsburgh, PA Trust. Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees on January 1,
1999. Messrs. Cunningham and Walsh became members of the Board of
Trustees on July 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar
year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
Advisory Fee Earned $317,944 $287,452 $257,217
Advisory Fee Reduction 250,823 264,185 257,217
Administrative Fee 125,000 125,002 125,000
SHAREHOLDER SERVICES FEE 53,640 - -
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year and Start of Performance
periods ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period ended August 31,
1999.
<TABLE>
<CAPTION>
START OF
30-DAY PERFORMANCE ON
PERIOD 1 YEAR 5 YEARS SEPTEMBER 18, 1991
<S> <C> <C> <C> <C>
Total Return NA (2.51%) 4.49% 5.57%
Yield 4.38% NA NA NA
Tax-Equivalent Yield 7.25% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
TAX EQUIVALENCY TABLE
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 STATE OF MICHIGAN
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 19.400% 32.400% 35.400% 40.400% 44.000%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 OVER 283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 OVER 283,150
TAX-EXEMPT YIELD:
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS SEVEN YEAR STATE GENERAL OBLIGATION BOND INDEX
Lehman Brothers Seven Year State General Obligation Bond Index, an index of
general obligation bonds rated A or better with 6-8 years to maturity.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "general municipal
bond funds" category in advertising and sales literature.
MORNINGSTAR, INC.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ
listed mutual funds of all types, according to their risk-adjusted returns. The
maximum rating is five stars, and ratings are effective for two weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Federated New York Municipal
Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
A mutual fund seeking 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 by investing primarily in a portfolio of long-term,
investment grade New York tax exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 8
What Do Shares Cost? 9
How is the Fund Sold? 11
How to Purchase Shares 11
How to Redeem and Exchange Shares 13
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 17
Independent Auditors' Report 28
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of
New York and New York municipalities. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of New York and New York
municipalities. Interest from the Fund's investments may be subject to the
federal alternative minimum tax for individuals and corporations (AMT). The
Fund's portfolio securities will be primarily long-term, investment grade
securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
INTEREST RATE RISKS
Prices of tax exempt securities generally fall when interest rates rise.
Interest rate charges have a greater effect on the price of fiscal income
securities with longer duration.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below their current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from New York, the Fund may be
subject to additional risks compared to funds that invest in multiple states.
New York's economy is relatively diversified across the manufacturing,
agriculture and service sectors. However, New York City is a major component of
the regional economy and is more exposed to downturns in the financial, real
estate and insurance industries.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
The Fund's Class A Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was (2.92%).
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 8.13% (quarter ended March 31, 1995). Its lowest quarterly
return was (7.14%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares Average Annual Total
Returns, reduced to reflect applicable sales charges, for the calendar periods
ended December 31, 1998. The table shows the Fund's total returns averaged over
a period of years relative to the Lehman Brothers Revenue Bond Index (LBRBI) and
the Lehman Brothers Municipal Bond Index (LBMBI), both broad-based market
indexes. The LBRBI is a total return performance benchmark for the long-term,
investment grade, revenue bond market. The LBMBI is a broad market performance
benchmark for the tax exempt bond market. To be included in the LBMBI, bonds
must have a minimum credit rating of Baa. Total returns for the indexes shown do
not reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND LBRBI LBMBI
<S> <C> <C> <C>
1 Year 0.96% 6.33% 6.22%
5 Years 4.66% 6.39% 6.49%
Start of Performance 1 6.43% 7.56% N/A
</TABLE>
1 The Fund's Class A Shares start of performance date was December 2, 1992.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED NEW YORK MUNICIPAL INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class A Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Reimbursements/Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.50%
Shareholder Services Fee 4 0.25%
Other Expenses 5 1.06%
Total Annual Fund Operating Expenses 2.21%
1 Although not contractually obligated to do so, the adviser, distributor and
shareholder services provider waived and reimbursed certain amounts. These are
shown below along with the net expenses the Fund actually paid for the fiscal
year ended August 31, 1999.
Total Reimbursement and Waiver of Fund Expenses 1.51%
Total Annual Operating Expenses (after reimbursements and waivers) 0.70%
2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. The management fee paid by the Fund (after
the voluntary waiver) was 0.00% for the fiscal year ended August 31, 1999. 3 The
distributor voluntarily waived a portion of the distribution (12b-1) fee. The
distributor can terminate this voluntary waiver at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary waiver) was 0.02% for the
fiscal year ended August 31, 1999. 4 The shareholder services provider
voluntarily waived a portion of the shareholder services fee. The shareholder
services provider can terminate this voluntary waiver at any time. The
shareholder services fee paid by the Fund (after the voluntary waiver) was 0.23%
for the fiscal year ended August 31, 1999. 5 The adviser has voluntarily
reimbursed other operating expenses of the Fund. The adviser can terminate this
voluntary reimbursement of other operating expenses at any time. The other
operating expenses paid by the Fund (after the voluntary reimbursement) were
0.45% for the fiscal year ended August 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A Shares for the
time periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares operating expenses are BEFORE WAIVERS AND
REIMBURSEMENTS as shown in the table and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year $ 664
3 Years $ 1,110
5 Years $ 1,581
10 Years $ 2,880
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of New York and New York
municipalities. As a matter of operating policy, the Fund ordinarily will
attempt to invest so that 100% of its annual interest income is exempt from such
taxes. Interest income from the Fund's investments may be subject to AMT.
The Fund invests at least 65% of its assets in investment grade securities. The
Fund does not limit itself to securities of a particular maturity range, but
currently focuses on long-term securities with maturities greater than ten
years. The Fund's investment adviser (Adviser) actively manages the Fund's
portfolio, seeking to manage the interest rate risk and credit risk assumed by
the Fund and provide superior levels of after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings;
* the financial condition of the issuer or guarantor;
* political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use futures contracts that cover a narrow range of circumstances;
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the state of New York and New York municipalities. It may
do this to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to receive
and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by New York issuers or credit enhanced by insurance companies or companies with
similar characteristics. As a result, the Fund will be more susceptible to any
economic, business, political or other developments which generally affect these
entities. New York's economy is relatively diversified across the manufacturing,
agriculture and service sectors. However, New York City is a major component of
the regional economy and is more exposed to downturns in the financial, real
estate and insurance industries.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater interest rate, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic and financial
setbacks may affect their prices more negatively, and their trading market may
be more limited. The Fund may invest up to 35% of its assets in noninvestment
grade securities.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE
MINIMUM CONTINGENT
INITIAL/SUBSEQUENT FRONT-END DEFERRED
INVESTMENT AMOUNTS 1 SALES CHARGE 2 SALES CHARGE 3
<S> <C> <C>
$1,500/$100 4.50% 0.00%
</TABLE>
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem." To determine whether your Contingent
Deferred Sales Charge may be waived, see "Eliminating the Contingent Deferred
Sales Charge" in the Fund's Statement of Additional Information.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less
than $250,000 3.75% 3.90%
$250,000 but less
than $500,000 2.50% 2.56%
$500,000 but less
than $1 million 2.00% 2.04%
$1 million or greater 1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. To determine whether your Contingent Deferred Sales Charge
may be waived, see "Eliminating the Contingent Deferred Sales Charge" in the
Fund's Statement of Additional Information.
The sales charge at purchase may be eliminated by:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
* within 120 days of redeeming Shares of an equal or lesser amount;
* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
* through wrap accounts or other investment programs where you pay the
investment professional directly for services;
* through investment professionals that receive no portion of the sales
charge;
* as a Federated Life Member and their immediate family members; or
* as a Trustee, Director or employee of the Fund, the Adviser, the Distributor
and their affiliates and the immediate family members of these individuals.
If your investment qualifies for an elimination of the sales charge, you or your
investment professional should notify the Fund's Distributor at the time of
purchase. If the Distributor is not notified, you will receive the reduced sales
charge only on additional purchases and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS A SHARES
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction. To
determine whether your Contingent Deferred Sales Charge may be waived, see
"Eliminating the Contingent Deferred Sales Charge" in the Fund's Statement of
Additional Information.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions, such as
broker/dealers, banks, fiduciaries or investment advisers, or to individuals,
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-New York taxpayers because it invests
in New York municipal securities.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed or exchanged;
* signatures of all shareholders exactly as registered; and
* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days;
* a redemption is payable to someone other than the shareholder(s) of
record; or
* IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
* ensure that the account registrations are identical;
* meet any minimum initial investment requirements; and
* receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Class A Shares subject to
a sales charge while redeeming Shares using this program.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated New
York Municipal Income Fund's dividends will be exempt from the New York taxes
discussed above to the extent they are derived from interest on obligations
exempt from such taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Redemptions and exchanges are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
MARY JO OCHSON
Mary Jo Ochson has been the Fund's portfolio manager since April 1997. She
is Vice President of the Fund. Ms. Ochson joined Federated in 1982 and has
been a Senior Portfolio Manager and a Senior Vice President of the Fund's
Adviser since 1996. From 1988 through 1995, Ms. Ochson served as a
Portfolio Manager and a Vice President of the Fund's Adviser. Ms. Ochson is
a Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 28.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.00 $10.62 $10.17 $10.13 $10.10
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.53 0.54 0.56 0.58 0.57
Net realized and
unrealized gain (loss) on
investments (0.64) 0.38 0.45 0.04 0.03
TOTAL FROM INVESTMENT
OPERATIONS (0.11) 0.92 1.01 0.62 0.60
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.53) (0.54) (0.56) (0.58) (0.57)
NET ASSET VALUE, END OF
PERIOD $10.36 $11.00 $10.62 $10.17 $10.13
TOTAL RETURN 1 (1.11%) 8.83% 10.13% 6.18% 6.41%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 2.21% 2.31% 2.41% 2.53% 2.33%
Net investment income 2 3.38% 3.36% 3.59% 3.69% 4.20%
Expenses (after waivers
and reimbursements) 0.70% 0.71% 0.66% 0.60% 0.59%
Net investment income
(after waivers
and reimbursements) 4.89% 4.96% 5.34% 5.62% 5.94%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $24,347 $24,351 $22,386 $21,932 $21,600
Portfolio turnover 24% 30% 59% 11% 55%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-96.6%
NEW YORK-96.6%
$ 1,000,000 Amherst, NY IDA, Tax-
Exempt Lease Revenue Bonds
(Series 1997A), 5.55%
(KeyBank, N.A.
LOC)/(Original Issue
Yield: 5.65%), 10/1/2017 A $ 971,620
500,000 Essex County, NY IDA, PCR
Refunding Revenue Bonds
(Series 1997C), 5.70%
(International Paper Co.),
7/1/2016 BBB+ 498,080
500,000 Essex County, NY IDA, Solid
Waste Disposal Revenue
Bonds (Series A), 5.80%
(International Paper Co.),
12/1/2019 BBB+ 489,460
760,000 Hamilton County, NY IDA,
Civic Facilities Revenue
Bond (Series 1998A), 5.25%
(Adirondack Historical
Association), 11/1/2018 Baa1 711,542
500,000 Long Island Power
Authority, Electric System
General Revenue Bonds
(Series 1998A), 5.50%
(Original Issue Yield:
5.57%), 12/1/2029 A- 476,285
1,000,000 Monroe County, NY IDA,
Civic Facilities Revenue
Bonds, 5.375%
(St. John Fisher
College)/(Asset Guaranty
INS)/(Original Issue
Yield: 5.55%), 6/1/2017 NR 956,920
305,000 Nassau County, NY IDA,
Civic Facility Revenue
Bonds, 6.85%
(Hofstra University),
1/1/2012 A 341,814
330,000 Nassau County, NY IDA,
Civic Facility Revenue
Bonds, 6.85%
(Hofstra University),
1/1/2013 A 369,831
1,000,000 New York City Municipal
Water Finance Authority,
Water & Sewer System
Revenue Bonds (Series A),
5.125% (Original Issue
Yield: 5.50%), 6/15/2021 A 922,240
1,000,000 New York City, NY IDA,
Civic Facility Revenue
Bonds (Series 1995), 6.30%
(College of New
Rochelle)/(Original Issue
Yield: 6.45%), 9/1/2015 Baa2 1,020,430
475,000 New York City, NY IDA,
Civic Facility Revenue
Bonds, 7.00%
(Mt. St. Vincent College,
NY), 5/1/2008 NR 507,390
400,000 New York City, NY IDA,
Civil Facilities Revenue
Bonds, 5.80%
(YMCA of Greater
NY)/(Original Issue Yield:
6.10%), 8/1/2016 Baa3 399,164
400,000 New York City, NY IDA,
Industrial Development
Revenue Bonds
(Series 1997), 5.75%
(Brooklyn Navy Yard
Cogeneration Partners,
L.P. Project)/(Original
Issue Yield: 5.81%),
10/1/2036 BBB- 379,776
400,000 New York City, NY IDA,
Revenue Bonds, 5.65%
(United Air Lines)/(Origin
al Issue Yield: 5.682%),
10/1/2032 BB+ 369,460
1,000,000 New York City, NY IDA,
Special Facilities Revenue
Bonds, 5.25%
(British Airways),
12/1/2032 A 880,100
750,000 New York City, NY IDA,
Special Facilities Revenue
Bonds, 6.90% (American
Airlines), 8/1/2024 BBB- 787,920
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW YORK-CONTINUED
$ 500,000 New York City, NY, GO UT
Bonds, 7.25% (Original
Issue Yield: 7.55%),
8/15/2019 A- $ 565,535
1,175,000 New York State Dormitory
Authority, Capital
Appreciation Revenue Bonds
(Manhattanville
College)/(MBIA
INS)/(Original Issue
Yield: 5.80%), 7/1/2022 AAA 322,808
900,000 New York State Dormitory
Authority, Revenue Bonds (Series A), 6.50% (University of
Rochester, NY)/(Original Issue Yield:
6.582%), 7/1/2019 A+ 968,814
1,000,000 New York State Dormitory
Authority, Revenue Bonds,
5.50% (Long Island
University)/(Asset
Guaranty INS)/(Original
Issue Yield: 5.75%),
9/1/2020 AA 967,970
500,000 New York State Dormitory
Authority, Revenue Bonds,
6.25%
(Nyack Hospital)/(Original
Issue Yield: 6.50%),
7/1/2013 Baa2 505,660
1,000,000 New York State
Environmental Facilities
Corp., Solid Waste
Disposal Revenue Bonds,
6.10% (Occidental
Petroleum Corp.)/(Original
Issue Yield: 6.214%),
11/1/2030 BBB+ 993,960
900,000 New York State
Environmental Facilities
Corp., Water Facilities
Revenue Refunding Bonds
(Series A), 6.30% (Spring
Valley Water Co., NY)/
(AMBAC INS), 8/1/2024 AAA 931,239
1,000,000 New York State HFA, (Series
1995A), Service Contract
Obligation Revenue Bonds,
6.375% (Original Issue
Yield: 6.45%), 9/15/2015 BBB+ 1,050,580
1,000,000 New York State Medical Care
Facilities Finance Agency,
FHA-Mortgage Revenue Bonds
(Series A), 6.50%
(Lockport Memorial
Hospital, NY)/ (FHA GTD),
2/15/2035 AA 1,065,080
1,000,000 New York State Medical Care
Facilities Finance Agency,
Revenue Bonds (Series B),
6.60% (FHA GTD)/(Original
Issue Yield: 6.625%),
8/15/2034 AA 1,072,990
2,000,000 New York State Mortgage
Agency, Revenue Bonds
(Series 40A),
6.70%, 4/1/2025 Aaa 2,101,400
500,000 New York State Thruway
Authority, Local Highway
and Bridge Service
Contract Revenue Bonds
(Series 1995), 6.25%
(Original Issue
Yield: 6.435%), 4/1/2014 BBB+ 546,785
400,000 Niagara Falls, NY CSD,
Certificates of
Participation (Series
1998), 5.375% (Original
Issue Yield: 5.42%),
6/15/2028 BBB- 368,712
500,000 Port Authority of New York
and New Jersey, Revenue
Bonds (Series 96), 6.60%
(FGIC INS)/(Original Issue
Yield: 6.65%), 10/1/2023 AAA 536,245
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
NEW YORK-CONTINUED
$ 1,000,000 Schenectady, NY IDA, Civic
Facility Revenue Bond
(Series A), 5.375% (Union
College)/ (AMBAC
INS)/(Original Issue
Yield: 5.40%), 12/1/2019 AAA $ 969,920
500,000 Suffolk County, NY IDA,
Industrial Development Revenue Bonds (Series 1998), 5.50%
(Nissequogue Cogen Partners Facility)/ (Original Issue Yield:
5.528%), 1/1/2023 NR 466,995
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST
$23,156,342) 23,516,725
SHORT-TERM MUNICIPALS-1.6%
NEW YORK-1.6%
400,000 New York City, NY
Transitional Finance
Authority (1998 Subseries
A-1), Weekly VRDNs
(Commerzbank AG, Frankfurt
LIQ), 3.25%, 11/15/2028 AA 400,000
TOTAL SHORT-TERM
MUNICIPALS (AT AMORTIZED
COST) 400,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$23,556,342) 2 $ 23,916,725
</TABLE>
Securities subject to alternative minimum tax represent 29.3% of the Fund's
portfolio 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 $23,556,342. The
net unrealized appreciation of investments on a federal tax basis amounts to
$360,383 which is comprised of $810,604 appreciation and $450,221 depreciation
at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($24,346,860) at August 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation CSD -Central School
District 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 VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$23,556,342) $ 23,916,725
Cash 118,862
Income receivable 378,415
Receivable for shares sold 642
Prepaid expenses 6,401
TOTAL ASSETS 24,421,045
LIABILITIES:
Payable for shares
redeemed $ 1,231
Income distribution
payable 72,954
TOTAL LIABILITIES 74,185
Net assets for 2,350,142
shares outstanding $ 24,346,860
NET ASSETS CONSIST OF:
Paid in capital $ 25,017,680
Net unrealized
appreciation of
investments 360,383
Accumulated net realized
loss on investments (1,031,203)
TOTAL NET ASSETS $ 24,346,860
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
Net Asset Value Per Share
($24,346,860 / 2,350,142
shares outstanding) $10.36
Offering Price Per Share
(100/95.50 of $10.36) 1 $10.85
Redemption Proceeds Per
Share (100.00/100 of
$10.36) 2 $10.36
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,420,001
EXPENSES:
Investment advisory fee $ 101,464
Administrative personnel
and services fee 125,000
Custodian fees 1,712
Transfer and dividend
disbursing agent fees and
expenses 34,541
Directors'/Trustees' fees 2,591
Auditing fees 13,926
Legal fees 3,201
Portfolio accounting fees 50,620
Distribution services fee 126,831
Shareholder services fee 63,415
Share registration costs 14,537
Printing and postage 20,245
Insurance premiums 1,660
Miscellaneous 2,214
TOTAL EXPENSES 561,957
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (101,464)
Waiver of distribution
services fee (121,757)
Waiver of shareholder
services fee (5,073)
Reimbursement of other
operating expenses (155,066)
TOTAL WAIVERS AND
REIMBURSEMENTS (383,360)
Net expenses 178,597
Net investment income 1,241,404
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (43,863)
Net change in unrealized
depreciation of
investments (1,484,014)
Net realized and
unrealized loss on
investments (1,527,877)
Change in net assets
resulting from operations $ (286,473)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 1,241,404 $ 1,145,349
Net realized gain (loss) on
investments ($(43,863) and
$146,593, respectively,
as computed for federal
tax purposes) (43,863) 146,593
Net change in unrealized
appreciation/(depreciation) (1,484,014) 660,446
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (286,473) 1,952,388
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (1,241,404) (1,145,349)
SHARE TRANSACTIONS:
Proceeds from sale of shares 5,840,749 4,905,471
Net asset value of shares
issued to shareholders in
payment of
distributions declared 551,435 548,237
Cost of shares redeemed (4,868,867) (4,295,799)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 1,523,317 1,157,909
Change in net assets (4,560) 1,964,948
NET ASSETS:
Beginning of period 24,351,420 22,386,472
End of period $ 24,346,860 $ 24,351,420
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six 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. 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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $907,100, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2004 $907,100
</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 Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
Shares sold 534,622 452,550
Shares issued to
shareholders in payment of
distributions declared 50,762 50,557
Shares redeemed (448,964) (396,777)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 136,420 106,330
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 or reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, 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, 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 August 31, 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 amounting to $10,400,000 and $9,700,000, 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 August 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $7,632,800
Sales $5,835,551
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 1999, 23.7% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 8.1% of total investments.
YEAR 2000 (UNAUDITED)
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.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES OF
FEDERATED MUNICIPAL SECURITIES INCOME TRUST
AND SHAREHOLDERS OF FEDERATED NEW YORK MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated New York Municipal Income Fund as of
August 31, 1999, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended August 31, 1999 and
1998, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated New York
Municipal Income Fund as of August 31, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
[GRAPHIC]
Federated
World-Class Investment Manager
PROSPECTUS
Federated New York Municipal Income
Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
and Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, the Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
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
Investment Company Act File No. 811-6165
Cusip 625922208
2092919A-FS (10/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated New York Municipal Income
Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated New York Municipal Income
Fund Class A Shares (Fund), dated October 31, 1999. Obtain the prospectus and
the Annual Report's Management Discussion and Analysis without charge by calling
1-800-341-7400.
OCTOBER 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated New York Municipal Income
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
2092919B (10/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 6
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 7
Who Manages and Provides Services to the Fund? 8
How Does the Fund Measure Performance? 11
Who is Federated Investors, Inc.? 13
Investment Ratings 14
Addresses 16
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. The Fund changed its name from New York
Municipal Income Fund to Federated New York Municipal Income Fund on February
26, 1996 (effective date March 31, 1996). Effective October 1, 1999, the Trust
changed its name from Municipal Securities Income Trust to Federated Municipal
Securities Income Trust. The Fund's investment adviser is Federated Investment
Management Company (Adviser). The Adviser, formerly known as Federated Advisers,
changed its name effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to the
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a AAA municipal security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICY
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. Under normal circumstances, the
Fund invests its assets so that at least 80% of its annual interest is exempt
from federal regular income tax and the personal income taxes imposed by the
state of New York and New York municipalities. The investment objective and
policy may not be changed by the Fund's Trustees without shareholder approval.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
RESTRICTED SECURITIES
The Fund may purchase securities subject to restrictions on resale under the
federal securities laws.
Except with respect to borrowing money, the Fund may borrow money, directly or
indirectly, and issue senior securities to the maximum extent permitted under
the 1940 Act.
In applying the Fund's commodities restriction, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to end users of their
services, for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the Securities and Exchange Commission (SEC)
staff that only domestic bank instruments may be excluded from industry
concentration limitations, the Fund will not exclude foreign bank instruments
from industry concentration tests as long as the policy of the SEC remains in
effect. The Fund will consider concentration to be the investment of more than
25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT CLASS A SHARES
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees or Directors, employees and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE (CDSC)
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on certain redemptions as listed below. If your redemption qualifies,
you or your investment professional should notify the Distributor at the time of
redemption to eliminate the CDSC. If the Distributor is not notified, the CDSC
will apply. Based on these conditions, no CDSC will be imposed on redemptions of
Shares:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
* of Shares held by the Trustees or Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities; and
* which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
ADVANCE PAYMENTS
AS A PERCENTAGE OF
AMOUNT PUBLIC OFFERING PRICE
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote. Trustees may be
removed by the Board or by shareholders at a special meeting. A special meeting
of shareholders will be called by the Board upon the written request of
shareholders who own at least 10% of the Trust's outstanding shares.
As of October 5, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: North Fork Bank, Mattituck, NY, owned
approximately 225,144 Shares (9.60%); and Merrill Lynch Pierce Fenner & Smith
(as record owner holding Shares for its clients), Jacksonville, FL, owned
approximately 726,543 Shares (30.99%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund. The
Fund is entitled to a loss carryforward, which may reduce the taxable income or
gain that the Fund would realize, and to which the shareholder would be subject,
in the future.
STATE TAXES
Under existing New York laws, distributions made by the Fund will not be subject
to New York state or New York City personal income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Code, and
represent interest income attributable to obligations of the state of New York
and its political subdivisions, as well as certain other obligations, the
interest on which is exempt from New York state and New York City personal
income taxes, such as, for example, certain obligations of the Commonwealth of
Puerto Rico. Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
New York state and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York state and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of the
dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the extent that they are exempt from the New York City personal
income tax.
Dividends paid by the Fund are not excluded from net income in determining New
York state or New York City franchise taxes on corporations or financial
institutions.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser. As of October
5, 1999, the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Class A Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly:
President, Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; companies in the
Palm Beach, FL Chairman, President and Fund Complex
TRUSTEE Chief Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer,
Wang Laboratories;
Director, First National
Bank of Boston; Director,
Apollo Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist and Internist,
University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.
J. CHRISTOPHER DONAHUE+ President or Executive $0 $0 for the Trust and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND TRUSTEE President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust and
Birth Date: October 22, 1930 of the Funds in the 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp, Federated Services Company and
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President-Funds Financial companies in the
1001 Liberty Avenue Services Division, Fund Complex
Pittsburgh, PA Federated Investors, Inc.;
TREASURER formerly: various
management positions
within Funds Financial
Services Division of
Federated Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust and
Birth Date: June 1, 1960 the Fund's portfolio 1 other investment
Federated Investors Tower manager March 1995. He is company in the
1001 Liberty Avenue Vice President of the Fund. Fund Complex
Pittsburgh, PA Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees January 1, 1999.
Messrs. Cunningham and Walsh became members of the Board of Trustees on
July 1, 1999. They did not earn any fees for serving the Fund Complex
since these fees are reported as of the end of the last calendar year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $101,464 $ 92,417 $ 91,304
Advisory Fee Waiver 101,464 110,901 4,621
Administrative Fee 125,000 125,000 125,000
12B-1 FEE 5,074 - -
Shareholder Services Fee 58,342 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information. Share performance reflects the effect of non-recurring
charges, such as maximum sales charges, which, if excluded, would increase the
total return and yield. The performance of Shares depends upon such variables
as: portfolio quality; average portfolio maturity; type and value of portfolio
securities; changes in interest rates; changes or differences in the Fund's or
any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year and Start of Performance
periods ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period August 31, 1999.
<TABLE>
<CAPTION>
30-DAY START OF PERFORMANCE
PERIOD 1 YEAR 5 YEARS ON DECEMBER 2, 1992
<S> <C> <C> <C> <C>
CLASS A SHARES
Total Return - (6.47%) 5.04% 5.36%
Yield 4.97% - - -
Tax-Equivalent Yield 8.22% - - -
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
TAX EQUIVALENCY TABLE
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 STATE OF NEW YORK
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 21.850% 34.850% 37.850% 42.850% 46.450%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 OVER $283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 OVER $283,150
<CAPTION>
TAX-EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
<S> <C> <C> <C> <C> <C>
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS REVENUE BOND INDEX
Lehman Brothers Revenue Bond Index is a total return performance benchmark for
the long-term, investment grade, revenue bond market. Returns and attributes for
the index are calculated semi-monthly.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "New York Municipal
Bond Funds" category in advertising and sales literature.
MORNINGSTAR, INC.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks. Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED NEW YORK MUNICIPAL INCOME FUND
Class A Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Federated North Carolina
Municipal Income Fund
(formerly CCB North Carolina Municipal Securities Fund)
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
A mutual fund seeking current income exempt from federal regular income tax and
the personal income taxes imposed by the state of North Carolina by investing
primarily in a portfolio of long-term, investment grade North Carolina tax
exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 4
What are the Fund's Investment Strategies? 5
What are the Principal Securities in Which the
Fund Invests? 6
What are the Specific Risks of Investing in the Fund? 9
What Do Shares Cost? 10
How is the Fund Sold? 12
How to Purchase Shares 12
How to Redeem and Exchange Shares 13
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 17
Independent Auditors' Report 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of North
Carolina. While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the strategies and policies
described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of North Carolina. Interest from the
Fund's investments may be subject to the federal alternative minimum tax for
individuals and corporations (AMT). The Fund's portfolio securities will be
primarily long-term, investment grade securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
The primary factors that may reduce the Fund's returns include:
INTEREST RATE RISKS
Prices of tax exempt securities generally fall when interests rates rise.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below its current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from North Carolina, the Fund may be
subject to additional risks compared to funds that invest in multiple states.
North Carolina's economy is heavily dependent upon certain industries, such as
agriculture, manufacturing and tourism. Any downturn in these and other
industries may adversely affect the economy of the state.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
The Bar Chart and Performance Table below reflect historical performance data
for CCB North Carolina Municipal Securities Fund (the "Former Fund") prior to
its reorganization. On July 23, 1999, the Former Fund was reorganized as a
portfolio of Municipal Securities Income Trust and renamed Federated North
Carolina Municipal Income Fund. As a result of the reorganization, the Fund has
a different investment adviser than the Former Fund. The performance data below
reflects the actual total operating expenses of the Former Fund, which are less
than the anticipated expenses for the Fund.
[Graphic]
The bar chart shows the variability of the Former Fund's total returns on a
calendar year-end basis.
The total returns displayed for the Former Fund do not reflect the payment of
any sales charges or recurring shareholder account fees. If these charges or
fees had been included, the returns shown would have been lowered.
The Former Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was (2.29%).
Within the period shown in the Chart, the Former Fund's highest quarterly return
was 6.84% (quarter ended March 31, 1995). Its lowest quarterly return was
(5.19%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Former Fund's Average Annual Total Returns,
reduced to reflect applicable sales charges, for the calendar periods ended
December 31, 1998.
The table shows the Former Fund's total returns averaged over a period of years
relative to the Lehman Brothers State General Obligation Bond Index (LBSGOBI)
and the Lehman Brothers Municipal Bond Index (LBMBI), both broad-based market
indexes, and Lipper North Carolina Municipal Debt Funds Index (LNCMDFI), an
average of funds with similar investment objectives. Total returns for the
indexes shown do not reflect sales charges, expenses or other fees that the SEC
requires to be reflected in the Fund's performance. The investment adviser has
elected to change the benchmark of the Fund from the LBSGOBI to the LBMBI. The
LBMBI is more representative of the securities typically held by the Fund.
Indexes are unmanaged, and it is not possible to invest directly in an index.
<TABLE>
<CAPTION>
CALENDAR PERIOD FORMER FUND LBSGOBI LNCMDF LBMBI
<S> <C> <C> <C> <C>
1 Year 1.28% 6.50% 5.56% 6.20%
5 Years 4.26% 5.96% 5.13% 6.22%
Start of Performance 1 5.52% 6.71% 6.12% 7.43%
</TABLE>
1 The Former Fund's start of performance date was July 22, 1992.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND
(Formerly, CCB North Carolina Municipal Securities Fund)
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.50%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions)
(as a percentage of
offering price) None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waivers)
1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 0.39%
Total Annual Fund
Operating Expenses 4 1.29%
1 Although not contractually obligated to do so, the adviser and distributor
expect to waive certain amounts through the fiscal year ending August 31, 2000.
These are shown below along with the net expenses the Fund expects to actually
pay through the fiscal year ending August 31, 2000.
Total Waivers of Fund
Expenses 0.50%
Total Actual Annual Fund
Operating Expenses (after
waivers) 4 0.79% 2 The adviser expects to voluntarily waive a portion of the
Management Fee through the fiscal year ending August 31, 2000. The adviser can
terminate this anticipated voluntary waiver at any time. The Management Fee paid
by the Fund (after the anticipated voluntary waiver) is expected to be 0.15%
through the fiscal year ending August 31, 2000. 3 The Fund does not expect to
pay or accrue the Distribution (12b-1) Fee through the fiscal year ending August
31, 2000. The distributor can elect to accrue or charge the Distribution (12b-1)
Fee, and thereby terminate this voluntary waiver at any time. The Distribution
(12b-1) Fee paid by the Fund (after the anticipated voluntary waiver) is
expected to be 0.00% through the fiscal year ending August 31, 2000. 4 For the
fiscal year ended May 31, 1998 (prior to its reorganization into the Fund), CCB
North Carolina Municipal Securities Fund's Total Annual Fund Operating Expenses
and Total Actual Annual Fund Operating Expenses (after waivers) were 1.27% and
0.52%, respectively.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds. The Example also
reflects the yearly totals of the Former Fund for comparative purposes.
The Example assumes that you invest $10,000 in the Fund's Shares and Former
Fund's Shares for the time periods indicated and then redeem all of your Shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Shares and Former Fund's Shares
operating expenses are BEFORE WAIVERS as shown in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Federated North Carolina Municipal Income Fund $575 $841 $1,126 $1,936
CCB North Carolina Municipal Securities Fund $574 $835 $1,116 $1,915
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of North Carolina. As a matter of
operating policy, the Fund ordinarily will attempt to invest so that 100% of its
annual interest income is exempt from such taxes. Interest income from the
Fund's investments may be subject to AMT.
The Fund invests at least 65% of its portfolio in investment grade securities.
The Fund does not limit itself to securities of a particular maturity range, but
currently focuses on long-term securities with maturities greater than ten
years. The Fund's investment adviser (Adviser) actively manages the Fund's
portfolio, seeking to manage the interest rate risk and credit risk assumed by
the Fund and to provide superior levels of after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the duration. The Adviser considers a variety
of factors, including the following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings;
* the financial condition of the issuer or guarantor; and
* political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use futures contracts that cover a narrow range of circumstances;
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the state of North Carolina. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to receive and distribute
taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by North Carolina issuers or credit enhanced by insurance companies with similar
characteristics or credit enhanced by private insurance companies, by issuers
located in the same state, or with other similar characteristics. As a result,
the Fund will be more susceptible to any economic, business, political, or other
developments which generally affect these entities.
North Carolina's economy is heavily dependent upon certain industries, such as
agriculture, manufacturing and tourism. Any downturn in these and other
industries may adversely affect the economy of the state. Since the Fund invests
primarily in issuers from a single state, the Fund may be subject to additional
risks compared to funds that invests in multiple states.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited. The Fund may invest up to 35% of its assets in
noninvestment grade securities.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE
MINIMUM INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED
SHARES INVESTMENT SALES SALES
OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
<S> <C> <C> <C>
Class A $1,500/$100 4.50% 0.00%
</TABLE>
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem." To determine whether your Contingent
Deferred Sales Charge may be waived, see "Eliminating the Contingent Deferred
Sales Charge" in the Fund's Statement of Additional Information.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
CLASS A SHARES
Sales Charge
as a Sales Charge
Percentage as a
of Public Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or greater 1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. To determine whether your Contingent Deferred Sales Charge
may be waived, see "Eliminating the Contingent Deferred Sales Charge" in the
Fund's Statement of Additional Information.
THE SALES CHARGE AT PURCHASE MAY BE ELIMINATED BY:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
* within 120 days of redeeming Shares of an equal or lesser amount;
* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
* through wrap accounts or other investment programs where you pay the
investment professional directly for services;
* through investment professionals that receive no portion of the sales
charge;
* as a Federated Life Member (Class A Shares only) and their immediate
family members;
* as a Trustee, Director or employee of the Fund, the Adviser, the Distributor
and their affiliates, and the immediate family members of these individuals; or
* through financial intermediaries that do not receive sales charge dealer
concessions.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS A SHARES
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction. To
determine whether your Contingent Deferred Sales Charge may be waived, see
"Eliminating the Contingent Deferred Sales Charge" in the Fund's Statement of
Additional Information.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as
broker/dealers, banks, fiduciaries and investment advisers, or to individuals,
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-North Carolina taxpayers because it
invests in North Carolina municipal securities.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed or exchanged;
* signatures of all shareholders exactly as registered; and
* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days;
* a redemption is payable to someone other than the shareholder(s) of
record; or
* IF EXCHANGING (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
* ensure that the account registrations are identical;
* meet any minimum initial investment requirements; and
* receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Class A Shares subject to
a sales charge while redeeming Shares using this program.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund does not issue share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges. In
addition, you will receive periodic statements reporting all account activity,
including systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated North
Carolina Municipal Income Fund's dividends will be exempt from the North
Carolina taxes discussed above to the extent they are derived from interest on
obligations exempt from such taxes. Capital gains and non-exempt dividends are
taxable whether paid in cash or reinvested in the Fund. Redemptions and
exchanges are taxable sales. Fund distributions may be subject to AMT. Please
consult your tax adviser regarding your federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
MARY JO OCHSON
Mary Jo Ochson has been the Fund's portfolio manager since April 1997. She
is Vice President of the Fund. Ms. Ochson joined Federated in 1982 and has
been a Senior Portfolio Manager and a Senior Vice President of the Fund's
Adviser since 1996. From 1988 through 1995, Ms. Ochson served as a
Portfolio Manager and a Vice President of the Fund's Adviser. Ms. Ochson is
a Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 30.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
AUGUST 31, YEAR ENDED MAY 31,
1999 1 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.72 $10.89 $10.57 $10.34 $10.44 $10.17
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.11 0.47 0.45 0.49 0.49 0.48
Net realized and
unrealized gain (loss) on
investments (0.28) (0.07) 0.32 0.23 (0.10) 0.27
TOTAL FROM
INVESTMENT OPERATIONS (0.17) 0.40 0.77 0.72 0.39 0.75
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.11) (0.47) (0.45) (0.49) (0.49) (0.48)
Distributions from net
realized gain
on investments - (0.10) - - - -
TOTAL DISTRIBUTIONS (0.11) (0.57) (0.45) (0.49) (0.49) (0.48)
NET ASSET VALUE,
END OF PERIOD $10.44 $10.72 $10.89 $10.57 $10.34 $10.44
TOTAL RETURN 2 (1.56%) 3.65% 7.77% 7.13% 3.72% 7.71%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.86% 4 1.27% 1.26% 1.38% 1.27% 1.32%
Net investment income 3 3.05% 4 3.53% 3.75% 3.85% 3.98% 4.07%
Expenses (after waivers
and reimbursements) 0.64% 4 0.52% 0.51% 0.63% 0.52% 0.57%
Net investment income
(after waivers
and reimbursements) 4.27% 4 4.28% 4.50% 4.60% 4.73% 4.82%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $41,182 $40,177 $36,013 $35,892 $36,872 $39,803
Portfolio turnover 40% 18% 41% 30% 61% 47%
</TABLE>
1 On July 23, 1999, the CCB North Carolina Municipal Securities Fund was
reorganized as a portfolio of Municipal Securities Income Trust and was renamed
Federated North Carolina Municipal Income Fund. In addition, the Fund changed
its fiscal year end from May 31 to August 31.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived and reimbursed. If
such waivers and reimbursements had not occurred, the ratios would have been as
indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-98.8%
NORTH CAROLINA-98.8%
$ 500,000 Buncombe County, NC,
Certificate Participation
Refunding Bonds, 4.75%
(AMBAC INS), 12/1/2011 AAA $ 472,610
250,000 Catawba County, NC, GO UT
Bonds, 5.70%, 6/1/2003 AA- 261,975
500,000 Catawba County, NC, GO UT
Bonds, 5.75%, 6/1/2007 AA- 527,325
500,000 Catawba County, NC,
Hospital Revenue Refunding
Bond, 5.85% (Catawba
Memorial Hospital)/(United
States Treasury
GTD)/(Original Issue
Yield: 5.90%), 10/1/2004 AAA 531,505
500,000 Catawba County, NC,
Hospital Revenue Refunding
Bonds, 5.95% (Catawba
Memorial Hospital)/(United
States Treasury
GTD)/(Original Issue
Yield: 6.00%), 10/1/2005 AAA 532,935
750,000 Catawba County, NC,
Revenue Refunding Bonds,
4.50%, 10/1/2009 Aaa 713,985
1,500,000 Charlotte, NC, Water &
Sewer System, Revenue
Bonds, 5.25% (Original
Issue Yield: 5.66%),
6/1/2024 AA+ 1,417,545
500,000 Charlotte, NC, GO UT Public Improvement Bonds, 4.75% (Original
Issue Yield:
4.83%), 2/1/2013 AAA 474,500
500,000 Charlotte, NC, GO UT Public
Improvement Bonds, 5.30%,
4/1/2008 AAA 518,285
500,000 Chatham County, NC, GO UT
Bonds, 5.40%, 4/1/2007 A+ 520,435
500,000 Chatham County, NC, GO UT
Bonds, 5.40%, 4/1/2010 A+ 514,395
465,000 Chatham County, NC, GO UT
Refunding Bonds, 5.25%
(Original Issue Yield:
5.35%), 5/1/2010 A+ 472,756
1,000,000 Craven County, NC, GO UT
Bonds, 5.50%, 6/1/2010 AAA 1,039,000
500,000 Cumberland County, NC, GO
UT Refunding Bonds, 5.00%
(FGIC INS), 2/1/2013 AAA 489,695
480,000 Cumberland County, NC, GO UT, 5.00% (MBIA INS)/(Original Issue
Yield: 5.15%), 3/1/2015 AAA 463,186
1,200,000 Dare County, NC, Utility
System Revenue Bonds
(Series A), 5.25%,
6/1/2016 AAA 1,175,688
470,000 Duplin County, NC, GO UT
Bonds, 5.30% (MBIA
INS)/(Original Issue
Yield: 5.40%), 4/1/2007 AAA 486,746
500,000 Durham & Wake Counties
Special Airport District,
NC, GO UT Refunding Bonds,
5.75% (Original Issue
Yield: 5.80%), 4/1/2002 AAA 519,200
250,000 Fayetteville, NC, Public
Works Commission, Revenue
Bonds (Series B), 5.90%
(FSA INS)/(Original Issue
Yield: 6.00%), 3/1/2007 AAA 262,625
500,000 Fayetteville, NC, Public
Works Commission, Revenue
Bonds, 5.40% (AMBAC
INS)/(Original Issue
Yield: 5.50%), 3/1/2009 AAA 513,480
500,000 Forsyth County, NC, GO UT,
4.75% (Original Issue
Yield: 5.00%), 2/1/2013 AAA 474,500
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
NORTH CAROLINA-CONTINUED
$ 400,000 Forsyth County, NC, School
Improvements, 4.50%
(Original Issue Yield:
4.55%), 8/1/2013 AAA $ 367,468
500,000 Gastonia, NC, GO UT, 5.50%
(MBIA INS)/(Original Issue
Yield: 5.55%), 5/1/2013 AAA 510,820
500,000 Guilford County, NC, GO UT
Bonds, 5.30% (Original
Issue Yield: 5.40%),
5/1/2010 AA+ 513,290
500,000 Guilford County, NC, GO UT
Bonds, 5.30%, 5/1/2009 AA+ 516,190
500,000 Guilford County, NC, GO UT
Bonds, 5.40% (Original
Issue Yield: 5.55%),
4/1/2009 AA+ 516,760
500,000 Guilford County, NC, GO UT,
5.40% (Original Issue
Yield: 5.55%), 5/1/2012 AA+ 511,255
575,000 High Point, NC, Revenue
Bonds, 5.60% (Original
Issue Yield: 5.85%),
3/1/2014 AA 591,847
500,000 Iredell County, NC,
Certificates of
Participation, 5.50% (FGIC
INS)/(Original Issue
Yield: 5.60%), 6/1/2001 AAA 511,630
350,000 Iredell County, NC,
Certificates of
Participation, 6.125%
(FGIC INS)/(Original Issue
Yield: 6.23%), 6/1/2007 AAA 370,909
1,250,000 Johnston County, NC,
Finance Corp., Installment
Payment Revenue Bonds,
5.25% (Johnston County,
NC)/(FSA INS)/(Original
Issue Yield: 5.377%),
8/1/2021 AAA 1,188,287
2,000,000 Martin County, NC, IFA,
(Series 1995) Solid Waste
Disposal Revenue Bonds,
6.00% (Weyerhaeuser Co.),
11/1/2025 A 1,995,880
350,000 Mecklenburg County, NC, GO
UT, 5.50% (Original Issue
Yield: 5.60%), 4/1/2011 AAA 360,546
1,000,000 Moore County, NC, GO UT
Bonds, 4.90% (MBIA INS),
6/1/2013 AAA 961,680
500,000 Mooresville, NC, Grade
School District Facilities
Corp., Certificates of
Participation, 6.30%
(AMBAC INS)/(Original
Issue Yield: 6.348%),
10/1/2009 AAA 535,535
500,000 Morganton, NC, GO UT
Revenue Bonds, 5.60% (FGIC
INS), 6/1/2007 AAA 525,585
500,000 Morganton, NC, Water &
Sewer GO UT Revenue Bonds,
5.60% (FGIC INS), 6/1/2008 AAA 524,915
1,000,000 New Hanover County, NC,
Hospital, Health,
Hospital, Nursing Revenue
Bonds, 5.25%, 10/1/2012 AAA 993,880
500,000 New Hanover County, NC,
Hospital, Revenue Bonds,
5.25% (MBIA INS)/(Original
Issue Yield: 4.544%),
10/1/2011 AAA 502,420
500,000 New Hanover County, NC,
(Project R-5) GO UT Bonds,
5.40% (Original Issue
Yield: 5.45%), 3/1/2009 AA- 517,080
500,000 New Hanover County, NC, GO
UT Bonds, 5.30% (Original
Issue Yield: 5.50%),
5/1/2014 AA- 498,295
500,000 New Hanover County, NC, GO
UT Bonds, 5.50% (Original
Issue Yield: 5.70%),
3/1/2012 AA- 512,965
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
NORTH CAROLINA-CONTINUED
$ 750,000 North Carolina Educational
Facilities Finance Agency,
Revenue Bonds, 6.625%
(Duke University),
10/1/2008 AA+ $ 796,380
1,000,000 North Carolina HFA, Home
Ownership Revenue Bonds
(Series 5-A), 5.55%,
1/1/2019 AA 977,900
625,000 North Carolina Medical
Care Commission, Health
Care Facilities Revenue
Bonds, 5.50% (Scotland
Memorial Hospital)/(Asset
Guaranty INS)/(Original
Issue Yield: 5.593%),
10/1/2019 AA 596,831
200,000 North Carolina Medical
Care Commission, Revenue
Bonds, 5.95% (Presbyterian
Health Services
Corp)/(Original Issue
Yield: 6.00%), 10/1/2007 AA 213,174
1,850,000 North Carolina Municipal
Power Agency No. 1, Revenue
Bonds, 10.50% (Catawba
Electric)/(United States
Treasury COL), 1/1/2010 AAA 2,425,147
500,000 North Carolina Municipal
Power Agency No. 1, Revenue
Refunding Bonds, 5.25%
(Catawba Electric)/(AMBAC
INS)/(Original Issue
Yield: 5.55%), 1/1/2008 AAA 508,230
500,000 North Carolina Municipal
Power Agency No. 1, Revenue
Refunding Bonds, 5.75%
(Catawba Electric)/(AMBAC
INS)/(Original Issue
Yield: 5.80%), 1/1/2002 AAA 514,835
1,000,000 North Carolina State, GO
UT, 4.75% (Original Issue
Yield: 4.88%), 4/1/2013 AAA 948,570
500,000 North Carolina State, GO
UT, 4.75% (Original Issue
Yield: 4.93%), 4/1/2014 AAA 468,665
500,000 North Carolina State, GO
UT, 5.10%, 3/1/2008 AAA 511,245
1,500,000 Pitt County, NC, Refunding
Bonds, 5.25% (Pitt County
Memorial Hospital)/(United
States Treasury
GTD)/(Original Issue
Yield: 5.85%), 12/1/2021 Aaa 1,425,870
500,000 Rowan County, NC, GO UT
Bonds, 5.60% (MBIA INS),
4/1/2009 AAA 523,900
250,000 Stokes County, NC, GO UT Bonds, 4.90% (FGIC INS),
6/1/2012 AAA 242,668
1,000,000 Union County, NC, UT GO Bonds (Series 1999B), 5.25% (Original
Issue
Yield: 5.50%), 3/1/2020 AAA 985,980
600,000 Wake County, NC,
Industrial Facilities &
PCFA, Revenue Bonds, 6.90%
(Carolina Power & Light
Co.), 4/1/2009 A 620,868
2,050,000 Wilmington, NC,
Certificates of
Participation (Series A),
5.35% (MBIA INS)/(Original
Issue Yield: 5.45%),
6/1/2024 AAA 1,972,325
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
NORTH CAROLINA-CONTINUED
$ 500,000 Winston-Salem, NC, GO UT
Bonds, 5.40% (Original
Issue Yield: 5.30%),
6/1/2009 AAA $ 519,745
500,000 Winston-Salem, NC, GO UT
Bonds, 5.40% (Original
Issue Yield: 5.50%),
6/1/2011 AAA 513,760
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST
$40,599,830) 40,675,701
SHORT-TERM MUNICIPALS-4.6%
NORTH CAROLINA-4.6%
700,000 Person County, NC,
Industrial Facilities &
Pollution Control
Financing Authority Daily
VRDNs (Carolina Power &
Light Co.)/(SunTrust Bank,
Atlanta LOC) Aa3 700,000
1,200,000 Wake County, NC,
Industrial Facilities &
PCFA, (Series 1990B) Daily
VRDNs (Carolina Power &
Light Co.)/(Bank of New
York, New York LOC) AA- 1,200,000
TOTAL SHORT-TERM
MUNICIPALS (AT AMORTZED
COST $1,900,000) 1,900,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$42,499,830) 2 $ 42,575,701
</TABLE>
Securities that are subject to alternative minimum tax represent 8.6% of the
Fund's portfolio 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 $42,499,830. The
net unrealized appreciation of investments on a federal tax basis amounts to
$75,871 which is comprised of $564,190 appreciation and $488,319 depreciation at
August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($41,181,875) at August 31, 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 GO
- -General Obligation GTD -Guaranty HFA -Housing Finance Authority IFA -Industrial
Finance Authority INS -Insured LOC -Letter of Credit MBIA -Municipal Bond
Investors Assurance PCFA -Pollution Control Finance Authority UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$42,499,830) $ 42,575,701
Cash 36,993
Income receivable 681,763
Receivable for investments
sold 5,829,310
Receivable for shares sold 96,228
TOTAL ASSETS 49,219,995
LIABILITIES:
Payable for investments
purchased $ 7,885,670
Payable for shares
redeemed 14,678
Income distribution
payable 137,772
TOTAL LIABILITIES 8,038,120
Net assets for 3,943,813
shares outstanding $ 41,181,875
NET ASSETS CONSIST OF:
Paid in capital $ 41,208,691
Net unrealized
appreciation of
investments 75,871
Accumulated net realized
loss on investments (103,607)
Undistributed net
investment income 920
TOTAL NET ASSETS $ 41,181,875
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
Net Asset Value Per Share
($41,181,875 / 3,943,813
shares outstanding) $10.44
Offering Price Per Share
(100/95.50 of $10.44) 1 $10.93
Redemption Proceeds Per
Share (100.00/100 of
$10.44) 2 $10.44
</TABLE>
1 See "What Do Shares Cost?" 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
THREE MONTHS ENDED AUGUST 31, 1999 1
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 501,645
EXPENSES:
Investment advisory fee $ 61,865
Administrative personnel
and services fee 21,725
Custodian fees 2,472
Transfer and dividend
disbursing agent fees and
expenses 25,380
Directors'/Trustees' fees 750
Auditing fees 16,500
Legal fees 14,879
Portfolio accounting fees 13,138
Distribution services fee 10,375
Shareholder services fee 10,375
Share registration costs 7,545
Printing and postage 4,635
Miscellaneous 261
TOTAL EXPENSES 189,900
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (61,865)
Waiver of distribution
services fee (10,375)
Reimbursement of other
operating expenses (51,879)
TOTAL WAIVERS AND
REIMBURSEMENTS (124,119)
Net expenses 65,781
Net investment income 435,864
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (159,344)
Net change in unrealized
appreciation
(depreciation) of
investments (903,157)
Net realized and
unrealized loss on
investments (1,062,501)
Change in net assets
resulting from operations $ (626,637)
</TABLE>
1 On July 23, 1999, the CCB North Carolina Municipal Securities Fund was
reorganized as a portfolio of Municipal Securities Income Trust and was renamed
Federated North Carolina Municipal Income Fund. In addition, the Fund changed
its fiscal year end from May 31 to August 31.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,931,609
EXPENSES:
Investment advisory fee $ 301,408
Administrative personnel
and services fee 58,580
Custodian fees 13,069
Transfer and dividend
disbursing agent fees and
expenses 35,198
Directors'/Trustees' fees 4,761
Auditing fees 12,827
Legal fees 5,934
Portfolio accounting fees 45,190
Share registration costs 18,120
Printing and postage 8,748
Insurance premiums 339
Taxes 859
Miscellaneous 5,063
TOTAL EXPENSES 510,096
WAIVERS:
Waiver of investment
advisory fee (301,408)
Net expenses 208,688
Net investment income 1,722,921
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 181,395
Net change in unrealized
appreciation of
investments (440,652)
Net realized and
unrealized loss on
investments (259,257)
Change in net assets
resulting from operations $ 1,463,664
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
AUGUST 31, YEAR ENDED MAY 31,
1999 1 1999 1998
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 435,864 $ 1,722,921 $ 1,656,571
Net realized gain (loss) on
investments ($(159,344),
$181,395, and $562,076,
respectively, as computed
for federal tax purposes) (159,344) 181,395 562,076
Net change in unrealized
appreciation
(depreciation) (903,157) (440,652) 543,069
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (626,637) 1,463,664 2,761,716
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (435,689) (1,722,921) (1,656,571)
Distributions from net
realized gains - (367,968) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS TO
SHAREHOLDERS (435,689) (2,090,889) (1,656,571)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 3,798,955 10,238,583 5,401,737
Net asset value of shares
issued to shareholders in
payment of distributions
declared 34,404 188,967 169,069
Cost of shares redeemed (1,766,138) (5,636,038) (6,554,865)
CHANGE IN NET ASSETS
RESULTING FROM
SHARE TRANSACTIONS 2,067,221 4,791,512 (984,059)
Change in net assets 1,004,895 4,164,287 121,086
NET ASSETS:
Beginning of period 40,176,980 36,012,693 35,891,607
End of period (including
undistributed net
investment income of $920
and $745, respectively for
the three months ended
August 31, 1999 and the
year ended May 31, 1999) $ 41,181,875 $ 40,176,980 $ 36,012,693
</TABLE>
1 On July 23, 1999, the CCB North Carolina Municipal Securities Fund was
reorganized as a portfolio of Municipal Securities Income Trust and was renamed
Federated North Carolina Municipal Income Fund. In addition, the Fund changed
its fiscal year end from May 31 to August 31.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six portfolios. The
financial statements included herein are only those of Federated North Carolina
Municipal Income Fund (formerly CCB North Carolina Municipal Securities 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 North Carolina.
REORGANIZATION
On July 23, 1999, the CCB North Carolina Municipal Securities Fund was
reorganized as a portfolio of Federated Municipal Securities Income Trust and
was renamed Federated North Carolina Municpal Income Fund. In addition, the Fund
changed its fiscal year end from May 31 to August 31.
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 Trustees ("the Trustees") to issue an
unlimited number of full and fractional shares of beneficial (without par
value). Transactions in Shares were as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
AUGUST 31, YEAR ENDED MAY 31,
1999 1 1999 1998
<S> <C> <C> <C>
Shares sold 360,848 939,308 501,030
Shares issued to
shareholders in payment of
distributions declared 3,277 17,279 15,643
Shares redeemed (167,597) (516,525) (605,325)
NET CHANGE RESULTING FROM
FUND SHARE TRANSACTION 196,528 440,062 (88,652)
</TABLE>
1 The Fund changed its fiscal year end from May 31 to August 31.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion
Federated Investment Management Company became the Fund's investment adviser on
July 23, 1999. Prior to July 23, 1999, Central Carolina Bank and Trust Company
served as the Fund's investment adviser and received for its services an annual
investment advisory fee equal to 0.75% of the Fund's average daily net assets.
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 0.25% 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.
Prior to July 23, 1999, the CCB North Carolina Municipal Securities Fund did not
pay or accrue 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 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.
Prior to July 23, 1999, the CCB North Carolina Municipal Securities Income Fund
did not pay or accrue a shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT 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 three months ended August 31, 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 amounting to $10,728,434 and $9,476,320,
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
three months ended August 31, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $11,823,279
Sales $11,057,720
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 1999, 33.2% 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 percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12.8% of total investments.
YEAR 2000 (UNAUDITED)
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.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES OF
FEDERATED MUNICIPAL SECURITIES INCOME TRUST
AND SHAREHOLDERS OF
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated North Carolina Municipal Income Fund
as of August 31, 1999, the related statement of operations, the statement of
changes in net assets, and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
statements of Federated North Carolina Municipal Income Fund, formerly CCB North
Carolina Municipal Securities Fund, for the year ended May 31, 1999, were
audited by other auditors whose report dated July 9, 1999, express an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated North
Carolina Municipal Income Fund as of August 31, 1999, and the results of its
operations, the changes in its net assets and its financial highlights for the
three months then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated North Carolina Municipal
Income Fund
(formerly CCB North Carolina Municipal Securities Fund)
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
and Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, the Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected], or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
Federated North Carolina
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6165
Cusip 625922810
G02671-01 (10/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated North Carolina Municipal
Income Fund
(Formerly CCB North Carolina Municipal Securities Fund)
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated North Carolina Municipal
Income Fund Class A Shares (Fund), dated October 31, 1999. Obtain the prospectus
and the Annual Report's Management Discussion and Analysis without charge by
calling 1-800-341-7400.
OCTOBER 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated North Carolina Municipal
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
G02671-02 (10/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 6
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 13
Investment Ratings 14
Addresses 16
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. Effective October 1, 1999, the Trust changed
its name from Municipal Securities Income Trust to Federated Municipal
Securities Income Trust. The CCB North Carolina Municipal Securities Fund (the
"Former Fund") was established on July 22, 1992, and was reorganized as a
portfolio of the Trust on July 23, 1999. The Fund's investment adviser is
Federated Investment Management Company (Adviser).
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a AAA municipal security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. As an operating policy, bank instruments will
be limited to instruments of domestic banks.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in more
than seven days after notice, over-the-counter options and certain restricted
securities and municipal leases determined by the Board of Trustees not to be
liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In applying the Fund's commodities limitation, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration limitation: (1) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (2)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (3) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the Securities and Exchange
Commission (SEC) staff that only domestic bank instruments may be excluded from
industry concentration limitations, the Fund will not exclude foreign bank
instruments from industry concentration tests as long as the policy of the SEC
remains in effect. The Fund will consider concentration to be the investment of
more than 25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT CLASS A SHARES
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees or Directors, employees and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates;
* Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.
(Federated) on December 31, 1997;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on certain redemptions as listed below. If your redemption qualifies,
you or your investment professional should notify the Distributor at the time of
redemption to eliminate the CDSC. If the Distributor is not notified, the CDSC
will apply. Based on these conditions, no CDSC will be imposed on redemptions of
Shares:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
* of Shares held by the Trustees or Director, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities; and
* which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
ADVANCE PAYMENTS
AS A PERCENTAGE OF
AMOUNT PUBLIC OFFERING PRICE
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Fund have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote. Trustees may be removed by the Board or by shareholders at a
special meeting. A special meeting of shareholders will be called by the Board
upon the written request of shareholders who own at least 10% of the Trust's
outstanding shares of all series entitled to vote.
As of October 19, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Central Carolina Bank &
Trust, Durham, NC, owned approximately 3,448,794 Shares (88.35%). Shareholders
owning 25% or more of outstanding Shares may be in control and be able to affect
the outcome of certain matters presented for a vote of shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing North Carolina laws, shareholders of the Fund will not be subject
to North Carolina income taxes on Fund dividends to the extent that such
dividends represent exempt-interest dividends as defined in the Code, which are
directly attributable to (a) interest on obligations issued by or on behalf of
the State of North Carolina, or its political subdivisions; or (b) interest on
obligations of the United States or any other issuer whose obligations are
exempt from state income taxes under federal law.
To the extent that Fund dividends are attributable to other sources, such
dividends will be subject to the state's income taxes.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser. As of October
19, 1999, the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Class A Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of $331.87 $0 for the Trust and
Birth Date: March 5, 1943 some of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist and Internist,
University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.
J. CHRISTOPHER DONAHUE+ President or Executive $0 $0 for the Trust and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
and TRUSTEE President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust and
Birth Date: October 22, 1930 of the Funds in the 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp., Federated Services Company and
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust and
Birth Date: June 1, 1960 the Fund's portfolio 1 other investment
Federated Investors Tower manager March 1995. He is company in the
1001 Liberty Avenue Vice President of the Fund. Fund Complex
Pittsburgh, PA Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees January 1, 1999.
Messrs. Cunningham and Walsh became members of the Board of Trustees on
July 1, 1999. They did not earn any fees for serving the Fund Complex
since these fees are reported as of the end of the last calendar year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED MAY 31 1999 1998 1997
Advisory Fee Earned $301,408 $273,979 $279,921
Advisory Fee Reduction 301,408 273,979 279,921
Brokerage Commissions 0 0 0
Administrative Fee 58,580 54,052 55,986
12B-1 FEE 0 0 0
SHAREHOLDER SERVICES FEE 0 0 0
FEES PAID BY THE FUND FOR SERVICES
FOR THE PERIOD ENDED AUGUST 31 1999 1
Advisory Fee Earned $61,865
Advisory Fee Reduction 61,865
Brokerage Commissions 0
Administrative Fee 10,375
12B-1 FEE 10,375
SHAREHOLDER SERVICES FEE 0
1 For the period from June 1, 1999 to August 31, 1999.
For the fiscal years ended May 31, 1999, 1998 and 1997, fees paid by the Former
Fund for services are prior to the Former Fund's reorganization as a portfolio
of the Trust on July 23, 1999.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information. Share performance reflects
the effect of non-recurring charges, such as maximum sales charges, which, if
excluded, would increase the total return and yield. The performance of Shares
depends upon such variables as: portfolio quality; average portfolio maturity;
type and value of portfolio securities; changes in interest rates; changes or
differences in the Fund's or any class of Shares' expenses; and various other
factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-, five-year and Start of Performance periods
ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period ended August 31,
1999.
Start of Performance information shown is prior to the Former Fund's
reorganization as a portfolio of the Trust on July 23, 1999.
Start of Performance on
FUND 1 YEAR 5 Years July 22, 1992
Total Return (4.58%) 4.52% 4.71%
Yield 4.26%
Tax-Equivalent Yield 7.05%
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 STATE OF NORTH CAROLINA
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET: 22.00% 35.75% 38.75% 43.75% 47.35%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,880 $158,881-283,150 Over 283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over 283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.50% 1.92% 2.33% 2.45% 2.67% 2.85%
2.00% 2.56% 3.11% 3.27% 3.56% 3.80%
2.50% 3.21% 3.89% 4.08% 4.44% 4.75%
3.00% 3.85% 4.67% 4.90% 5.33% 5.70%
3.50% 4.49% 5.45% 5.71% 6.22% 6.65%
4.00% 5.13% 6.23% 6.53% 7.11% 7.60%
4.50% 5.77% 7.00% 7.35% 8.00% 8.55%
5.00% 6.41% 7.78% 8.16% 8.89% 9.50%
5.50% 7.05% 8.56% 8.98% 9.78% 10.45%
6.00% 7.69% 9.34% 9.80% 10.67% 11.40%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER NORTH CAROLINA MUNICIPAL DEBT FUNDS INDEX
Lipper North Carolina Municipal Debt Funds Index is an index of funds that
invest at least 65% of assets in municipal debt issued in the top four credit
ratings.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in advertising and sales
literature.
MORNINGSTAR, INC.
Morningstar, Inc., and independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND
(Formerly CCB North Carolina Municipal Securities Fund)
Class A Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617
PROSPECTUS
Federated Ohio Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS F SHARES
A mutual fund seeking to provide current income exempt from federal regular
income tax and the personal income taxes imposed by the state of Ohio and Ohio
municipalities by investing primarily in a portfolio of long-term, investment
grade Ohio tax exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 8
What Do Shares Cost? 9
How is the Fund Sold? 11
How to Purchase Shares 11
How to Redeem and Exchange Shares 13
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 17
Independent Auditors' Report 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of Ohio
and Ohio municipalities. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities.
Interest from the Fund's investments may be subject to the federal alternative
minimum tax for individuals and corporations (AMT). The Fund's portfolio
securities will be primarily long-term, investment grade securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
INTEREST RATE RISKS
Prices of tax exempt securities generally fall when interest rates rise.
Interest rate risk changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below their current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from Ohio, the Fund may be subject
to additional risks compared to funds that invest in multiple states.
Ohio's economy is relatively diversified across the manufacturing, agriculture
and service sectors. However, the automobile and tire industries are still major
employers within Ohio and expose the state to the economic dislocations which
occur within cyclical industries.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic]
The bar chart shows the variability of the Fund's Class F Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's Class F Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was (2.93%).
Within the period shown in the Chart, the Fund's Class F Shares highest
quarterly return was 7.23% (quarter ended March 31, 1995). Its lowest quarterly
return was (5.94%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class F Shares Average Annual Total
Returns, reduced to reflect applicable sales charges, for the calendar periods
ended December 31, 1998. The table shows the Fund's total returns averaged over
a period of years relative to the Lehman Brothers Revenue Bond Index (LBRBI) and
the Lehman Brothers Municipal Bond Index (LBMBI), both broad-based market
indexes. The LBRBI is a total return performance benchmark for the long-term,
investment grade, revenue bond market. The LBMBI is a broad market performance
benchmark for the tax exempt bond market. To be included in the LBMBI, bonds
must have a minimum credit rating of Baa. Total returns for the indexes shown do
not reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND LBRBI LBMBI
<S> <C> <C> <C>
1 Year 4.00% 6.33% 6.22%
5 Years 5.39% 6.39% 6.49%
Start of Performance 1 7.63% 8.19% N/A
</TABLE>
1 The Fund's Class F Shares start of performance date was October 12, 1990.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED OHIO MUNICIPAL INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class F Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 1.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage
of offering price) None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waivers)
1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.40%
Shareholder Services Fee 4 0.25%
Other Expenses 0.36%
Total Annual Fund
Operating Expenses 1.41%
1 Although not contractually obligated to do so, the adviser, distributor and
shareholder services provider waived certain amounts. These are shown below along
with the net expenses the Fund actually paid for the fiscal year ended August 31,
1999.
Total Waiver of Fund
Expenses 0.51%
Total Actual Annual Fund
Operating Expenses (after
waivers) 0.90%
2 The adviser voluntarily waived a portion of the management fee. The adviser can
terminate this voluntary waiver at any time. The management fee paid by the Fund
(after the voluntary waiver) was 0.14% for the fiscal year ended August 31, 1999.
3 The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntary waiver at any time. The distribution
(12b-1) fee paid by the Fund (after the voluntary waiver) was 0.16% for the
fiscal year ended August 31, 1999.
4 The shareholder services provider voluntarily waived a portion of the
shareholder services fee. The shareholder services provider can terminate this
voluntary waiver at any time. The shareholder services fee paid by the Fund
(after the voluntary waiver) was 0.24% for the fiscal year ended August 31, 1999.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class F Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class F Shares for the
time periods indicated and then redeem all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Shares operating expenses are BEFORE WAIVERS as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Expenses assuming redemption $342 $642 $863 $1,774
Expenses assuming no redemption $242 $542 $863 $1,774
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities. As a
matter of operating policy, the Fund ordinarily will invest so that 100% of its
annual interest income is exempt from such taxes. Interest income from the
Fund's investments may be subject to AMT.
The Fund invests at least 65% of its assets in investment grade securities. The
Fund does not limit itself to securities of a particular maturity range, but
currently focuses on long-term securities with maturities greater than ten
years. The Fund's investment adviser (Adviser) actively manages the Fund's
portfolio, seeking to manage the interest rate risk and credit risk assumed by
the Fund and provide superior levels of after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings;
* the financial condition of the issuer or guarantor;
* political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use futures contracts that cover a narrow range of circumstances;
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the state of Ohio and Ohio municipalities. It may do this
to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to receive
and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by Ohio issuers or credit enhanced by insurance companies or companies similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political or other developments which generally affect these entities.
Ohio's economy is relatively diversified across the manufacturing, agriculture
and service sectors. However, the automobile and tire industries are still major
employers within Ohio and expose the state to the economic dislocations which
occur within cyclical industries.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater interest rate, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic and financial
setbacks may affect their prices more negatively, and their trading market may
be more limited. The Fund may invest up to 35% of its assets in noninvestment
grade securities.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE
CONTINGENT
MINIMUM FRONT-END DEFERRED
INITIAL/SUBSEQUENT SALES SALES
INVESTMENT AMOUNTS 1 CHARGE 2 CHARGE 3
<S> <C> <C>
$1,500/$100 1.00% 1.00%
</TABLE>
1 The minimum subsequent investment amount for Systematic Investment Programs is
$50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
SALES CHARGE
AS A SALES CHARGE
PERCENTAGE AS A
OF PUBLIC PERCENTAGE
PURCHASE AMOUNT OFFERING PRICE OF NAV
<S> <C> <C>
Less than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%
</TABLE>
THE SALES CHARGE AT PURCHASE MAY BE ELIMINATED BY:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
* within 120 days of redeeming Shares of an equal or lesser amount;
* when the Fund's Distributor does not advance payment to the investment
professional for your purchase;
* by exchanging shares from the same share class of another Federated Fund;
* for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its affiliates
to purchase shares without a sales charge; or
* through investment professionals that receive no portion of the sales
charge.
If your investment qualifies for an elimination of the sales charge, you or your
investment professional should notify the Fund's Distributor at the time of
purchase. If the Distributor is not notified, you will receive the reduced sales
charge only on additional purchases, and not retroactively on previous
purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
PURCHASE AMOUNT SHARES HELD CDSC
<S> <C> <C>
Up to $2 million 4 years or less 1.00%
$2 - $5 million 2 years or less 0.50%
$5 million or more 1 year or less 0.25%
</TABLE>
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* purchased through investment professionals who did not receive advanced
sales payments;
* if, after you purchase Shares, you become disabled as defined by the IRS;
* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
* if your redemption is a required retirement plan distribution; or
* upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions, such as
broker/dealers, banks, fiduciaries and investment advisers, or to individuals,
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-Ohio taxpayers because it invests in
Ohio municipal securities.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class F Shares. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed or exchanged;
* signatures of all shareholders exactly as registered; and
* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days;
* a redemption is payable to someone other than the shareholder(s) of
record; or
* if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into shares of Ohio Municipal Cash Trust or
Class F Shares of other Federated Funds. To do this, you must:
* ensure that the account registrations are identical;
* meet any minimum initial investment requirements; and
* receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Class F Shares subject to
a sales charge while redeeming Shares using this program.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder just officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated Ohio
Municipal Income Fund's dividends will be exempt from the Ohio state taxes
discussed above to the extent they are derived from interest on obligations
exempt from such taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Redemptions and exchanges are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
MARY JO OCHSON
Mary Jo Ochson has been the Fund's portfolio manager since April 1997. She
is Vice President of the Fund. Ms. Ochson joined Federated in 1982 and has
been a Senior Portfolio Manager and a Senior Vice President of the Fund's
Adviser since 1996. From 1988 through 1995, Ms. Ochson served as a
Portfolio Manager and a Vice President of the Fund's Adviser. Ms. Ochson is
a Chartered Financial Analyst and received her M.B.A. in Finance from the
University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 30.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.91 $11.53 $11.21 $11.22 $11.01
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55 0.56 0.59 0.60 0.60
Net realized and
unrealized gain (loss) on
investments (0.67) 0.40 0.32 (0.01) 0.20
TOTAL FROM INVESTMENT
OPERATIONS (0.12) 0.96 0.91 0.59 0.80
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.57) (0.56) (0.59) (0.60) (0.59)
Distributions from net
realized gain on
investments (0.07) (0.02) - - -
Distributions in excess of
net realized gains
on investments (0.04) - - - -
TOTAL DISTRIBUTIONS (0.68) (0.58) (0.59) (0.60) (0.59)
NET ASSET VALUE, END OF
PERIOD $11.11 $11.91 $11.53 $11.21 $11.22
TOTAL RETURN 1 (1.14%) 8.56% 8.34% 5.34% 7.65%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.41% 1.41% 1.48% 1.48% 1.50%
Net investment income 2 4.20% 4.29% 4.61% 4.70% 4.93%
Expenses (after waivers
and reimbursements) 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income
(after waivers
and reimbursements) 4.71% 4.80% 5.19% 5.28% 5.53%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $82,202 $80,274 $75,506 $70,568 $70,352
Portfolio turnover 19% 23% 38% 11% 33%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-89.4%
OHIO-84.4%
$ 1,000,000 Barberton, OH, City School
District, UT GO Bonds
(Series 1998), 5.00% (FGIC
INS)/(Original Issue
Yield: 5.23%), 11/1/2015 AAA $ 954,560
300,000 Bellefontaine, OH, Storm
Water Utility, UT GO Bonds,
7.05%, 6/1/2011 A 317,766
500,000 Brunswick, OH, UT GO Bonds,
7.35% (Original Issue
Yield: 7.446%), 12/1/2010 A2 531,115
1,000,000 Clermont County, OH,
Hospital Facilities
Refunding & Revenue Bonds
(Series B), 5.625% (Mercy
Health Systems)/(AMBAC
INS)/(Original Issue
Yield: 5.80%), 9/1/2021 AAA 987,580
1,000,000 Cleveland, OH, Airport
System, Revenue Bonds
(Series 1997A), 5.125%
(FSA INS)/(Original Issue
Yield: 5.41%), 1/1/2022 AAA 920,100
2,500,000 Cleveland, OH, Airport
System, Revenue Bonds
(Series A), 6.00% (FGIC
INS)/(Original Issue
Yield: 6.378%), 1/1/2024 AAA 2,526,600
2,000,000 Cleveland, OH, Public
Power System, Revenue
Bonds, First
Mortgage/(MBIA INS)(United
State Treasury PRF (Series
A), 7.00% (Original Issue
Yield: 7.15%), 11/15/2024 AAA 2,265,780
2,600,000 Columbus, OH, Municipal
Airport Authority,
Improvement Revenue Bonds,
6.25% (Port Columbus
International
Airport)/(Original Issue
Yield: 6.35%), 1/1/2024 AAA 2,676,960
1,000,000 Columbus, OH, Tax
Increment Financing Bonds
(Series 1999), 5.30%
(Easton Project)/(AMBAC
INS)/(Original Issue
Yield: 5.33%), 12/1/2019 AAA 967,250
500,000 Cuyahoga County, OH,
Health Care Facilities,
Revenue Refunding Bonds,
5.50% (Benjamin Rose
Institute)/(Original Issue
Yield: 5.75%), 12/1/2028 NR 440,175
1,500,000 Cuyahoga County, OH,
Hospital Authority,
Improvement & Refunding
Revenue Bonds (Series A),
5.625% (University
Hospitals Health System,
Inc.)/(Original Issue
Yield: 5.90%), 1/15/2026 AAA 1,469,610
1,500,000 Cuyahoga County, OH,
Hospital Authority,
Revenue Bonds, 6.25%
(Meridia Health
System)/(Original Issue
Yield: 6.80%), 8/15/2024 AAA 1,653,390
2,000,000 Evergreen, OH, Local
School District, UT GO
Bonds, 5.625% (FGIC
INS)/(Original Issue
Yield: 5.72%), 12/1/2024 AAA 1,981,180
1,000,000 Forest Hills, OH, Local
School District, UT GO
Bonds, 5.70% (MBIA INS),
12/1/2016 AAA 1,018,680
1,500,000 Franklin County, OH Health
Care Facilities, Revenue
Refunding Bonds, 5.50%
(Ohio Presbyterian
Retirement
Services)/(Original Issue
Yield: 5.69%), 7/1/2021 NR 1,380,195
500,000 Franklin County, OH,
Hospital Facility
Authority, Hospital
Revenue Refunding &
Improvement Bonds, 7.25%
(Riverside United
Methodist Hospital) (MBIA
INS)/(Original Issue
Yield: 7.29%), 5/15/2020 AAA 521,900
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
OHIO-CONTINUED
$ 2,000,000 Franklin County, OH,
Hospital Facility
Authority, Revenue
Refunding Bonds (Series
A), 5.75% (Riverside
United Methodist
Hospital)/(Original Issue
Yield: 6.10%), 5/15/2020 Aa3 $ 1,979,520
1,000,000 Franklin County, OH,
Revenue Bonds (Series
1998A), 5.20% (OCLC Online
Computer Library Center,
Inc.), 10/1/2020 A 924,170
1,300,000 Hamilton County, OH,
Health System, Revenue
Refunding Bonds,
Providence Hospital,
6.875% (Franciscan Sisters
of Christian Charity
HealthCare Ministry,
Inc.)/(Original Issue
Yield: 7.05%), 7/1/2015 BBB 1,405,716
700,000 Hamilton County, OH,
Hospital Facilities
Authority, Revenue
Refunding & Improvement
Bonds, 7.00% (Deaconess
Hospital)/(Original Issue
Yield: 7.046%), 1/1/2012 A- 743,218
2,000,000 Hamilton County, OH,
Hospital Facilities
Authority, Revenue
Refunding Bonds (Series
A), 6.25% (Bethesda
Hospital, OH)/(Original
Issue Yield: 6.55%),
1/1/2012 A 2,091,340
1,000,000 Hamilton County, OH, Sales
Tax Bonds (Series 1998A),
4.75% (Hamilton County, OH
Football Project)/(MBIA
INS)/(Original Issue
Yield: 4.93%), 12/1/2017 AAA 896,670
1,580,000 Hancock County, OH, LT GO
Bonds (Series 1997),
5.45%, 12/1/2017 AA- 1,567,407
1,000,000 Lake County, OH, Hospital
Facilities Revenue Bonds,
5.00% (Lake Hospital
System, Inc.)/(AMBAC
INS)/(Original Issue
Yield: 5.15%), 8/15/2023 AAA 898,890
440,000 Lakewood, OH, Hospital
Improvement Authority, Revenue Refunding Bonds (Series One),
6.00% (Lakewood Hospital, OH)/(Original Issue Yield:
6.90%), 2/15/2010 AAA 440,726
1,500,000 Lorain County, OH, Health Care Facilities Revenue Refunding
Bonds (Series 1998A), 5.25% (Kendal at Oberlin)/(MBIA
INS)(Original Issue Yield:
5.53%), 2/1/2021 BBB 1,306,605
3,000,000 Lorain County, OH,
Hospital Facilities
Revenue Bonds (Series
1997B), 5.625% (Catholic
Healthcare Partners)/(MBIA
INS)/(Original Issue
Yield: 5.825%), 9/1/2016 AAA 3,009,090
1,000,000 Mahoning County, OH,
Hospital Facilities,
Revenue Bonds, 5.50%
(Western Reserve Care
System)/(MBIA
INS)/(Original Issue
Yield: 5.75%), 10/15/2025 AAA 993,910
1,000,000 Marion County, OH,
Hospital Authority,
Hospital Refunding &
Improvement Revenue Bonds
(Series 1996), 6.375%
(Community Hospital of
Springfield)/(Original
Issue Yield: 6.52%),
5/15/2011 BBB+ 1,008,840
420,000 Marysville, OH, LT Sewer
System GO Bonds, 7.15%,
12/1/2011 A2 445,561
1,000,000 Mason, OH, City School
District, UT GO Bonds,
5.30%, 12/1/2017 Aa3 981,460
2,185,000 Medina, OH, City School District, LT GO Bonds (Series 1999),
5.125% (FGIC INS)/(Original Issue
Yield: 5.30%), 12/1/2019 NR 2,059,035
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
OHIO-CONTINUED
$ 1,000,000 Miami County, OH, Hospital
Facilities Revenue
Refunding & Improvement
Bonds (Series 1996A),
6.375% (Upper Valley
Medical Center,
OH)/(Original Issue Yield:
6.62%), 5/15/2026 BBB $ 992,400
1,500,000 Montgomery County, OH,
Health Care Facilities,
Revenue Refunding Bonds
(Series 1997), 5.50%
(Franciscan Medical
Center-Dayton
Campus)/(Original Issue
Yield: 5.551%), 7/1/2018 BBB 1,359,405
1,000,000 Moraine, OH, Solid Waste
Disposal Authority,
Revenue Bonds, 6.75%
(General Motors
Corp.)/(Original Issue
Yield: 6.80%), 7/1/2014 A 1,107,790
9,540,000 Ohio HFA, Residential
Mortgage Revenue Bonds
(Series B-2), 6.70% (GNMA
COL), 3/1/2025 AAA 9,911,678
110,000 Ohio HFA, SFM Revenue Bonds (Series A), 7.80% (GNMA
COL), 3/1/2030 AAA 112,836
500,000 Ohio State Air Quality
Development Authority, PCR
Refunding Bonds (Series
A), 7.45% (Ohio Edison
Co.)/(FGIC INS), 3/1/2016 AAA 517,890
3,000,000 Ohio State Air Quality
Development Authority, Revenue Refunding Bonds, 6.375% (JMG
Funding Limited Partnership)/(AMBAC INS)/ (Original Issue Yield:
6.493%), 1/1/2029 AAA 3,119,130
1,500,000 Ohio State, Education Loan
Revenue Bonds (Series
1997A), 5.85%, 12/1/2019 AAA 1,504,815
1,500,000 Ohio State, Solid Waste
Disposal Revenue Bonds,
6.05% (USG Corp.),
8/1/2034 BBB+ 1,473,165
2,000,000 Olentangy, OH, Local
School District, UT GO
Bonds, 5.25% (Original
Issue Yield: 5.46%),
12/1/2017 AA- 1,925,960
1,000,000 Parma, OH, Hospital
Improvement and Refunding
Revenue Bonds, 5.375%
(Parma Community General
Hospital
Association)/(Original
Issue Yield: 5.45%),
11/1/2029 A- 896,040
730,000 Reynoldsburg, OH, City
School District, UT GO
Capital Appreciation
Refunding Bonds (FGIC
INS)/(Original Issue
Yield: 5.30%), 12/1/2011 AAA 383,243
500,000 Tiffin, OH, LT GO Bonds,
7.10%, 12/1/2011 A3 536,840
2,000,000 Toledo-Lucas County, OH,
Port Authority, Port
Facilities Revenue
Refunding Bonds, 5.90%
(Cargill, Inc.)/(Original
Issue Yield: 5.981%),
12/1/2015 Aa3 2,037,300
1,000,000 University of Akron, OH,
General Receipts Revenue
Bonds (Series 1999), 5.70%
(Original Issue Yield:
5.74%), 1/1/2024 AAA 1,001,980
1,115,000 Warren County, OH, Special
Assessment UT GO Bonds,
5.50%, 12/1/2017 Aa2 1,116,093
TOTAL 69,361,564
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued
PUERTO RICO-4.2%
$ 1,200,000 Puerto Rico Electric Power
Authority, Revenue Bonds
(Series T), 6.375%
(Original Issue Yield:
6.58%), 7/1/2024 BBB+ $ 1,323,480
1,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securites (Series
PA 331A), 7.202% (AMBAC
INS), 7/1/2013 NR 1,057,520
1,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securities (Series
PA 331B), 7.202% (AMBAC
INS), 7/1/2014 NR 1,049,900
TOTAL 3,430,900
VIRGIN ISLANDS-0.8%
670,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A),
6.50% (GNMA COL)/(Original Issue
Yield: 6.522%), 3/1/2025 AAA 692,854
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED $72,066,553) 73,485,318
SHORT-TERM MUNICIPALS-9.5%
OHIO-8.2%
2,000,000 Ohio State Air Quality
Development Authority,
(Series 1985A), Daily
VRDNs (Cincinnati Gas and
Electric Co.)/(UBS AG
LOC), 3.00%, 12/1/2015 AA+ 2,000,000
1,900,000 Ohio State Air Quality
Development Authority,
(Series B), Daily VRDNs
(Cincinnati Gas and
Electric Co.)/(Canadian
Imperial Bank of Commerce
LOC), 2.90%, 9/1/2030 AA- 1,900,000
800,000 Ohio State Air Quality
Development Authority,
Revenue Bonds (Series B),
Daily VRDNs (Cincinnati
Gas and Electric
Co.)/(J.P. Morgan
Delaware, Wilmington LOC),
3.00%, 12/1/2015 AAA 800,000
2,000,000 Stark County, OH, IDR
Weekly VRDNs (Shearer's
Foods, Inc.)/(Bank One,
Ohio, N.A. LOC), 3.42%,
12/1/2003 NR 2,000,000
TOTAL 6,700,000
PUERTO RICO-1.3%
1,100,000 Puerto Rico Commonwealth
Infrastructure Financing
Authority, Floater
Certificates (Series 1998-
139) Weekly VRDNs (AMBAC
INS)/(Morgan Stanley, Dean
Witter Municipal Funding,
Inc. LIQ), 2.99%, 7/1/2028 AAA 1,100,000
TOTAL SHORT-TERM
MUNICIPALS (AMORTIZED
COST) 7,800,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$79,866,553) 2 $ 81,285,318
</TABLE>
Securities that are subject to alternative minimum tax represent 31.7% of the
Fund's 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 $79,866,553. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,418,765 which is comprised of $2,600,819 appreciation and $1,182,054
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($82,202,243) at August 31, 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 IDR -Industrial Development Revenue INS -Insured LIQ
- -Liquidity Agreement LOC -Letter of Credit LT -Limited Tax MBIA -Municipal Bond
Investors Assurance PCR -Pollution Control Revenue 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
AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$79,866,553) $ 81,285,318
Cash 14,263
Income receivable 1,232,506
Receivable for investments
sold 1,858,700
Receivable for shares sold 40,104
TOTAL ASSETS 84,430,891
LIABILITIES:
Payable for investments
purchased $ 1,974,580
Payable for shares
redeemed 75,122
Income distribution
payable 162,203
Accrued expenses 16,743
TOTAL LIABILITIES 2,228,648
Net assets for 7,397,723
shares outstanding $ 82,202,243
NET ASSETS CONSIST OF:
Paid in capital $ 81,310,529
Net unrealized
appreciation of
investments 1,418,765
Accumulated net realized
loss on investments (417,129)
Distributions in excess of
net investment income (109,922)
TOTAL NET ASSETS $ 82,202,243
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
Net Asset Value Per Share
($82,202,243 / 7,397,723
shares outstanding) $11.11
Offering Price Per Share
(100/99.00 of $11.11) 1 $11.22
Redemption Proceeds Per
Share (99.00/100 of
$11.11) 2 $11.00
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,610,834
EXPENSES:
Investment advisory fee $ 328,560
Administrative personnel
and services fee 125,000
Custodian fees 4,242
Transfer and dividend
disbursing agent fees and
expenses 43,443
Directors'/Trustees' fees 3,957
Auditing fees 13,927
Legal fees 6,250
Portfolio accounting fees 51,684
Distribution services fee 328,560
Shareholder services fee 205,350
Share registration costs 18,199
Printing and postage 28,197
Insurance premiums 1,652
Miscellaneous 3,694
TOTAL EXPENSES 1,162,715
WAIVERS:
Waiver of investment
advisory fee $ (214,493)
Waiver of distribution
services fee (197,136)
Waiver of shareholder
services fee (8,214)
TOTAL WAIVERS (419,843)
Net expenses 742,872
Net investment income 3,867,962
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (118,811)
Net change in unrealized
appreciation of
investments (4,645,424)
Net realized and
unrealized loss on
investments (4,764,235)
Change in net assets
resulting from operations $ (896,273)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 3,867,962 $ 3,674,204
Net realized loss on
investments ($(118,811)
and $780,245,
respectively, as computed
for federal tax purposes) (118,811) 780,248
Net change in unrealized
appreciation (4,645,424) 1,810,941
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (896,273) 6,265,393
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (3,987,825) (3,668,894)
Distributions from net
realized gains (484,220) (134,059)
Distributions in excess of
net realized gains (298,322) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (4,770,367) (3,802,953)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 16,135,809 13,003,558
Net asset value of shares
issued to shareholders in
payment of
distributions declared 2,707,727 2,205,539
Cost of shares redeemed (11,249,058) (12,903,472)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 7,594,478 2,305,625
Change in net assets 1,927,838 4,768,065
NET ASSETS:
Beginning of period 80,274,405 75,506,340
End of period $ 82,202,243 $ 80,274,405
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six portfolios. The
financial statements included herein are only those of Federated Ohio Municipal
Income Fund (the "Fund"), a non-diversified portfolio. The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income exempt from federal regular income tax (federal regular income tax does
not include the federal alternative minimum tax) and the personal income taxes
imposed by the state of Ohio and Ohio municipalities.
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.
Distributions are determined in accordance with income tax regulations which may
differ from the generally accepted accounting principals. These distributions do
not represent a return of capital for federal income tax purposes.
The following reclassifications have been made to the financial statements:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
UNDISTRIBUTED NET
PAID-IN CAPITAL ACCUMULATED GAIN (LOSS) INVESTMENT INCOME
<S> <C> <C>
($4,635) $66,195 ($61,560)
</TABLE>
Net investment income, net realized gains/losses and net assets are not affected
by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of their income. Accordingly, no provisions for federal tax
are necessary.
Additionally, net capital losses of $417,129 attributable to security
transactions incurred after October 31, 1998, are treated as arising on
September 1, 1999, the first day of the fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when- issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
Shares sold 1,386,959 1,105,266
Shares issued to
shareholders in payment of
distributions declared 232,018 187,876
Shares redeemed (962,035) (1,101,260)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 656,942 191,882
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 Funds have adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Funds will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Funds to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Funds 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 year ended August 31, 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 amounting to $21,800,000 and $17,900,000, 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 August 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $14,653,406
Sales $15,422,715
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 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 percentage 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 (UNAUDITED)
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.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES OF FEDERATED MUNICIPAL SECURITIES INCOME TRUST AND
SHAREHOLDERS OF FEDERATED OHIO MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Ohio Municipal Income Fund (the
"Fund") as of August 31, 1999, the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended August
31, 1999 and 1998 and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Ohio
Municipal Income Fund as of August 31, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated Ohio Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS F SHARES
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
and Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, the Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected], or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
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
Investment Company Act File No. 811-6165
Cusip 625922307
0090702A-F (10/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated Ohio Municipal Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS F SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Ohio Municipal Income Fund
Class F Shares (Fund), dated October 31, 1999. Obtain the prospectus and the
Annual Report's Management Discussion & Analysis without charge by calling
1-800-341-7400.
OCTOBER 31, 1999
[Graphic]
Federated
World-Class Investment Manager
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
0090702B (10/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 5
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 12
Investment Ratings 13
Addresses 15
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. The Fund changed its name from Ohio Municipal
Income Fund to Federated Ohio Municipal Fund on February 26, 1996 (effective
date March 31, 1996). Effective October 1, 1999, the Trust changed its name from
Municipal Securities Income Trust to Federated Municipal Securities Income
Trust. The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to the
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a AAA municipal security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income tax imposed by the state of
Ohio and Ohio municipalities. The investment objective may not be changed by the
Fund's Trustees without shareholder approval.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
RESTRICTED SECURITIES
The Fund may invest its securities subject to restrictions or resale under the
Securities Act of 1933.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In applying the Fund's commodities restriction, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to end users of their
services, for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the Securities and Exchange Commission (SEC)
staff that only domestic bank instruments may be excluded from industry
concentration limitations, the Fund will not exclude foreign bank instruments
from industry concentration tests as long as the policy of the SEC remains in
effect. The Fund will consider concentration to be the investment of more than
25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker/dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
ELIMINATING THE FRONT-END SALES CHARGE
You can eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class eliminate the sales charge you pay. You
can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees or Directors, employees and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
* of Shares that represent a reinvestment within 120 days of a
previous redemption;
* of Shares held by the Trustees or Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities;
* which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
* representing a total or partial distribution from a qualified plan. A total or
partial distribution does not include an account transfer, rollover or other
redemption made for purposes of reinvestment. A qualified plan does not include
an Individual Retirement Account, Keogh Plan, or a custodial account, following
retirement.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee. The maximum Rule 12b-1 Plan fee that can
be paid in any one year may not be sufficient to cover the marketing-related
expenses the Distributor has incurred. Therefore, it may take the Distributor a
number of years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
* an amount on the NAV of Class F Shares purchased as follows: up to 1% on
purchases below $2 million; 0.50% on purchases from $2 million but below $5
million; and 0.25% on purchases of $5 million or more.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class F Shares that its customer has not
redeemed over the first year.
Investment professionals purchasing Class F Shares for their customers are
eligible to receive an advance payment from the Distributor of 0.25% of the
purchase price.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote. Trustees may be
removed by the Board or by shareholders at a special meeting. A special meeting
of shareholders will be called by the Board upon the written request of
shareholders who own at least 10% of the Trust's outstanding shares.
As of October 5, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Milards & Co., c/ o SEI Trust
Company, Oaks, PA, owned approximately 675,507 Shares (9.13%); and Merrill Lynch
Pierce Fenner & Smith (as record owner holding Shares for its clients),
Jacksonville, FL, owned approximately 1,932,787 Shares (26.12%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income taxes to the extent that such distributions qualify as
"exempt-interest dividends" under the Code and represent: (i) interest from
obligations of Ohio or its subdivisions which is exempt from federal income tax;
or (ii) interest or dividends from obligations issued by the United States and
its territories or possessions or by any authority, commission, or
instrumentality of the United States, which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporate franchise
tax to the extent that such distributions qualify as "exempt- interest
dividends" under the Code and represent: (i) interest from obligations of Ohio
or its subdivisions which is exempt from federal income tax; or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission, or instrumentality of the United
States, which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political sub-divisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of October 5, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class F Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist and Internist,
University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products,
Inc. (distributor of
portable construction
heaters); President,
Portable Heater Parts, a
division of Manufacturers
Products, Inc.; Director,
Walsh & Kelly, Inc. (heavy
highway contractor);
formerly: Vice President,
Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE+ President or Executive $0 $0 for the Trust and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND TRUSTEE President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling,
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust and
Birth Date: October 22, 1930 of the Funds in the 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
AND SECRETARY Trustee, Federated
Investment Management Company and
Federated Investment Counseling;
Director, Federated Global Investment
Management Corp., Federated Services
Company and Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust and
Birth Date: June 1, 1960 the Fund's portfolio 1 other investment
Federated Investors Tower manager March 1995. He is company in the
1001 Liberty Avenue Vice President of the Fund. Fund Complex
Pittsburgh, PA Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees January 1, 1999.
Messrs. Cunningham and Walsh became members of the Board of Trustees on
July 1, 1999. They did not earn any fees for serving the Fund Complex
since these fees are reported as of the end of the last calendar year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
their audit so that they may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $328,560 $306,125 $277,606
Advisory Fee Waiver 214,493 196,943 230,268
Brokerage Commissions None None None
Administrative Fee 125,000 125,002 125,000
12B-1 FEE 131,424 - -
SHAREHOLDER SERVICES FEE 197,136 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information. Share performance reflects the effect of non-recurring
charges, such as maximum sales charges, which, if excluded, would increase the
total return and yield. The performance of Shares depends upon such variables
as: portfolio quality; average portfolio maturity; type and value of portfolio
securities; changes in interest rates; changes or differences in the Fund's or
any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year and Start of Performance
periods ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period August 31, 1999.
<TABLE>
<CAPTION>
START OF
30-DAY PERFORMANCE ON
PERIOD 1 YEAR 5 YEARS OCTOBER 12, 1990
<S> <C> <C> <C> <C>
CLASS F SHARES
Total Return NA (3.05%) 5.48% 6.72%
Yield 4.48% NA NA NA
Tax-Equivalent Yield 7.41% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
TAX EQUIVALENCY TABLE
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 - STATE OF OHIO
<S> <C> <C> <C> <C> <C>
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET: 19.040% 34.715% 37.255% 42.799% 46.399%
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT: $283,150
1.50% 1.85% 2.23% 2.39% 2.62% 2.80%
2.00% 2.47% 2.97% 3.19% 3.50% 3.73%
2.50% 3.09% 3.72% 3.98% 4.37% 4.66%
3.00% 3.71% 4.46% 4.78% 5.24% 5.60%
3.50% 4.32% 5.20% 5.58% 6.12% 6.53%
4.00% 4.94% 5.94% 6.38% 6.99% 7.46%
4.50% 5.56% 6.69% 7.17% 7.87% 8.40%
5.00% 6.18% 7.43% 7.97% 8.74% 9.33%
5.50% 6.79% 8.17% 8.77% 9.62% 10.26%
6.00% 7.41% 8.92% 9.56% 10.49% 11.19%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 - STATE OF OHIO
<S> <C> <C> <C> <C> <C>
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET: 19.715% 34.255% 37.255% 42.799% 46.399%
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.50% 1.87% 2.28% 2.39% 2.62% 2.80%
2.00% 2.49% 3.04% 3.19% 3.50% 3.73%
2.50% 3.11% 3.80% 3.98% 4.37% 4.66%
3.00% 3.74% 4.56% 4.78% 5.24% 5.60%
3.50% 4.36% 5.32% 5.58% 6.12% 6.53%
4.00% 4.98% 6.08% 6.38% 6.99% 7.46%
4.50% 5.61% 6.84% 7.17% 7.87% 8.40%
5.00% 6.23% 7.61% 7.97% 8.74% 9.33%
5.50% 6.85% 8.37% 8.77% 9.62% 10.26%
6.00% 7.47% 9.13% 9.56% 10.49% 11.19%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS REVENUE BOND INDEX
Lehman Brothers Revenue Bond Index is a total return performance benchmark for
the long-term, investment grade, revenue bond market. Returns and attributes for
the index are calculated semi-monthly.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "New York Municipal
Bond Funds" category in advertising and sales literature.
MORNINGSTAR, INC.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED OHIO MUNICIPAL INCOME FUND
Class F Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Federated Pennsylvania Municipal
Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
A mutual fund seeking to provide current income exempt from federal regular
income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania by investing primarily in a portfolio of long-term, investment
grade Pennsylvania tax exempt securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
OCTOBER 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 6
What are the Specific Risks of Investing in the Fund? 8
What Do Shares Cost? 10
How is the Fund Sold? 12
How to Purchase Shares 13
How to Redeem and Exchange Shares 14
Account and Share Information 17
Who Manages the Fund? 18
Financial Information 19
Independent Auditors' Report 38
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
Commonwealth of Pennsylvania personal income taxes. Interest from the Fund's
investments may be subject to the federal alternative minimum tax for
individuals and corporations (AMT). The Fund's portfolio securities will be
primarily long- term, investment grade securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
INTEREST RATE RISKS
Prices of tax exempt securities generally fall when interest rates rise.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations.
CREDIT RISKS
Issuers of tax exempt securities may default on the payment of interest or
principal when due.
CALL RISKS
Issuers of tax exempt securities may redeem the securities prior to maturity at
a price below their current market value.
SECTOR RISKS
Since the Fund invests primarily in issuers from Pennsylvania, the Fund may be
subject to additional risks compared to funds that invest in multiple states.
Pennsylvania's economy has diversified away from the concentration in heavy
industry and manufacturing which existed prior to the downsizing of the steel
industry and improved its mixture of service and technology based businesses.
Despite the improvements in its employment base, Pennsylvania is still subject
to the cyclical impact which an economic downturn has on the manufacturing
sector.
The Fund is non-diversified. Compared to diversified mutual funds, it may invest
a higher percentage of its assets among fewer issuers of portfolio securities.
This increases the Fund's risk by magnifying the impact (positively or
negatively) that any one issuer has on the Fund's Share price and performance.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
[Graphic]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
The Fund's Class A Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was (3.69%).
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 7.43% (quarter ended March 31, 1995). Its lowest quarterly
return was (6.05%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares and Class B Shares
Average Annual Total Returns, reduced to reflect applicable sales charges, for
the calendar periods ended December 31, 1998. The table shows the Fund's Class A
Shares total returns averaged over a period of years relative to the Lehman
Brothers Revenue Bond Index (LBRBI) and the Lehman Brothers Municipal Bond Index
(LBMBI), both broad-based market indexes. The LBRBI is a total return
performance benchmark for the long-term, investment grade, revenue bond market.
The LBMBI is a broad market performance benchmark for the tax exempt bond
market. To be included in the LBMBI, bonds must have a minimum credit rating of
Baa. Total returns for the indexes shown do not reflect sales charges, expenses
or other fees that the SEC requires to be reflected in the Fund's performance.
Indexes are unmanaged, and it is not possible to invest directly in an index.
<TABLE>
<CAPTION>
CLASS A CLASS B
CALENDAR PERIOD SHARES SHARES LBRBI LBMBI
<S> <C> <C> <C> <C>
1 Year 0.99% (0.89%) 6.33% 6.22%
5 Years 5.21% NA 6.39% 6.49%
Start of Performance 1 7.59% 4.57% 8.19% NA
</TABLE>
1 The Fund's start of performance dates for Class A Shares and Class B Shares
were October 11, 1990, and March 4, 1997, respectively.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES CLASS A CLASS B
<S> <C> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) None 5.50%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage of offering
price) None None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None None
Exchange Fee None None
ANNUAL FUND OPERATING
EXPENSES (Before Waivers)
1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40% 0.40%
Distribution (12b-1) Fee 3 0.40% 0.75%
Shareholder Services Fee 4 0.25% 0.25%
Other Expenses 0.20% 0.20%
Total Annual Fund
Operating Expenses 1.25% 1.60% 5
1 Although not contractually obligated to do so, the adviser, distributor and
shareholder services provider waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
August 31, 1999.
Total Waivers of Fund
Expenses 0.50% 0.08%
Total Actual Annual Fund
Operating Expenses (after
waivers) 0.75% 1.52%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.32% for the fiscal year ended August 31,
1999. 3 The distributor voluntarily waived the distribution (12b-1) fee for the
Class A Shares. The distributor can terminate this voluntary waiver at any time.
The distribution (12b-1) fee paid by the Fund's Class A Shares (after the
voluntary waiver) was 0.00% for the fiscal year ended August 31, 1999. 4 The
shareholder services provider voluntarily waived a portion of the shareholder
services fee for Class A Shares. The shareholder services provider can terminate
this voluntary waiver at any time. The shareholder services fee paid by the
Fund's Class A Shares (after the voluntary waiver) was 0.23% for the fiscal year
ended August 31, 1999. 5 Class B Shares convert to Class A Shares (which pay
lower ongoing expenses) approximately eight years after purchase.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A and Class B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A and Class B
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A and Class B Shares operating expenses are BEFORE WAIVERS as shown
in the table and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A
Expenses
assuming
redemption $572 $829 $1,105 $1,893
Expenses
assuming
no redemption $572 $829 $1,105 $1,893
CLASS B
Expenses
assuming
redemption $713 $933 $1,100 $1,900
Expenses
assuming
no redemption $163 $505 $871 $1,900
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of tax exempt securities so that at least 80% of
its annual interest income is exempt from federal regular income tax and the
Commonwealth of Pennsylvania personal income tax. As a matter of operating
policy, the Fund ordinarily will invest so that 100% of its annual interest
income is exempt from such taxes. Interest income from the Fund's investments
may be subject to the AMT.
The Fund invests at least 65% of its assets in investment grade securities. The
Fund does not limit itself to securities of a particular maturity range, but
currently focuses on long-term securities with maturities greater than 10 years.
The Fund's investment adviser (Adviser) actively manages the Fund's portfolio,
seeking to manage the interest rate risk and credit risk assumed by the Fund and
to provide superior levels of after tax total return.
The Adviser manages the Fund's interest rate risk by adjusting the duration of
its portfolio. "Duration" measures the sensitivity of a security's price to
changes in interest rates. The greater a portfolio's duration, the greater the
change in the portfolio's value in response to a change in market interest
rates. The Adviser will increase or reduce the Fund's portfolio duration based
on its interest rate outlook. When the Adviser expects interest rates to fall,
it will maintain a longer portfolio duration. When the Adviser expects interest
rates to increase, it will shorten the portfolio duration. The Adviser considers
a variety of factors in formulating its interest rate outlook, including the
following:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve's monetary policy; and
* supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.
The Adviser manages credit risk by performing a fundamental credit analysis on
tax exempt securities before the Fund purchases such securities. The Adviser
considers various factors, including the following:
* the economic feasibility of revenue bond financings and general purpose
financings;
* the financial condition of the issuer or guarantor; and
* political developments that may affect credit quality.
The Adviser monitors the credit risks of all portfolio securities on an ongoing
basis by reviewing periodic financial data and ratings of nationally recognized
ratings services.
The Adviser attempts to provide superior levels of after tax total return. After
tax total return consists of two components: (1) income received from the Fund's
portfolio securities; and (2) changes in the market value of the Fund's
portfolio securities and attendant increase or decrease in the market value of
Fund shares. The Adviser seeks total return on an after tax basis, so that it
will try to maximize tax exempt income distributions; make no ordinary income
distributions; and minimize or eliminate capital gains distributions.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a futures
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different futures
contracts, or futures contracts and securities. The Fund's ability to hedge may
be limited by the costs of the futures contracts. The Fund may attempt to lower
the cost of hedging by entering into transactions that provide only limited
protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use futures contracts that cover a narrow range of circumstances
or (3) involve the sale of futures contracts with different terms. Consequently,
hedging transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to the Fund.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal regular income tax and the
income tax imposed by the Commonwealth of Pennsylvania. It may do this to
minimize potential losses and maintain liquidity to meet shareholder redemptions
during adverse market conditions. This may cause the Fund to receive and
distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Fixed income securities pay interest,
dividends or distributions at a specified rate. The rate may be a fixed
percentage of the principal or adjusted periodically.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to AMT. The Fund
may invest in bonds subject to AMT.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security.
INVERSE FLOATERS
An inverse floater has a floating or variable interest rate that moves in the
opposite direction of market interest rates. When market interest rates go up,
the interest rate paid on the inverse floater goes down; when market interest
rates go down, the interest rate paid on the inverse floater goes up. Inverse
floaters generally respond more rapidly to market interest rate changes than
fixed rate tax exempt securities. Inverse floaters are subject to interest rate
risks and leverage risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FUTURES CONTRACTS
Futures contracts, which are a type of derivative contract, provide for the
future sale by one party and purchase by another party of a specified amount of
an underlying asset at a specified price, date and time. Entering into a
contract to buy an underlying asset is commonly referred to as buying a contract
or holding a long position in the asset. Entering into a contract to sell an
underlying asset is commonly referred to as selling a contract or holding a
short position in the asset. Futures contracts are considered to be commodity
contracts.
The Fund may buy and sell interest rate and index financial futures contracts.
Depending upon how the Fund uses futures contracts and the relationships between
the market value of a futures contract and the underlying asset, futures
contracts may increase or decrease the Fund's exposure to interest rate risks,
and may also expose the Fund to liquidity risks and leverage risks.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with futures contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting futures contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on futures contracts or special
transactions.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on its assessment of the likelihood
of the issuer's inability to pay interest or principal (default) when due on
each security. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rates paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks
or other less favorable characteristics.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
by Pennsylvania issuers or credit enhanced by insurance companies or companies
with similar characteristics. As a result, the Fund will be more susceptible to
any economic, business, political or other developments which generally affect
these entities. Pennsylvania's economy has diversified away from the
concentration in heavy industry and manufacturing which existed prior to the
downsizing of the steel industry and improved its mixture of service and
technology based businesses. Despite the improvements in its employment base,
Pennsylvania is still subject to the cyclical impact which an economic downturn
has on the manufacturing sector.
TAX RISKS
In order to be tax exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of tax
exempt securities to fall.
Income from the Fund may be subject to AMT.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple
of a specified index, security or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater interest rate, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic and financial
setbacks may affect their prices more negatively, and their trading market may
be more limited. The Fund may invest up to 35% of its assets in noninvestment
grade securities.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
recorded any credit ratings, have recorded ratings below investment grade or are
not widely held.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a futures contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
What Do Shares Cost?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in this prospectus), it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund generally values fixed income
securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and the appropriate
class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE
MINIMUM CONTINGENT
INITIAL/ FRONT-END DEFERRED
INVESTMENT SALES SALES
SHARES OFFERED AMOUNTS 1 CHARGE 2 CHARGE 3
<S> <C> <C> <C>
Class A $1,500/$100 4.50% 0.00%
Class B $1,500/$100 None 5.50%
</TABLE>
1 The minimum subsequent investment amounts for Systematic Investment Programs
is $50. Investment professionals may impose higher or lower minimum investment
requirements on their customers than those imposed by the Fund. Orders for
$250,000 or more will be invested in Class A Shares instead of Class B Shares to
maximize your return and minimize the sales charges and marketing fees. Accounts
held in the name of an investment professional may be treated differently. Class
B Shares will automatically convert into Class A Shares after eight full years
from the purchase date. This conversion is a non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
CLASS A SHARES
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or greater 1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. To determine whether your Contingent Deferred Sales Charge
may be waived, see "Sales Charge When You Redeem."
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
* purchasing Shares in greater quantities to reduce the applicable sales
charge;
* combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21; or
- - of the same share class of two or more Federated Funds (other than money
market funds);
* accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
* signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months. (Call your investment professional or the Fund for more
information.)
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
* within 120 days of redeeming Shares of an equal or lesser amount;
* by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
* through wrap accounts or other investment programs where you pay the
investment professional directly for services;
* through investment professionals that receive no portion of the sales
charge;
* as a Federated Life Member (Class A Shares only) and their immediate
family members; or
* as a Trustee, Director or employee of the Fund, the Adviser, the Distributor
and their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor at the
time of purchase. If the Distributor is not notified, you will receive the
reduced sales charge only on additional purchases, and not retroactively on
previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C> A CDSC of 0.75% of the redemption amount applies to Class A Shares
redeemed up to 24 months after purchase under certain investment programs where
an investment professional received an advance payment on the transaction.
<CAPTION>
CLASS B SHARES
Shares Held Up To: CDSC
<S> <C>
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
</TABLE>
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
* purchased with reinvested dividends or capital gains;
* purchased within 120 days of redeeming Shares of an equal or lesser
amount;
* that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
* purchased through investment professionals who did not receive advanced
sales payments;
* if, after you purchase Shares, you become disabled as defined by the IRS;
* if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement; or
* upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
* Shares that are not subject to a CDSC; and
* Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers two share classes: Class A Shares and Class B Shares, each
representing interests in a single portfolio of securities.
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions, such as
broker/dealers, banks, fiduciaries or investment advisers, or to individuals,
directly or through investment professionals. The Fund may not be a suitable
investment for retirement plans or for non-Pennsylvania taxpayers because it
invests in Pennsylvania municipal securities.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A and Class B Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check) you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed or exchanged;
* signatures of all shareholders exactly as registered; and
* IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days;
* a redemption is payable to someone other than the shareholder(s) of
record; or
* IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
* ensure that the account registrations are identical;
* meet any minimum initial investment requirements; and
* receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated funds.
SYSTEMATIC WITHDRAWAL/ EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Class A Shares subject to
a sales charge while redeeming Shares using this program.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES
You will not be charged a CDSC on SWP redemptions if:
* you redeem 12% or less of your account value in a single year;
* you reinvest all dividends and capital gains distributions; and
* your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum balance.)
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends monthly to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Federated
Pennsylvania Municipal Income Fund's dividends will be exempt from the
Pennsylvania taxes discussed above to the extent they are derived from interest
on obligations exempt from such taxes. Capital gains and non-exempt dividends
are taxable whether paid in cash or reinvested in the Fund. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
J. SCOTT ALBRECHT
J. Scott Albrecht has been the Fund's portfolio manager since March 1995. He is
Vice President of the Fund. Mr. Albrecht joined Federated in 1989. He has been a
Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser
since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a
Chartered Financial Analyst and received his M.S. in Public Management from
Carnegie Mellon University.
MARY JO OCHSON
Mary Jo Ochson has been the Fund's portfolio manager since April 1997.
Ms. Ochson joined Federated in 1982 and has been a Senior Portfolio Manager
and a Senior Vice President of the Fund's Adviser since 1996. From 1988
through 1995, Ms. Ochson served as a Portfolio Manager and a Vice President
of the Fund's Adviser. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of Pittsburgh.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS (UNAUDITED)
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 38.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.08 $11.71 $11.35 $11.23 $10.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.56 0.62 0.62 0.65 0.65
Net realized and unrealized gain (loss)
on investments (0.79) 0.43 0.39 0.12 0.27
TOTAL FROM INVESTMENT OPERATIONS (0.23) 1.05 1.01 0.77 0.92
LESS DISTRIBUTIONS:
Distributions from net investment income (0.56) (0.64) (0.65) (0.65) (0.63)
Distributions from net realized gain on investments (0.09) (0.04) - - -
Distributions in excess of net realized gain
on investments (0.01) - - - -
TOTAL DISTRIBUTIONS (0.66) (0.68) (0.65) (0.65) (0.63)
NET ASSET VALUE, END OF PERIOD $11.19 $12.08 $11.71 $11.35 $11.23
TOTAL RETURN 1 (2.05%) 8.72% 9.12% 6.99% 8.76%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 0.85% 0.85% 0.97% 1.00% 1.03%
Net investment income 2 4.64% 4.74% 5.12% 5.48% 5.64%
Expense (after waivers and reimbursements) 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income (after waivers
and reimbursements) 4.74% 4.84% 5.34% 5.73% 5.92%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $221,599 $237,705 $212,792 $84,116 $83,722
Portfolio turnover 28% 24% 30% 23% 59%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 38.
<TABLE>
<CAPTION>
YEAR ENDED 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 0.47 0.54 0.30
Net realized and
unrealized gain (loss) on
investments (0.78) 0.42 0.20
TOTAL FROM INVESTMENT
OPERATIONS (0.31) 0.96 0.50
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.47) (0.55) (0.31)
Distributions from net
realized gain on
investments (0.09) (0.04) -
Distributions in excess of
net realized gain on
investments (0.01) - -
TOTAL DISTRIBUTIONS (0.57) (0.59) (0.31)
NET ASSET VALUE, END OF
PERIOD $11.20 $12.08 $11.71
TOTAL RETURN 2 (2.70%) 7.92% 4.41%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.60% 1.61% 1.72% 4
Net investment income 3 3.90% 3.98% 4.15% 4
Expense (after waivers and
reimbursements) 1.52% 1.53% 1.25% 4
Net investment income
(after waivers and
reimbursements) 3.98% 4.06% 4.62% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $46,828 $30,629 $7,906
Portfolio turnover 28% 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 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-90.3%
PENNSYLVANIA-89.5%
$ 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%), 6/1/2022
(@102) NR $ 2,171,600
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 Baa1 1,411,035
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 1,756,140
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 1,297,695
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 3,689,000
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 309,255
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 310,875
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 1,390,575
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 1,394,895
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 3,971,960
2,635,000 Allegheny County, PA,
Hospital Development
Authority, Refunding
Revenue Bonds, 6.625%
(Allegheny General
Hospital), 7/1/2009 AAA 2,822,744
3,185,000 Allegheny County, PA, IDA,
Environmental Improvement
Refunding Revenue Bonds
(Series 1998), 5.50% (USX
Corp.), 12/1/2029 BBB- 2,846,084
1,250,000 Allegheny County, PA, IDA,
Environmental Improvement
Refunding Revenue Bonds
(Series 1998), 5.60% (USX
Corp.), 9/1/2030 BBB- 1,132,988
1,500,000 Allegheny County, PA IDA,
Health Care Facilities
Revenue Refunding Bonds
(Series 1998), 5.75%
(Presbyterian SeniorCare-
Westminister Place
Project), 1/1/2023 NR 1,396,245
500,000 Allegheny County, PA
Institution District, GO
UT Bonds, 7.30%
(MBIA INS)/(Original Issue
Yield: 7.375%), 4/1/2009 AAA 509,835
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 345,000 Allegheny County, PA,
Residential Finance
Agency, SFM Revenue Bonds
(Series K), 7.75% (GNMA
COL), 12/1/2022 Aaa $ 352,266
570,000 Allegheny County, PA,
Residential Finance
Agency, SFM Revenue Bonds
(Series Q), 7.40% (GNMA
COL), 12/1/2022 Aaa 592,116
2,060,000 Allentown, PA, Area
Hospital Authority,
Revenue Bonds (Series B),
6.75% (Sacred Heart
Hospital of Allentown),
11/15/2015 BBB 2,159,457
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- 873,440
3,325,000 Bethlehem, PA, Area
Vocational-Technical
School Authority,
Guaranteed Lease Revenue
Bonds (Series 1999), 5.50%
(Bethlehem Area
Vocational-Technical
School)/(Original Issue
Yield: 5.55%), 9/1/2020 Aaa 3,278,184
4,250,000 Bradford County, PA, IDA,
Solid Waste Disposal
Revenue Bonds
(Series A), 6.60%
(International Paper Co.),
3/1/2019 BBB+ 4,436,065
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 NR 984,860
2,010,000 Bucks County, PA, Water &
Sewer Authority, Revenue
Bonds, 5.45% (Neshaminy
Interceptor Sewer
System)/(AMBAC
INS)/(Original Issue
Yield: 5.50%), 6/1/2015 Aaa 2,008,332
1,500,000 Bucks County, PA, Water &
Sewer Authority, Revenue
Bonds, 5.50% (Neshaminy
Interceptor Sewer
System)/(AMBAC
INS)/(Original Issue
Yield: 5.60%), 6/1/2017 Aaa 1,493,970
2,100,000 Chartiers Valley, PA,
Refunding Revenue Bonds,
6.15%, 3/1/2007 AAA 2,239,104
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 976,998
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- 1,407,645
1,575,000 Commonwealth of
Pennsylvania, GO UT Bonds,
6.00% (Original Issue
Yield: 6.15%), 7/1/2007 AA 1,700,811
4,000,000 Commonwealth of
Pennsylvania, UT GO Bonds,
5.00% (Original Issue
Yield: 5.25%), 6/1/2018 AAA 3,729,840
150,000 Dauphin County, PA,
Revenue Bonds, 6.00% (MBIA
INS), 6/1/2002 AAA 150,890
150,000 Dauphin County, PA,
Revenue Bonds, 6.10% (MBIA
INS), 6/1/2003 AAA 150,926
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- 2,664,665
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 300,000 Delaware County, PA,
Authority, Hospital
Revenue Bonds, 5.90%
(Riddle Memorial
Hospital)/(Original Issue
Yield: 6.10%), 1/1/2002 A- $ 310,293
1,000,000 Delaware County, PA,
Authority, Revenue Bonds (Series 1996), 5.50% (Elwyn,
Inc.)/(AMBAC INS)/ (Original Issue Yield:
5.69%), 6/1/2020 AAA 961,060
10,000,000 Delaware Valley, PA,
Regional Finance
Authority, Local
Government Revenue Bonds
(Series 1997D), 5.60%,
7/1/2017 AAA 10,117,600
500,000 Erie County, PA, Prison
Authority, Lease Revenue
Bonds, 6.45%
(MBIA LOC)/(Original Issue
Yield: 6.50%), 11/1/2001 AAA 524,035
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 1,004,940
2,000,000 Fayette County, PA,
Hospital Authority,
Hospital Revenue Bonds
(Series 1996A), 5.75%
(Uniontown
Hospital)/(Connie Lee
INS)/(Original Issue
Yield: 6.05%), 6/15/2015 AAA 2,010,080
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 2,772,193
500,000 Indiana County, PA,
Hospital Authority,
Revenue Refunding Bonds
(Series B), 6.20% (Indiana
Hospital, PA)/(AMBAC
INS)/(Original Issue
Yield: 6.30%), 7/1/2006 AAA 526,320
800,000 Jeannette Health Services
Authority, PA, Hospital
Revenue Bonds (Series A of
1996), 6.00% (Jeannette
District Memorial
Hospital)/(Original Issue
Yield: 6.15%), 11/1/2018 BBB+ 800,480
2,915,000 Jim Thorpe Area School
District, PA, UT GO Bonds
(Series A), 5.75%, (MBIA
INS) 3/15/2017 AAA 2,943,859
1,000,000 Lackawanna Trail School
District, PA, UT GO
Refunding Bonds, 6.90%
(AMBAC INS), 3/15/2010 AAA 1,046,630
3,000,000 Lancaster, PA, School
District, GO Bonds (Series
1997), 5.40%
(FGIC INS)/(Original Issue
Yield: 5.50%), 2/15/2014 AAA 3,000,090
1,380,000 Latrobe, PA Industrial
Development Authority,
College Revenue Bonds,
6.75% (St. Vincent
College, PA)/(Original
Issue Yield: 7.00%),
5/1/2024 AAA 1,533,870
1,500,000 Lebanon County, PA,
Hospital Authority,
Hospital Revenue Bonds,
6.00% (Good Samaritan
Hospital)/(Original Issue
Yield: 6.10%), 11/15/2018 BBB+ 1,500,660
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 1,054,500
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 2,238,751
325,000 Lower Dauphin, PA, School
District, UT GO Bonds,
5.75% (United States
Treasury PRF), 9/15/2002
(@100) AAA 328,689
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 1,000,000 Luzerne Co., PA, UT GO
Bonds, 5.625% (FGIC
INS)/(Original Issue
Yield: 5.78%), 12/15/2021 AAA $ 993,620
2,500,000 Luzerne County, PA, IDA,
Revenue Refunding Bonds
(Series A), 7.00%
(Pennsylvania Gas & Water
Co.), 12/1/2017 AAA 2,753,875
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- 4,138,280
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 947,880
2,360,000 Monroe County, PA,
Hospital Authority,
Hospital Revenue Bonds,
(Series A), 5.125% (Pocono
Medical Center)/(AMBAC
INS)/(Original Issue
Yield: 5.40%), 7/1/2015 AAA 2,232,466
3,250,000 Montgomery County, PA,
IDA, Retirement Community
Revenue Bonds (Series
1996B), 5.75% (Adult
CommunitiesTotal Services,
Inc.)/(Original Issue
Yield: 5.98%), 11/15/2017 A- 3,110,153
1,000,000 Montgomery County, PA,
IDA, Retirement Community
Revenue Refunding Bonds
(Series 1996A), 5.875%
(Adult CommunitiesTotal
Services, Inc.)/(Original
Issue Yield: 6.125%),
11/15/2022 A- 964,350
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 470,365
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 1,200,901
1,225,000 North Penn, PA, School
District, Refunding
Revenue Bonds, 6.20%,
3/1/2007 Aaa 1,249,843
110,000 North Penn, PA, Water
Authority, Revenue Bonds,
6.10% (FGIC INS),
11/1/2003 AAA 117,192
500,000 Northeastern, PA, Hospital
& Education Authority,
Health Care Revenue Bonds
(Series 1994 A), 6.10%
(Wyoming Valley Health
Care, PA)/(AMBAC
INS)/(Original Issue
Yield: 6.25%), 1/1/2003 AAA 524,425
500,000 Northern Cambria, PA,
School District, GO UT
Bonds, 7.10% (AMBAC INS),
1/15/2007 (@100) AAA 506,465
500,000 Pennsylvania Convention
Center Authority,
Refunding Revenue Bonds
(Series A), 6.25%,
9/1/2004 BBB 518,450
1,000,000 Pennsylvania Convention
Center Authority, Revenue
Bonds, (Series A), 6.70%
(FGIC INS)/(Original Issue
Yield: 6.843%), 9/1/2016 AAA 1,137,630
5,000,000 Pennsylvania EDFA, Exempt
Facilities Revenue Bonds
(Series 1997B), 6.125%
(National Gypsum Co.),
11/1/2027 NR 4,833,700
4,000,000 Pennsylvania EDFA,
Resource Recovery Revenue
Bonds (Series A), 6.40%
(Northampton Generating),
1/1/2009 BBB- 4,083,920
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 4,230,000 Pennsylvania EDFA, Revenue
Bonds (Series 1998A),
5.25% (Northwestern Human
Services, Inc.)/(Original
Issue Yield: 5.668%),
6/1/2028 BBB $ 3,613,351
755,000 Pennsylvania Housing
Finance Authority,
Refunding Revenue Bonds,
(Series 54A), 5.375% (FHA
INS), 10/1/2028 AA+ 765,578
915,000 Pennsylvania Housing
Finance Authority, Revenue
Bonds, (Series 48),
5.375%, 10/1/2016 AA+ 915,952
1,000,000 Pennsylvania Housing
Finance Authority, Revenue
Bonds,
(Series 96/53A), 5.40%,
10/1/2027 AA+ 991,240
575,000 Pennsylvania Housing
Finance Authority, Revenue
Bonds,
(Series 96/52B), 5.55%
(FHA/VA mtgs. GTD),
10/1/2012 AA+ 576,173
915,000 Pennsylvania Housing
Finance Authority, Revenue
Bonds, 5.65%, 4/1/2020 AA+ 908,348
495,000 Pennsylvania Housing
Finance Authority, SFM
Revenue Bonds
(Series 33), 6.90%,
4/1/2017 AA+ 515,196
100,000 Pennsylvania Housing
Finance Authority, SFM
Revenue Bonds
(Series 41-B), 5.90%,
10/1/2005 AA+ 103,300
100,000 Pennsylvania Housing
Finance Authority, SFM
Revenue Bonds
(Series 42), 5.90%,
10/1/2004 AA+ 104,333
345,000 Pennsylvania Housing
Finance Authority, SFM
Revenue Bonds
(Series 43), 6.35%,
4/1/2001 AA+ 350,451
1,425,000 Pennsylvania Housing
Finance Authority, SFM
Revenue Bonds,
(Series 62A), 5.50%,
10/1/2022 AA+ 1,355,275
3,000,000 Pennsylvania Housing
Finance Authority, Single
Family Mortgage Revenue
Bonds (Series 67A), 5.85%,
10/1/2018 AA+ 2,982,780
2,000,000 Pennsylvania
Intergovernmental Coop
Authority, Special Tax
Revenue Bonds, 5.625%
(MBIA INS)/(Original Issue
Yield: 97.245%), 6/15/2023 AAA 2,086,980
3,085,000 Pennsylvania
Intergovernmental Coop Authority, Special Tax Revenue Refunding
Bonds (Series 1999), 5.00% (Original Issue Yield:
5.13%), 6/15/2021 AAA 2,804,697
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 5,173,905
2,000,000 Pennsylvania State Higher
Education Facilities
Authority, Revenue Bonds
(Series 1996), 7.20%
(Thiel College), 5/15/2026 NR 2,283,860
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 2,634,390
2,000,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds (Series N), 5.875% (Original Issue Yield:
5.913%), 6/15/2021 AAA 2,012,020
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 2,000,000 Pennsylvania State Higher
Education Facilities
Authority, Revenue Bonds,
5.00% (Thomas Jefferson
University)/(AMBAC
INS)/(Original Issue
Yield: 5.22%), 7/1/2019 AAA $ 1,849,320
4,515,000 Pennsylvania State Higher
Education Facilities
Authority, Revenue Bonds,
5.20% (University of the
Arts)/(Asset Guaranty
INS)/(Original Issue
Yield: 5.30%), 3/15/2025 AA 4,090,048
2,000,000 Pennsylvania State Higher
Education Facilities
Authority, Revenue Bonds,
6.375% (Drexel
University)/(Original
Issue Yield: 6.415%),
5/1/2017 A- 2,084,520
750,000 Pennsylvania State Higher Education Facilities Authority,
Revenue Bonds, 6.80% (MBIA LOC)/ (Original Issue Yield:
6.85%), 6/15/2001 AAA 768,030
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 1,438,035
500,000 Pennsylvania State IDA,
Economic Development
Revenue Bonds (Series A),
6.80% (Original Issue
Yield: 6.85%), 1/1/2001 AAA 517,140
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 1,040,700
500,000 Philadelphia, PA, Gas
Works, Revenue Bonds,
7.40%, 6/15/2000 BBB 512,960
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+ 2,368,008
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+ 1,646,262
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+ 1,623,092
325,000 Philadelphia, PA,
Hospitals & Higher
Education Facilities
Authority, Refunding
Revenue Bonds, 6.15%
(Pennsylvania
Hospital)/(Original Issue
Yield: 6.25%), 7/1/2005 NR 347,835
250,000 Philadelphia, PA,
Hospitals & Higher
Education Facilities
Authority, Revenue Bonds,
7.75% (Children's Seashore
House, PA)/(AMBAC INS),
8/15/2008 (@100) AAA 259,278
5,195,000 Philadelphia, PA, Parking
Authority, Airport Parking
Revenue Bonds (Series
1999), 5.625%, 9/1/2016 AAA 5,226,534
1,240,000 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 Baa3 1,197,034
4,000,000 Philadelphia, PA, (Series
1995A) Airport Revenue
Bonds, 6.10%
(Philadelphia, PA Airport
System)/(Series A), (AMBAC
INS)/(Original Issue
Yield: 6.40%), 6/15/2025 AAA 4,047,720
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 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 $ 9,252,240
3,500,000 Philadelphia, PA,
Refunding UT GO Bonds,
5.125% (FGIC INS),
5/15/2014 AAA 3,363,395
855,000 Philadelphia, PA, Revenue
Bonds, 10.875% (United
States Treasury PRF),
7/1/2008 (@100) Aaa 1,019,322
4,000,000 Pittsburgh, PA, Auditorium
Authority, Regional Asset
District Sales Tax Revenue
Bonds (Series 1999), 5.00%
(AMBAC INS)/(Original
Issue Yield: 5.23%),
2/1/2019 AAA 3,684,560
765,000 Pittsburgh, PA, Urban
Redevelopment Authority,
Mortgage Revenue Bonds
(Series 1997A), 6.15%,
10/1/2016 AAA 786,122
420,000 Pittsburgh, PA, Urban
Redevelopment Authority,
Mortgage Revenue Bonds
(Series 1997C), 5.35%,
10/1/2009 AAA 417,430
1,260,000 Pittsburgh, PA, Urban
Redevelopment Authority,
Mortgage Revenue Bonds
(Series 1997C), 5.90%,
10/1/2022 AAA 1,269,450
1,430,000 Pittsburgh, PA, Urban
Redevelopment Authority,
Revenue Bonds, 5.45% (FGIC
INS)/(PNC Bank, N.A. LOC),
6/1/2028 AAA 1,357,370
2,000,000 Pittsburgh, PA, Water &
Sewer Authority, Water &
Sewer System Revenue Bonds
(Series C), 5.25% (FSA
INS), 9/1/2022 AAA 1,881,800
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 4,435,992
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 2,680,474
1,000,000 Seneca Valley, PA, School District, Refunding UT GO Bonds
(Series 1998AA), 5.15% (Original Issue Yield:
5.20%), 2/15/2020 AAA 934,610
1,920,000 Shaler, PA, School
District Authority, GO UT
Bonds, 6.25%, 4/15/2008 AAA 2,029,957
2,650,000 Sharon, PA, General
Hospital Authority,
Hospital Revenue Bonds,
6.875% (Sharon Regional
Health System), 12/1/2022 AAA 2,902,280
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 1,899,960
2,000,000 Southeastern, PA,
Transportation Authority,
Special Revenue Bonds,
5.375% (FGIC INS)/
(Original Issue Yield:
5.70%), 3/1/2017 AAA 1,957,840
8,000,000 Southeastern, PA Transportation Authority, Special Revenue
Bonds, 5.375% (FGIC INS)/ (Original Issue Yield:
5.75%), 3/1/2022 AAA 7,706,960
100,000 Spring Ford, PA School
District, UT GO Refunding
Bonds (Series AA), 5.80%,
8/1/2005 AAA 101,632
500,000 State Public School
Building Authority, PA,
College Revenue Bonds,
6.50% (Harrisburg Area
Community College-D)/(MBIA
LOC), 4/1/2002 AAA 526,540
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
LONG-TERM MUNICIPALS-
continued
PENNSYLVANIA-CONTINUED
$ 1,000,000 Susquehanna, PA, Area
Regional Airport
Authority, Airport
Facilities Revenue Bonds
(Series 1999), 5.50% (Aero
Harrisburg)/(Original
Issue Yield: 5.85%),
1/1/2024 NR $ 930,920
40,000 Swarthmore Boro Authority
PA, Refunded Revenue
Bonds, 6.00% (Original
Issue Yield: 6.10%),
9/15/2006 AA+ 42,691
7,000,000 University of Pittsburgh,
University Refunding
Revenue Bonds
(Series 1997B), 5.00%
(Original Issue Yield:
5.287%), 6/1/2017 AAA 6,549,480
3,000,000 Upper Darby School District, PA, UT GO Bonds, 5.00% (AMBAC
INS)/ (Original Issue Yield:
5.10%), 5/1/2019 Aaa 2,775,030
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 1,059,280
680,000 Washington County, PA,
Authority, Lease Revenue
Bonds, 7.00% (AMBAC INS),
6/15/2000 (@103) AAA 706,805
400,000 Washington County, PA,
Authority, Lease Revenue
Bonds, 7.875%, 12/15/2018 AAA 513,431
1,000,000 West View, PA, Municipal
Authority, Special
Obligation Bonds, 9.50%,
11/15/2014 AAA 1,328,520
695,000 Westmoreland County, PA,
Municipal Authority,
Special Obligation Bonds,
9.125%, 7/1/2010 AAA 805,330
TOTAL 240,181,826
PUERTO RICO-0.8%
1,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securites (Series
PA 331A), 7.20% (AMBAC
INS), 7/1/2013 NR 1,057,520
1,000,000 Puerto Rico Highway and
Transportation Authority,
Residual Interest Tax-
Exempt Securities (Series
PA 331B), 7.20% (AMBAC
INS), 7/1/2014 NR 1,049,900
TOTAL 2,107,420
VIRGIN ISLANDS-0.0%
70,000 Virgin Islands HFA, SFM Revenue Refunding Bonds (Series A),
5.80% (GNMA
COL), 3/1/2005 AAA 72,330
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST
$243,664,658) 242,361,576
SHORT-TERM INVESTMENTS-
10.8%
PENNSYLVANIA-9.8%
12,880,000 Erie County, PA, Hospital
Authority, (Series 1998B),
Daily VRDNs (Hamot Health
Foundation)/(AMBAC
INS)/(PNC Bank, N.A. LIQ),
2.95%, 5/15/2020 AAA 12,880,000
13,500,000 South Fork Municipal
Authority, PA, (Series A)
Daily VRDNs (Conemaugh
Health System)/(MBIA
INS)/(Credit Suisse First
Boston LIQ), 3.10%,
7/1/2008 AAA 13,500,000
TOTAL 26,380,000
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS-
continued
PUERTO RICO-1.0%
$ 2,600,000 Puerto Rico Commonwealth
Infrastructure Financing
Authority, Floater
Certificates (Series 1998-
139) Weekly VRDNs (AMBAC
INS)/(Morgan Stanley, Dean
Witter Municipal Funding,
Inc. LIQ), 2.99%, 7/1/2028 AAA $ 2,600,000
TOTAL SHORT-TERM
INVESTMENTS (AT AMORTIZED
COST) $ 28,980,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$272,644,658) 2 $ 271,341,576
</TABLE>
Securities that are subject to alternative minimum tax represent 12.2% of the
portfolio as calculated based upon total portfolio market valve.
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 $272,644,658. The
net unrealized depreciation of investments on a federal tax basis amounts to
$(1,303,082) which is comprised of $4,837,262 appreciation and $6,140,344
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($268,426,689) at August 31, 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
AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$272,644,658) $ 271,341,576
Cash 236,798
Income receivable 3,922,025
Receivable for investments
sold 20,000
Receivable for shares sold 280,667
Receivable for daily
variation margin 6,560
TOTAL ASSETS 275,807,626
LIABILITIES:
Payable for investments
purchased $ 6,332,505
Payable for shares
redeemed 508,222
Income distribution
payable 478,681
Accrued expenses 61,529
TOTAL LIABILITIES 7,380,937
Net assets for 23,977,587
shares outstanding $ 268,426,689
NET ASSETS CONSIST OF:
Paid in capital $ 270,987,711
Net unrealized
depreciation of
investments and futures
transactions (1,321,944)
Accumulated net realized
loss on investments (602,998)
Distributions in excess of
net investment income (636,080)
TOTAL NET ASSETS $ 268,426,689
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($221,598,985 / 19,794,704
shares outstanding) $11.19
Offering Price Per Share
(100/95.50 of $11.19) 1 $11.72
Redemption Proceeds Per
Share (100.00/100 of
$11.19) 2 $11.19
CLASS B SHARES:
Net Asset Value Per Share
($46,827,704 / 4,182,883
shares outstanding) $11.20
Offering Price Per Share
(100/100.00 of $11.20) 1 $11.20
Redemption Proceeds Per
Share (94.50/100 of
$11.20) 2 $10.58
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 15,077,894
EXPENSES:
Investment advisory fee $ 1,097,037
Administrative personnel
and services fee 206,792
Custodian fees 28,824
Transfer and dividend
disbursing agent fees and
expenses 117,498
Directors'/Trustees' fees 5,009
Auditing fees 13,927
Legal fees 4,231
Portfolio accounting fees 97,977
Distribution services fee-
Class B Shares 299,784
Shareholder services fee-
Class A Shares 585,720
Shareholder services fee-
Class B Shares 99,928
Share registration costs 21,180
Printing and postage 60,105
Insurance premiums 2,117
Miscellaneous 5,571
TOTAL EXPENSES 2,645,700
WAIVERS:
Waiver of investment
advisory fee $ (223,304)
Waiver of shareholder
services fee-Class A
Shares (46,858)
TOTAL WAIVERS (270,162)
Net expenses 2,375,538
Net investment income 12,702,356
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES TRANSACTIONS:
Net realized gain (loss) on
investments and futures
transactions (459,349)
Net change in unrealized
appreciation
(depreciation)
of investments and futures
transactions (17,976,493)
Net realized and
unrealized gain (loss) on
investments and
futures transactions (18,435,842)
Change in net assets
resulting from operations $ (5,733,486)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 12,702,356 $ 11,625,708
Net realized gain (loss) on
investments ($(143,649)
and $2,643,156,
respectively, as computed
for federal tax purposes) (459,349) 2,643,156
Net change in unrealized
appreciation
(depreciation) (17,976,493) 6,503,027
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (5,733,486) 20,771,891
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (11,168,636) (11,176,550)
Class B Shares (1,629,212) (807,283)
Distributions from net
realized gains
Class A Shares (1,810,336) (692,628)
Class B Shares (255,129) (44,936)
Distributions in excess of
net realized gains
Class A Shares (100,040) -
Class B Shares (21,220) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (14,984,573) (12,721,397)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 59,110,607 53,698,762
Net asset value of shares
issued to shareholders in
payment of
distributions declared 8,605,947 7,262,803
Net asset value of shares
issued in connection with
the acquisition of
Federated Pennsylvania
Intermediate Municipal
Trust - 20,752,947
Cost of shares redeemed (46,905,826) (42,128,847)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 20,810,728 39,585,665
Change in net assets 92,669 47,636,159
NET ASSETS:
Beginning of period 268,334,020 220,697,861
End of period $ 268,426,689 $ 268,334,020
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999
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 six 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.
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 60
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.
Distributions are determined in accordance with income tax regulations which may
differ from the generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
The following reclassifications have been made to the financial statements:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
UNDISTRIBUTED
ACCUMULATED NET INVESTMENT
PAID-IN CAPITAL GAIN/LOSS INCOME
<S> <C> <C>
$137,977 $44,486 $(182,463)
</TABLE>
Net investment income, net realized gains/losses and net assets are not affected
by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Additionally, net capital losses of $621,861 attributable to security
transactions incurred after October 31, 1998, are treated as arising on
September 1, 1999, the first day of the fund's next taxable year.
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.
FUTURES CONTRACTS
The Fund purchases stock index futures contracts to manage cashflows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. For the year ended August 31, 1999, the Fund had realized
gains of $63,994 on future contracts.
At August 31, 1999, the Fund had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
EXPIRATION CONTRACTS UNREALIZED
DATE TO RECEIVE POSITION DEPRECIATION
<S> <C> <C> <C>
December 1999 15 Municipal Bond Short ($18,862)
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,020,879 $ 35,437,670 2,592,539 $ 30,277,416
Shares issued to
shareholders in payment of
distributions declared 627,660 7,389,056 566,650 6,739,691
Shares issued in
connection with the
acquisition of William
Penn Interest Income PA Tax
Free Fund - - 1,735,196 20,752,947
Shares redeemed (3,535,185) (41,544,942) (3,391,170) (40,368,961)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 113,354 $1,281,784 1,503,215 $17,401,093
<CAPTION>
YEAR ENDED AUGUST 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,003,003 $ 23,672,937 1,964,044 $ 23,421,346
Shares issued to
shareholders in payment of
distributions declared 103,408 1,216,891 43,929 523,112
Shares redeemed (459,373) (5,360,884) (147,500) (1,759,886)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 1,647,038 $ 19,528,944 1,860,473 $ 22,184,572
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,760,392 $ 20,810,728 3,363,688 $ 39,585,665
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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
Shares 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>
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
<S> <C>
Class A 0.40%
Class B 0.75%
</TABLE>
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. Class A
Shares did not incur a distribution services fee for the period ended August 31,
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's 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.
INTERFUND TRANSACTIONS
During the period ended August 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
advisers), common Directors/Trustees, and/or common officers. These purchase and
sale transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $97,845,000 and $75,300,000 respectively.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 72,871,593
Sales $ 83,986,044
</TABLE>
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
August 31, 1999, 26.6% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 13.8% of total investments.
YEAR 2000 (UNAUDITED)
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.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES OF
FEDERATED MUNICIPAL SECURITIES INCOME TRUST
AND SHAREHOLDERS OF FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated Pennsylvania Municipal Income Fund as
of August 31, 1999, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended August 31, 1999 and
1998, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Pennsylvania Municipal Income Fund as of August 31, 1999, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 15, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated Pennsylvania Municipal
Income Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
OCTOBER 31, 1999
A Statement of Additional Information (SAI) dated October 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's Annual and SemiAnnual Reports to
shareholders as they become available. The Annual Report's Management Discussion
& Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
Federated Pennsylvania Municipal
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6165
Cusip 625922505
Cusip 625922836
G00577-02 (10/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated Pennsylvania Municipal Income
Fund
A Portfolio of Federated Municipal Securities Income Trust
CLASS A SHARES
CLASS B SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Pennsylvania Municipal
Income Fund (Fund), dated October 31, 1999. Obtain the prospectus and the Annual
Report's Management Discussion & Analysis without charge by calling
1-800-341-7400.
OCTOBER 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated Pennsylvania Municipal Income
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
0090701B (10/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 4
How is the Fund Sold? 5
Subaccounting Services 6
Redemption in Kind 7
Massachusetts Partnership Law 7
Account and Share Information 7
Tax Information 7
Who Manages and Provides Services to the Fund? 8
How Does the Fund Measure Performance? 11
Who is Federated Investors, Inc.? 13
Investment Ratings 14
Addresses 16
How is the Fund Organized?
The Fund is a non-diversified portfolio of Federated Municipal Securities Income
Trust (Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on August 6,
1990. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. The Fund changed its name from Pennsylvania
Municipal Income Fund to Federated Pennsylvania Municipal Income Fund on
February 26, 1996. Effective October 1, 1999, the Trust changed its name from
Municipal Securities Income Trust to Federated Municipal Securities Income
Trust.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Class A Shares and Class B Shares (Shares). This SAI relates to
both classes of Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). The Adviser, formerly known as Federated Advisers,
changed its name effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal regular income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to the
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. The other party to a derivative contract is
referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LIQUIDITY RISKS
Limited trading opportunities may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania. The investment objective may not be changed by the Fund's Trustees
without shareholder approval.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED BY THE BOARD UNLESS AUTHORIZED BY THE
"VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE
CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED
BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
RESTRICTED SECURITIES
The Fund may invest its securities subject to restrictions on resale under the
Securities Act of 1933.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In applying the Fund's commodities limitation, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are
not deemed to be investments in commodities.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the Securities and Exchange
Commission (SEC) staff that only domestic bank instruments may be excluded from
industry concentration limitations, the Fund will not exclude foreign bank
instruments from industry concentration limits as long as the policy of the SEC
remains in effect. The Fund will consider concentration to be the investment of
more than 25% of the value of its total assets in any one industry.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
* futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker/dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the same Share class reduce the sales charge you pay. You
can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT (CLASS A SHARES)
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
* the Trustees, Directors, employees and sales representatives of the Fund,
the Adviser, the Distributor and their affiliates;
* any associated person of an investment dealer who has a sales agreement
with the Distributor; and
* trusts, pension or profit-sharing plans for these individuals.
FEDERATED LIFE MEMBERS
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
* through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
* as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
* following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
* of Shares that represent a reinvestment within 120 days of a
previous redemption;
* of Shares held by the Trustees, Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their affiliates;
employees of any investment professional that sells Shares according to a sales
agreement with the Distributor; and the immediate family members of the above
persons;
* of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities;
* which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN (CLASS A SHARES AND CLASS B SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses. Federated and its subsidiaries may benefit from
arrangements where the Rule 12b-1 Plan fees related to Class B Shares may be
paid to third parties who have advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% of the NAV of Class B Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
CLASS A SHARES
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
ADVANCE PAYMENTS
AS A PERCENTAGE OF
AMOUNT PUBLIC OFFERING PRICE
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of October 7, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class A Shares for its clients), Jacksonville, Florida,
owned approximately 1,330,331 Class A Shares (5.54%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of October 7, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A and Class B Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN and TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of $1,305.35 $113,860.22 for the Trust
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $1,436.05 $125,264.48 for the Trust
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex
3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some $1,305.35 $47,958.02 for the Trust
Birth Date: September 3, 1939 of the Federated Fund and 29 other investment
175 Woodshire Drive Complex; formerly: companies in the
Pittsburgh, PA Partner, Andersen Fund Complex
TRUSTEE Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some $331.87 $0 for the Trust
Birth Date: March 5, 1943 of the Federated Fund and 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist and Internist,
University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $1,189.91 $113,860.22 for the Trust
Birth Date: March 16, 1942 Federated Funds Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State Street
Corporation.
Previous Positions:
Director, VISA USA and
VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $1,016.39 $0 for the Trust
Birth Date: April 10, 1945 of the Federated Fund and 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,403.80 $113,860.22 for the Trust
Birth Date: December 20, 1932 the Federated Fund and 54 other investment
President, Duquesne University Complex; President, Law companies in the
Pittsburgh, PA Professor, Duquesne Fund Complex
TRUSTEE University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the $1,305.35 $113,860.22 for the Trust
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some $331.87 $0 for the Trust
Birth Date: November 28, 1957 of the Federated Fund and 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Trust
Birth Date: April 11, 1949 Vice President of the and 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
and TRUSTEE President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management Company
and Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Trust
Birth Date: October 22, 1930 of the Funds in the and 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Trust
Birth Date: October 26, 1938 and Secretary of the and 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp, Federated Services Company and
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust
Birth Date: June 17, 1954 Fund Complex; Vice and 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.
RICHARD B. FISHER President or Vice $0 $0 for the Trust
Birth Date: May 17, 1923 President of some of the and 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Trust
Birth Date: March 3, 1949 of this Fund and various and 41 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
J. SCOTT ALBRECHT J. Scott Albrecht has been $0 $0 for the Trust
Birth Date: June 1, 1960 the Fund's portfolio and 1 other investment
Federated Investors Tower manager since March 1995. company in the
1001 Liberty Avenue He is Vice President of the Fund Complex
Pittsburgh, PA Trust. Mr. Albrecht joined
VICE PRESIDENT Federated in 1989. He has
been a Senior Portfolio
Manager since 1997 and a
Vice President of the
Fund's investment adviser
since 1994. He was a
Portfolio Manager from
1994 to 1996. Mr. Albrecht
is a Chartered Financial
Analyst and received his
M.S. in Public Management
from Carnegie Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
++ Mr. Mansfield became a member of the Board of Trustees on January 1,
1999. Messrs. Cunningham and Walsh became members of the Board of
Trustees on July 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar
year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $1,097,307 $972,754 $470,040
Advisory Fee Reduction 223,304 194,282 239,900
Administrative Fee 206,792 183,420 141,863
12B-1 FEE
Class A Shares 0 - -
Class B Shares 299,784 - -
SHAREHOLDER SERVICES FEE
Class A Shares 538,862 - -
Class B Shares 99,928 - -
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year and Start of Performance
periods ended August 31, 1999.
Yield and Tax-Equivalent Yield are given for the 30-day period ended August 31,
1999.
<TABLE>
<CAPTION>
START OF
30-DAY PERFORMANCE ON
PERIOD 1 YEAR 5 YEARS OCTOBER 11, 1990
<S> <C> <C> <C> <C>
CLASS A SHARES
Total Return NA (6.46%) 5.24% 6.60%
Yield 4.64% NA NA NA
Tax-Equivalent Yield 7.68% NA NA NA
<CAPTION>
START OF
30-DAY PERFORMANCE ON
PERIOD 1 YEAR 5 YEARS MARCH 4, 1997
<S> <C> <C> <C> <C>
CLASS B SHARES
Total Return NA (7.80%) NA 2.26%
Yield 3.86% NA NA NA
Tax-Equivalent Yield 6.39% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The tax-equivalent yield of Shares is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that Shares would have had to earn to equal the actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
TAX EQUIVALENCY TABLE
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999-COMMONWEALTH
OF PENNSYLVANIA
<S> <C> <C> <C> <C> <C>
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
<CAPTION>
COMBINED FEDERAL AND STATE TAX BRACKET: 17.800% 30.800% 33.800% 38.800% 42.400%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS REVENUE BOND INDEX
Lehman Brothers Revenue Bond Index is a total return performance benchmark for
the long-term, investment grade, revenue bond market. Returns and attributes for
the index are calculated semi-monthly.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "general municipal
bond funds" category in advertising and sales literature.
MORNINGSTAR, INC.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well-established industries;
* High rates of return on funds employed;
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
* Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED PENNSYLVANIA MUNCIPAL INCOME FUND
Class A Shares
Class B Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PART C. OTHER INFORMATION.
Item 23. EXHIBITS:
(a) (i) Paper Copy of Declaration of Trust of the
Registrant (1);
(ii) Paper Copy of Amendment No. 1 (dated
August 26, 1991) to Declaration of Trust (5);
(iii) Conformed Copy of Amendment No. 2 (dated
August 6, 1990) to the Declaration of Trust (6);
(iv) Conformed Copy of Amendment No. 3 (dated
August 31, 1992) to the Declaration of Trust (8);
(v) Conformed Copy of Amendment No. 4 (dated
September 17, 1992) to the Declaration of Trust (8);
(vi) Conformed Copy of Amendment No. 5 (dated
February 4, 1993) to the Declaration of Trust (10);
(vii) Conformed Copy of Amendment No. 6 (dated May 24, 1993)
to the Declaration of Trust (13);
(viii)Conformed copy of Amended and Restated Declaration of
Trust (including Amendment Nos. 7-17); +
(b) Copy of By-Laws of the Registrant (1);
(i) Copy of Amendment No. 1 (dated November 18, 1997) to the
By-Laws (23);
(ii) Copy of Amendment No. 2 (dated February 23, 1998) to the
By-Laws (23);
(iii)Copy of Amendment No. 3 (dated February 27, 1998) to the
By-Laws (23);
(iv) Copy of Amendment No. 4 (dated May 12, 1998) to the By-Laws
(23);
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed August 31, 1990. (File Nos. 33-36729 and
811-6165)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed on October 28, 1991. (File Nos. 33-36729
and 811-6165)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed on January 24, 1992. (File Nos. 33-36729
and 811-6165)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed on September 25, 1992. (File Nos.
33-36729 and 811-6165)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed on March 24, 1993. (File Nos. 33-36729
and 811-6165)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed on July 2, 1993, (File Nos. 33-36729
and 811-6165)
23. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on August 28, 1998. (File Nos. 33-36729
and 811-6165)
<PAGE>
(c) Copy of Specimen Certificate for Shares of Beneficial
Interest for:
(i) Federated Pennsylvania Municipal Income
Fund-Class A Shares (19);
(ii) Federated Pennsylvania Municipal Income Fund-
Class B Shares (22);
(iii) Federated Ohio Municipal Income Fund-Class
F Shares (19);
(iv) Federated California Municipal Income Fund-Class
F Shares (19);
(v) Federated New York Municipal Income Fund-Class
F Shares (19);
(vi) Federated Michigan Intermediate Municipal
Trust (19);
(d) Conformed Copy of new Investment Advisory Contract of the
Registrant (21);
(i) Copy of Amendment to Investment Advisory
Contract (12)
(ii) Conformed Copies of Amendments to Investment
Advisory Contract (14);
(iii) Conformed Copies of Amendments to Investment
Advisory Contract (14);
(e) (i) Conformed Copy of Distributor's Contract of the
Registrant (21);
(ii) Conformed Copy of Amendment to Distributor's Contract
(12); (iii) Conformed Copy of Amendment to Distributor's
Contract (14);
(iv) Conformed Copy of Exhibit O to the Distributor's
Contract (23); (v) Conformed Copy of Distributor's
Contract (Class B Shares) (23);
(vi) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Fund Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item
24(b)(6) of the Cash Trust Series II Registration
Statement on Form N-1A filed with the Commission on
July 24, 1995. (File Number 33-38550 and 811-6269).
+ All exhibits are filed electronically.
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed on May 17, 1993. (File Nos. 33-36729
and 811-6165)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on October 28, 1993. (File Nos.
33-36729 and 811-6165)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed on October 23, 1996. (File Nos.
33-36729 and 811-6165)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed on October 15, 1997. (File Nos.
33-36729 and 811-6165)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed on October 31, 1997. (File Nos.
33-36729 and 811-6165)
23. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on August 28, 1998. (File Nos. 33-36729
and 811-6165)
<PAGE>
(f) Not applicable;
(g) (i) Conformed Copy of Custodian Contract of the
Registrant (18);
(ii) Conformed Copy of Custodian Fee Schedule (22);
(h) (i) Conformed Copy of Amended and Restated Shareholder
Services Agreement (22); (ii) Conformed Copy of Principal
Shareholder Services Agreement (Class B Shares) (23);
(iii) Conformed Copy of Shareholder Services Agreement
(Class B Shares) (23);
(iv) Conformed Copy of Amended and Restated Agreement
for Fund Accounting Services, Administrative
Services, Transfer Agency Services and Custody
Services Procurement (23);
(v) With regard to Federated Pennsylvania Municipal
Income Fund, Federated Ohio Municipal Income Fund,
Federated California Municipal Income Fund and
Federated New York Municipal Income Fund, the
Registrant hereby incorporates the conformed copy
of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services from
Item 24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996. (File Nos. 2-75670
and 811-3375).
(vi) The response described in Item 24(b)(6)(iv) are
hereby incorporated by reference; (i) Conformed Copy of Opinion
and Consent of Counsel as to the legality of shares being
registered (1); (j) Conformed Copy of Independent Auditors'
Consent; + (k) Not applicable; (l) Conformed Copy of Initial
Capital Understanding (1); (m) (i) Conformed Copy of Rule 12b-1
Plan (21);
(ii) Conformed Copy of Distribution Plan (21);
(iii) Conformed Copy of Exhibit B to the Distribution
Plan (23);
(iv) Conformed Copy of Exhibit 1 Amendment to the
Distribution Plan for the Investment Companies(Class B
Shares) (23); (v) The response described in Item
24(b)(6)(iv) are hereby incorporated by reference;
+ All exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed August 31, 1990. (File Nos. 33-36729 and
811-6165)
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on October 30, 1995. (File Nos.
33-36729 and 811-6165)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed on October 15, 1997. (File Nos.
33-36729 and 811-6165)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed on October 31, 1997. (File Nos.
33-36729 and 811-6165)
23. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on August 28, 1998. (File Nos. 33-36729
and 811-6165)
24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 27 on Form N-1A filed on October 30, 1998. (File Nos.
33-36729 and 811-6165)
<PAGE>
(n) Copy of Financial Data Schedules (not included per footnote
60 of Release No. 33-7684);
(o) With regard to Federated Pennsylvania Municipal Income Fund,
Federated Ohio Municipal Income Fund, Federated California
Municipal Income Fund and Federated New York Municipal
Income Fund, the Registrant hereby incorporates the
conformed copy of the specimen Multiple Class Plan from Item
24(b)(18) of the World Investment Series, Inc. Registration
Statement on Form N-1A, filed with the Commission on January
26, 1996. (File Nos.
33-52149 and 811-07141);
(p) Conformed Copy of Power of Attorney; +
(i) Power of Attorney for Charles F. Mansfield, Jr.; (25) (ii) Power of Attorney
for William D. Dawson, III; (25) (iii) Power of Attorney for Richard J. Thomas;
(25)
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 25. INDEMNIFICATION: (1)
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "WHO MANAGES THE FUND" in Part A. The
affiliations with the Registrant of four of the Trustees and one of
the Officers of the investment adviser are included in Part B of this
Registration Statement under "WHO MANAGES AND PROVIDES SERVICES TO
THE FUND." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
David A. Briggs
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
+ All exhibits are filed electronically.
25. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 28 on Form N-1A filed on April 29, 1999. (File Nos. 33-36729
and 811-6165)
<PAGE>
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Robert E. Cauley
Kenneth J. Cody
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Marc Halperin
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Stephen A. Keen
Robert M. Kowit
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
George B. Wright
Jolanta M. Wysocka
Assistant Vice Presidents: Nancy J. Belz
Lee R. Cunningham, II
James H. Davis, II
Jacqueline A. Drastal
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
Gary E. Farwell
Eamonn G. Folan
John T. Gentry
John W. Harris
Nathan H. Kehm
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Matthew K. Stapen
Diane Tolby
Timothy G. Trebilcock
Leonardo A. Vila
Steven J. Wagner
Lori A. Wolff
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine M. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the investment
companies in the Federated Fund Complex described in Part B of this
Registration Statement.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a)....Federated Securities Corp. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
<PAGE>
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas P. Moretti Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent") Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Management Federated Investors Tower
Company("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. MANAGEMENT SERVICES: Not applicable.
Item 30. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL SECURITIES
INCOME TRUST, certifies that it meets all of the requirements for effectiveness
of this Amendment to its Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and that it has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 29th day of October, 1999.
FEDERATED MUNICIPAL SECURITIES INCOME TRUST
BY: /s/ Leslie K. Ross
Leslie K. Ross, Assistant Secretary
Attorney in Fact for John F. Donahue
October 29, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Leslie K. Ross Attorney In Fact October 29, 1999
Leslie K. Ross For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Richard B. Fisher* President
J. Christopher Donahue* Executive Vice President
and Trustee
William D. Dawson, III* Chief Investment Officer
Richard J. Thomas * Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
John F. Cunningham* Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr.* Trustee
John E. Murray, Jr.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee
Exhibit 3(i) under form N1-A
Exhibit a under Item 601/Reg. S-K
DECLARATION OF TRUST
FEDERATED MUNICIPAL INCOME TRUST
Dated August 6, 1990
DECLARATION OF TRUST made August 6, 1990 by John F. Donahue, William J.
Copeland, J. Christopher Donahue, James E. Dowd, Lawrence D. Ellis, M.D., Edward
L. Flaherty, Jr., J. Joseph Maloney, Jr., Gregor F. Meyer, Wesley W. Posvar, and
Marjorie P. Smuts.
WHEREAS the Trustees desire to establish a trust fund for the investment
and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. NAME.
This Trust shall be known as Federated Municipal Income Trust. SEE AMD. #4,
DATED 10/31/92; SEE AMD. #16, DATED 5/20/99
Section 2. DEFINITIONS.
Wherever used herein, unless otherwise required by the context or
specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50% requirement of
Section 2(a)(42) of the 1940 Act, whichever may be applicable) and "Principal
Underwriter" shall have the meanings given them in the 1940 Act, as amended from
time to time;
(b) The "Trust" refers to Federated Municipal Income Trust; SEE
AMD. #4, DATED 10/31/92; SEE AMD. #16, DATED 5/20/99 (c) "Class"
refers to a class of Shares established and designated under or
in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of Article III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or
Class;
(g) The "Trustees" refer to the individual Trustees in their
capacity as Trustees hereunder of the Trust and their successor or successors
for the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to time,
or if more than one Series or Class of Shares is authorized by the Trustees, the
equal proportionate units into which each Series or Class of Shares shall be
divided from time to time and includes fractions of Shares as well as whole
Shares; and
(i) The "1940 Act" refers to the Investment Company Act of 1940,
and the Rules and Regulations thereunder (including any exemptions granted
thereunder), as amended from time to time.
ARTICLE II
PURPOSE OF THE TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investments by investing primarily in securities (including options) and
also in debt instruments, commodities, commodity contracts and options thereon.
ARTICLE III
BENEFICIAL INTEREST
Section 1. SHARES OF BENEFICIAL INTEREST.
The beneficial interest in the Trust shall at all times be divided into
transferable Shares, without par value. Subject to the provisions of Section 5
of this Article III, each Shares shall have voting rights as provided in Article
VIII hereof, and holders of the Shares of any Series shall be entitled to
receive dividends, when and as declared with respect thereto in the manner
provided in Article X, Section 1 hereof. The Shares of any Series may be issued
in two or more Classes, as the Trustees may authorize pursuant to Article XII,
Section 8 hereof. Unless the Trustees have authorized the issuance of Shares of
a Series in two or more Classes, each Share of a Series shall represent an equal
proportionate interest in the assets and liabilities of the Series with each
other Share of the same Series, none having priority or preference over another.
If the Trustees have authorized the issuance of Shares of a Series in two or
more Classes, then the Classes may have such variations as to dividend,
redemption, and voting rights, net asset values, expenses borne by the Classes,
and other matters as the Trustees have authorized provided that each Share of a
Class shall represent an equal proportionate interest in the assets and
liabilities of the Class with each other Share or the same Class, none having
priority or preference over another. The number of Shares which may be issued is
unlimited. The Trustees may from time to time divide or combine the Shares of
any Series or Class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Series or Class.
Section 2. OWNERSHIP OF SHARES.
The ownership of Shares shall be recorded in the books of the Trust or a
transfer agents which books shall be maintained separately for the Shares of
each Series or Class. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record books of
the Trust or any transfer agent, as the case may be, shall be conclusive as to
who are the Shareholders of each Series or Class and as to the number of Shares
of each Series or Class held from time to time by each.
Section 3. INVESTMENT IN THE TRUST.
The Trustees shall accept investments in the Trust from such persons and
on such terms as they may from time to time authorize. After the date of the
initial contribution of capital (which shall occur prior to the initial public
offering of Shares), the number of Shares to represent the initial contribution
shall be considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the Trust to be
allocated among any Series or Class in the manner described in Section 5(a) of
this Article. Subsequent to such initial contribution of capital, Shares
(including Shares which may have been redeemed or repurchased by the Trust) may
be issued or sold at a price which will net the relevant Series or Class, as the
case may be, before paying any taxes in connection with such issue or sale, not
less than the net asset value (as defined in Article X, Section 3) thereof;
provided, however, that the Trustees may in their discretion impose a sales
charge upon investments in the Trust.
Section 4. NO PRE-EMPTIVE RIGHTS.
Shareholders shall have no pre-emptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.
Section 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class the
initial series or class shall be; and are established and designated as,
Pennsylvania Municipal Income Fund and Ohio Municipal Income Fund. SEE AMD. #1,
DATED 8/26/91; SEE AMD. #2, DATED 11/14/91; SEE AMD. #3, DATED 10/31/92; SEE
AMD. #4, DATED 10/31/92; SEE AMD. #5, DATED 2/4/93; SEE AMD. #6, DATED 5/24/93;
SEE AMD. #8, DATED 6/1/94; SEE AMD. #9, DATED 9/1/94; SEE AMD. #10, DATED
11/18/94; SEE AMD. #11, DATED 5/9/95; SEE AMD. #12, DATED 3/31/96; SEE AMD. #13,
DATED 2/24/97; SEE AMD. #14, DATED 12/1/97; SEE AMD. #15, DATED 8/21/98; SEE
AMD. #16, DATED 5/20/99; SEE AMD. #17, DATED 6/1/99..
Shares of any Series or Class established in this Section 5 shall have
the following relative rights and preferences:
(a) ASSETS BELONGING TO SERIES OR CLASS. All consideration received by
the Trust for the issue or sale of Shares of a particular Series or Class,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series or Class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, are herein referred to as "assets belonging to" that
Series or Class. In the event that there are any assets, income earnings,
profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series or Class (collectively
"General Assets"), the Trustees shall allocate such General Assets to, between
or among any one or more of the Series of Classes established and designated
from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Assets so allocated to a
particular Series or Class shall belong to that Series or Class. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series or Classes for all purposes.
(b) LIABILITIES BELONGING TO SERIES OR CLASS. The assets belonging to
each particular Series or Class shall be charged with the liabilities of the
Trust in respect to that Series or Class and all expense, costs, charges and
reserves attributable to that Series or Class, and any general liabilities of
the Trust which are not readily identifiable as belonging to any particular
Series or Class shall be allocated and charged by the Trustees to and among any
one or more of the Series or Classes established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses, costs, charges and reserves
to charged to a Series or Class are herein referred to as "liabilities belonging
to" that Series or Class. Each allocation of liabilities belonging to a Series
or Class by the Trustees shall be conclusive and binding upon the Shareholders
of all Series or Classes for all purposes.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, REPURCHASES AND
INDEMNIFICATION. Notwithstanding any other provisions of this Declaration,
including, without limitation, Article X, no dividends or distribution
(including, without limitation, any distribution paid upon termination of the
Trust or of any Series or Class) with respect to, nor any redemption or
repurchase of, the Shares of any Series or Class shall be affected by the Trust
other than from the assets belonging to such Series or Class, nor except as
specifically provided in Section 1 of Article XI hereof, shall any Shareholder
of any particular Series or Class otherwise have any right or claim against the
assets belonging to any other Series or Class except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series or Class.
(d) VOTING. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article VIII, only
Shareholders of a particular Series or Class shall be entitled to vote on any
matters affecting such Series or Class. Except with respect to matters as to
which any particular Series or Class is affected, all of the Shares of each
Series or Class shall, on matters as to which such Series or Class is entitled
to vote, vote with other Series or Classes so entitled as a single class.
Notwithstanding the foregoing, with respect to matters which would otherwise be
voted on by two or more Series or Classes as a single class, the Trustees may,
in their sole discretion, submit such matters to the Shareholders of any or all
such Series or Classes, separately.
(e) FRACTION. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole Share of that Series
or Class, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust or of any
Series or Class.
(f) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series or Class shall have the right to
exchange said Shares for Shares of one or more other Series or Classes in
accordance with such requirements and procedures as may be established by the
Trustees.
(g) COMBINATION OF SERIES OR CLASSES. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or Class,
unless otherwise required by applicable law, to combine the assets and
liabilities belonging to a single Series or Class with the assets and
liabilities of one or more other Series or Classes.
(h) ELIMINATION OF SERIES OR CLASSES. At any time that there are no
Shares outstanding of any particular Series or Class previously established and
designated, the Trustees may amend this Declaration of Trust to abolish that
Series or Class and to rescind the establishment and designation thereof.
ARTICLE IV
THE TRUSTEES
Section 1. MANAGEMENT OF THE TRUST.
The business and affairs of the Trust shall be managed by the Trustees, and
they shall have all powers necessary and desirable to carry out that
responsibility. The Trustees who shall serve until the election of Trustees at
the Meeting of Shareholders subsequent to the initial public offering of shares
shall be John F. Donahue, William J. Copeland, J. Christopher Donahue, James E.
Dowd, Lawrence D. Ellis, M.D., Edward L. Flaherty, Jr., J. Joseph Maloney, Jr.,
Gregor F. Meyer, Wesley W. Posvar and Marjorie P. Smuts.
Section 2. ELECTION OF TRUSTEES AT MEETING OF SHAREHOLDERS.
On a date fixed by the Trustees, which shall be subsequent to the
initial public offering of Shares, the Shareholders shall elect Trustees. The
number of Trustees shall be determined by the Trustees pursuant to Article IV,
Section 5.
Section 3. TERM OF OFFICE OF TRUSTEES.
The Trustees shall hold office during the lifetime of this Trust, and
until its termination as hereinafter provided; except (a) that any Trustee may
resign his office at any time by written instrument signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein; (b) that any Trustee may be removed t any
time by written instrument signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date when such removal shall
become effective; (c) that any Trustee who requests in writing to be retired or
who has become mentally or physically incapacitated may be retired by written
instrument signed by a majority of the other Trustees, specifying the date of
his retirement; and (d) a Trustee may be removed at any special meeting of
Shareholders of the Trust by a vote of two-thirds of the outstanding Shares.
Section 4. TERMINATION OF SERVICE AND APPOINTMENT OF TRUSTEES.
In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointment such other person as they in
their discretion shall see fit. Such appointing shall be effected by the signing
of a written instrument by a majority of Trustees in office. An appointment of a
Trustee may be made by the Trustees then in office in anticipation of a vacancy
to occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that such appointment shall become effective
only at or after the effective date of said retirement, resignation or increase
in number of Trustees. As soon as any Trustee so appointed shall have accepted
this Trust, the trust estate shall vest in the new Trustee or Trustees, together
with the continuing Trustees, without any further act or conveyance, and he
shall be deemed a Trustee hereunder. Any appointment authorized by this Section
4 is subject to the provisions of Section 16(a) of the 1940 Act.
Section 5. NUMBER OF TRUSTEES.
The number of Trustees, not less than three (3) nor more than twenty
(20) serving hereunder at any time, shall be determined by the Trustees
themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally incapacitated,
the other Trustees shall have all the powers hereunder and the certificate
signed by a majority of the other Trustees of such vacancy, absence or
incapacity, shall be conclusive, provided, however, that no vacancy which
reduces the number of Trustees below three (3) shall remain unfilled for a
period longer than six calendar months.
Section 6. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE.
The death, resignation, retirement, removal, or mental or physical
incapacity of the Trustees, or any of them, shall not operate to annul the Trust
or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Section 7. OWNERSHIP OF THE TRUST.
The assets belonging to each Series or Class shall be held separate and
apart from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustee. All of the assets
belonging to each Series or Class or owned by the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to have a
severable ownership interest in any individual asset belonging to any Series or
Class or owned by the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate individual beneficial interest in a
Series or Class.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. POWERS.
The Trustees in all instances shall act as principals, and are and shall
be free from the control of the Shareholders. The Trustees shall have full power
and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust or a Series or Class. The Trustees
shall not be bound or limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, the
Trustees shall have the following specific powers and authority, subject to any
applicable limitation in this Declaration of Trust or in the By-Laws of the
Trust:
(a) To buy, and invest funds in their hands in, securities including,
but not limited to, common stocks, preferred stocks, bonds, debentures,
warrants and rights to purchase securities, options, certificates of
beneficial interest, money market instruments, notes or other evidences
or indebtedness issued by any corporation, trust or association,
domestic or foreign, or issued or guaranteed by the United States of
America or any agency of instrumentality thereof, by the government of
any foreign country, by any State of the United States, or by any
political subdivision or agency or instrumentality of any State or
foreign country, or in "when-issued" or "delayed-delivery" contracts for
any such securities, or in any repurchase agreement or reverse
agreement, or in debt instruments, commodities, commodity contracts and
options thereon, or to retain assets belonging to each and every Series
or Class in cash, and from time to time to change the investments of the
assets belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the Declaration
of Trust providing for the conduct of the business of the Trust and to
amend and repeal them to the extent that they do not reserve the right
to the Shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To appoint or otherwise engage a bank or trust company as custodian
of any assets belonging to any Series or Class subject to any conditions
set forth in this Declaration of Trust or in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend disbursing
agents, Shareholder servicing agents, investment advisers,
sub-investment advisers, principal underwriters, administrative service
agents; and such other agents as the Trustees may from time to time
appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series or Class
either through a principal underwriter in the manner hereinafter
provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a committee
or committees composed of Trustees, including without limitation, an
Executive Committee, or to any officers of the Trust and to any agent,
custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one or
more Series or Classes of the Trust, subject to the provisions of
Article XII, Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall
deem proper;
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees,
subject in either case to proper safeguards according to the usual
practice of Massachusetts trust companies or investment companies.
(m) To consent to or participate in any plan for reorganization,
consolidation or merger of any corporation or concern, any security of
which belongs to any Series or Class, to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern,
and to pay calls or subscriptions with respect to any security which
belongs to any Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration, or otherwise, any actions, suits, proceedings,
disputes, claims, demands, and things relating to the Trust, and out of
the assets belonging to any Series or Class to pay, or to satisfy, any
debts, claims or expenses incurred in connection therewith, including
those of litigation, upon any evidence that the Trustees may deem
sufficient (such powers shall include without limitation any actions,
suits, proceedings, disputes, claims, demands and things relating to the
Trust wherein any of the Trustees may be named individually and the
subject matter of which arises by reason of business for or on behalf of
the Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such amounts as
the Trustee may deem desirable, but subject to the limitation set forth
in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee or agent of the Trust, or is or was serving at the request of
the Trust as a trustee, director, officer, agent or employee of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such.
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights
relating to any or all of the assets belonging to any Series or Class.
The Trustees shall have all of the powers set forth in this Section 1
with respect to all assets and liabilities of each Series and Class.
<PAGE>
Section 2. PRINCIPAL TRANSACTIONS.
The Trustees shall not cause the Trust on behalf of any Series or Class
to buy any securities (other than Shares) from or sell any securities (other
than Shares) to, or lend any assets belonging to any Series or Class to, any
Trustee or officer or employee of the Trust or any firm of which any such
Trustee or officer is a member acting as principal unless permitted by the 1940
Act, but the Trust may employ any such other party or any such person or firm or
company in which any such person is an Interested Person in any capacity not
prohibited by the 1940 Act.
<PAGE>
Section 3. TRUSTEES AND OFFICERS AS SHAREHOLDERS.
Any Trustee, officer or other agent of the Trust may acquire, own and
dispose of Shares of any Series or Class to the same extent as if he were not a
Trustee, officer or agent; and the Trustees may issue and sell or cause to be
issued or sold Shares of any Series or Class to and buy such Shares from any
such person or any firm or company in which he is an interested person subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
By-Laws.
Section 4. PARTIES TO CONTRACT.
The Trustees may enter into any contract of the character described in
Article VII or in Article IX hereof or any other capacity not prohibited by the
1940 Act with any corporation, firm, trust or association, although one or more
of the Shareholders, Trustees, officers, employees or agents of the Trust or any
Series or Class or their affiliates may be an Officer, Director, Trustee,
shareholder or Interested Person of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust or any Series or Class under or by reason of said contract
or accountable for any profit realized directly or indirectly therefrom, in the
absence of actual fraud. The same person (including a firm, corporation, trust
or association) may be the other party to contracts entered into pursuant to
Article VII or Article IX or any other capacity not prohibited by the 1940 Act,
and any individual may be financially interested or otherwise an Interested
Person or persons who are parties to any or all of the contracts mentioned in
this Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. TRUSTEE REIMBURSEMENT.
The Trustees shall be reimbursed from the assets belonging to each
particular Series or Class for all of such Trustees' expenses as such expenses
are allocated to and among any one or more of the Series or Classes pursuant in
Article III, Section 5(b), including, without limitation, expenses of organizing
the Trust or any Series or Class and continuing its existence; fees and expenses
of Trustees and officers of the Trust; fees for investment advisory services,
administrative services and principal underwriting services provided for in
Article VII, Sections 1, 2 and 3; fees and expenses of preparing and printing
Registration Statements under the Securities Act of 1933 and the 1940 Act and
any amendments thereto; expenses of registering and qualifying the Trust and any
Series or Class of the Shares of any Series or Class under federal and state
laws and regulations; expenses of preparing, printing and distributing
prospectuses and any amendments thereof sent to shareholders, underwriters,
broker-dealers and to investors who may be considering the purchase of Shares;
expenses of registering, licensing or other authorization of the Trust or any
Series or Class as a broker-dealer and of its officers as agents and salesmen
under federal and state laws and regulations; interest expense, taxes, fees and
commissions of every kind; expenses of issue (including cost of shares
certificates), purchase, repurchase and redemption of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars; printing and mailing costs; auditing, accounting and legal expenses;
reports to Shareholders and governmental officers and commissions; expenses of
meetings of Shareholders and proxy solicitations therefor; insurance expenses;
association membership dues and nonrecurring items as may arise, including all
losses and liabilities by them incurred in administering the Trust and any
Series or Class, including expenses incurred in connection with litigation,
proceedings and claims and the obligations of the Trust under Article XI hereof
and the By-Laws to indemnify its Trustees, officers, employees, Shareholders and
agents, and any contract obligation to indemnify principal underwriters under
Section 3 of Article VII; and for the payment of such expenses, disbursements,
losses and liabilities, the Trustees shall have a lien on the assets belonging
to each Series or Class prior to any rights or interests of the Shareholders of
any Series or Class. This section shall not preclude the Trust from directly
paying any of the aforementioned fees and expenses.
Section 2. TRUSTEE COMPENSATION.
The Trustees shall be entitled to compensation from the assets belonging
to any Series or Class for their respective services as Trustees, to be
determined from time to time by vote of the Trustees, and the Trustees shall
also determine the compensation of all officers, consultants and agents whom
they may elect or appoint. The Trust may pay out of the assets belonging to any
Series or Class any Trustee or any corporation, firm, trust or other entity of
which a Trustee is an Interested Person for services rendered to the Trust in
any capacity not prohibited by the 1940 Act, and such payments shall not be
deemed compensation for services as a Trustee under the first sentence of this
Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
Section 1. INVESTMENT ADVISER.
Subject to a Majority Shareholder Vote by the relevant Series or Class,
the Trustees may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall undertake to
furnish the Trustees investment advisory services for such Series or Class upon
such terms and conditions and for such compensation as the Trustees may in their
discretion determine. Subject to a Majority Shareholder Vote by the relevant
Series or Class, the investment adviser may enter into a sub-investment advisory
contract to receive investment advice and/or statistical and factual information
from the sub-investment adviser upon such terms and conditions and for such
compensation as the Trustees may in their discretion, may agree to.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize the investment adviser or sub-investment adviser or any person
furnishing administrative personnel and services as set forth in Article VII,
Section 2 (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales or exchanges of portfolio
securities belonging to a Series or Class on behalf of the Trustees or may
authorize any officer or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment adviser (and all without further
action by the Trustees). Any such purchases, sales and exchanges shall be deemed
to have been authorized by the Trustees. The Trustee may also authorize the
investment adviser to determine what firms shall be employed to effect
transactions in securities for the account of a Series or Class and to determine
what firms shall participate in any such transactions or shall share in
commissions or fees charged in connection with such transactions.
Section 2. ADMINISTRATIVE SERVICES.
The Trustees may in their discretion from time to time contract for
administrative personnel and services whereby the other party shall agree to
provide the Trustees administrative personnel and services to operate the Trust
or a Series or Class on a daily basis, on such terms and conditions as the
Trustees may in their discretion determine. Such services may be provided by one
or more entities.
Section 3. PRINCIPAL UNDERWRITER.
The Trustees may in their discretion from time to time enter into an
exclusive or nonexclusive contract or contracts providing for the sale of the
Shares of a Series or Class to net such Series or Class not less than the amount
provided in Article III, Section 3 hereof, whereby a Series or Class may either
agree to sell the Shares to the other party to the contract or appoint such
other party its sales agent for such shares. In either case, the contract shall
be on such terms and conditions (including indemnification of principal
underwriters allowable under applicable law and regulation) as the Trustees may
in their discretion determine not inconsistent with the provisions of this
Article VII; and such contract may also provide for the repurchase or sale of
Shares of a Series or Class by such other party as principal or as agent of the
Trust and may provide that the other party may maintain a market for shares of a
Series or Class.
Section 4. TRANSFER AGENT.
The Trustees may in their discretion from time to time enter into
transfer agency and shareholder services contracts whereby the other party shall
undertake to furnish a transfer agency and shareholder services. The contracts
shall be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Declaration of Trust or
of the By-Laws. Such services may be provided by one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS.
Subject to the provisions set forth in Article III, Section 5(d), the
Shareholders shall have power to vote (i) for the election of Trustees as
provided in Article IV, Section 2; (ii) for the removal of Trustees as provided
in Article IV, Section 3(d); (iii) with respect to any investment adviser or
sub-investment adviser as provided in Article VII, Section 1; (iv) with respect
to the amendment of this Declaration of Trust as provided in Article XII,
Section 7; (v) to the same extent as the shareholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should be brought or maintained derivatively or as a class action on behalf of
the Trust or the Shareholders; and (vi) with respect to such additional matters
relating to the Trust as may be required by law, by this Declaration of Trust,
or the By-Laws of the Trust or any regulation of the Trust with the Commission
or any State, or as the Trustees may consider desirable. Each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. Until Shares of a Series or Class are issued, the
Trustees may exercise all rights of Shareholders of such Series or Class with
respect to matters affecting such Series or Class, and may take any action with
respect to the Trust or such Series or Class required or permitted by law, this
Declaration of Trust or any By-Laws of the Trust to be taken by Shareholders.
Section 2. MEETINGS.
A Shareholders meeting shall be held as specified in Section 2 of
Article IV at the principal office of the Trust or such other place as the
Trustees may designate. Special meetings of the Shareholders may be called by
the Trustees or the Chief Executive Officer of the Trust and shall be called by
the Trustees upon the written request of Shareholders owning at least one-tenth
of the outstanding Shares entitled to fifteen days' notice of any meeting.
Section 3. QUORUM AND REQUIRED VOTE.
Except as otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders there must be
present, in person or by proxy, holders of more than fifty percent of the total
number of outstanding Shares of all Series and Classes entitled to vote at such
meeting. When any one or more Series or Classes is entitled to vote as a single
Series or Class, more than fifty percent of the shares of each such Series or
Class entitled to vote shall constitute a quorum at a Shareholders' meeting of
that Series or Class. If a quorum, shall not be present for the purpose of any
vote that may properly come before the meeting, the Share present in person or
by proxy and entitled to vote at such meeting on such matter may, by plurality
vote, adjourn the meeting from time to time to such place and time without
further notice than by announcement to be given at the meeting until a quorum,
entitled to vote on such matter shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened. Subject to
any applicable requirement of law or of this Declaration of Trust or the
By-Laws, a plurality of the votes cast shall elect a Trustee and all other
matters shall be decided by a majority of the votes cast entitled to vote
thereon.
Section 4. ADDITIONAL PROVISIONS.
The By-Laws may include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial or accounting services to the Trust or any
Series or Class. The contracts shall be on the terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Declaration of Trust or of the By-Laws. Such services may be provided by
one or more entities, including one or more sub-custodians.
<PAGE>
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends to the
Shareholders of any Series or Class, and the amount of such dividends and the
payment of them shall be wholly in the discretion of the Trustees. Such
dividends may be accrued and automatically reinvested in additional Shares (or
fractions thereof) of the relevant Series or Class or paid in cash or additional
Shares of such Series or Class, all upon such terms and conditions as the
Trustees may prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively, amounts sufficient
to enable any Series or Class to qualify as a regulated investment company to
avoid any liability for federal income taxes in respect of that year.
(c) The decision of the Trustees as to what constitutes income and what
is principal shall be final, and except as specifically provided herein the
decision of the Trustees as to what expenses and charges of any Series or Class
shall be charged against principal and what against the income shall be final.
Any income not distributed in any year may be permitted to accumulate and as
long as not distributed may be invested from time to time in the same manner as
the principal funds of any Series or Class.
(d) All dividends and distributions on Shares of a particular Series or
Class shall be distributed pro rata to the holders of that Series or Class in
proportion to the number of Shares of that Series or Class held by such holders
and recorded on the books of the Trust or its transfer agent at the time of
record established for that payment.
Section 2. REDEMPTIONS AND REPURCHASES.
(a) In case any Shareholder of record of the Trust at any time desires
to dispose of Shares of any such Series or Class recorded in his name, he may
deposit a written request (or such other form of request as the Trustees may
from time to time authorize) requesting that the Trust purchase his Shares,
together with such other instruments or authorizations to effect the transfer as
the Trustees may from time to time require, at the office of the Transfer Agent,
and the Trust shall purchase his Shares out of assets belonging to such Series.
The purchase price shall be net asset value of his shares reduced by any
redemption charge as the Trustees from time to time may determine.
Payment for such Shares shall be made by the Trust to the Shareholders
of record within that time period required under the 1940 Act after the request
(and, if required, such other instruments or authorizations of transfer) is
deposited, subject to the right of the Trustees to postpone the date of payment
pursuant to Section 4 of this Article X. If the redemption is postponed beyond
the date on which it would normally occur by reason of a declaration by the
Trustees suspending the right of redemption pursuant to Section 4 of this
Article X, the right of the Shareholder to have his Shares purchased by the
Trust shall be similarly suspended, and he may withdraw his request (or such
other instruments or authorizations of transfer) from deposit if he so elects;
or, if he does not so elect, the purchase price shall be the net asset value of
his Shares, determined next after termination of such suspension (reduced by any
redemption charge), and payment therefor and shall be made within the time
period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by agreement with
the owner thereof at a purchase price not exceeding the net asset value per
Share (reduced by any redemption charge) determined (1) next after the purchase
or contract of purchase is made of (2) at some later time.
(c) The Trust may pay the purchase price (reduced by any redemption
charge) in whole or in part by a distribution in kind of securities from the
portfolio of the relevant Series or Class, taking such securities at the same
value employed in determining net asset value, and selecting the securities in
such manner as the Trustees may deem fair and equitable.
Section 3. NET ASSET VALUE OF SHARES.
The net asset value of each Share of a Series or Class outstanding shall
be determined at such time or times as may be determined by or on behalf of the
Trustees. The power and duty to determine net asset value may be delegated by
the Trustees from time to time to one or more of the Trustees or officers of the
Trust, to the other party to any contract entered into pursuant to Section 1 or
2 of Article VII or to the custodian or to a transfer agent or other person
designated by the Trustees.
The net asset value of each Shares of a Series or Class as of any
particular time shall be the quotient (adjusted to the nearer cent) obtained by
dividing the value, as of such time, of the net assets belonging to such Series
or Class (i.e., the value of the assets belonging to such Series or Class less
the liabilities belonging to such Series or Class exclusive of capital and
surplus) by the total number of Shares outstanding of the Series or Class at
such time in accordance with the requirements of the 1940 Act and applicable
provisions of the By-Laws of the Trust in conformity with generally accepted
accounting practices and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any part in accordance with the 1940 Act.
Section 4. SUSPENSION OF THE RIGHT OF REDEMPTION.
The Trustees may declare a suspension of the right of redemption or
postpone the date of payment for the whole or any part of any period in
accordance with the 1940 Act.
Section 5. TRUST'S RIGHT TO REDEEM SHARES.
The Trust shall have the right to cause the redemption of Shares of any
Series or Class in any Shareholder's account for their then current net asset
value and promptly make payment to the shareholder (which payment may be reduced
by any applicable redemption charge), if at any time the total investment in the
account does not have a minimum dollar value determined from time to time by the
Trustees in their sole discretion.
<PAGE>
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. LIMITATION OF PERSONAL LIABILITY AND INDEMNIFICATION OF
SHAREHOLDERS.
The Trustees, officers, employees or agents of the Trust shall have no
power to bind any Shareholder of any Series or Class personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever,
other than such as the Shareholder may at any time agree to pay by way of
subscription to any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his being or having been a Shareholder for any debt,
claim, action, demand, suit, proceeding, judgment, decree, liability or
obligation of any kind, against, or with respect to the Trust or any Series or
Class arising out of any action taken or omitted for or on behalf of the Trust
or such Series or Class, and the Trust or such Series or Class shall be solely
liable therefor and resort shall be had solely to the property of the relevant
Series or Class of the Trust for the payment or performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in case of a
corporate entity, its corporate or general successor) shall be entitled to
indemnified and reimbursement by the Trust to the full extent of such liability
and the costs of any litigation or other proceedings in which such liability
shall have been determined, including, without limitation, the fees and
disbursements of counsel if, contrary to the provision hereof, such Shareholder
or former Shareholder of such Series or Class shall be held to personally
liability. Such indemnification and reimbursement shall come exclusively from
the assets of the relevant Series or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust or any Series or Class and satisfy any judgment thereon.
Section 2. LIMITATION OF PERSONAL LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES OR AGENTS OF THE TRUST.
No Trustee, officer, employee or agent of the Trust shall have the power
to bind any other Trustee, officer, employee or agent of the Trust personally.
The Trustees, officers, employees or agents of the Trust incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for or in
connection with the Trust are, and each shall be deemed to be, acting as
Trustee, officer, employee or agent of the Trust and not in his own individual
capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or officer, as the case may be,
and for nothing else.
Section 3. EXPRESS EXCULPATORY CLAUSES AND INSTRUMENTS.
The Trustees shall use every reasonable means to assure that all persons
having dealings with the Trust or any Series or Class shall be informed that the
property of the Shareholders and Trustees, officers, employees and agents of the
Trust or any Series or Class shall not be subject to claims against or
obligations of the Trust or any other Series or Class to any extent whatsoever.
The Trustees shall cause to be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust or any Series or Class
(including certificates for Shares of any Series or Class) an appropriate
reference to the provisions of this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of the
Trust or any Series or Class shall be liable thereunder, and that the other
parties to such instrument shall look solely to the assets belonging to the
relevant Series or Class for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any such
instrument shall not render any Shareholder, Trustee, officer, employee or agent
liable, nor shall the Trustee, or any officer, agent or employee of the Trust or
any Series or Class be liable to anyone for such omission. If, notwithstanding
this provision, any Shareholder, Trustee, officer, employee or agent shall be
held liable to any other person by reason of the omission of such provision from
any such agreement, undertaking or obligation, the Shareholder, Trustee,
officers, employee or agent shall be indemnified and reimbursement by the Trust.
ARTICLE XII
MISCELLANEOUS
Section 1. TRUST IS NOT A PARTNERSHIP.
It is hereby expressly declared that a trust and not a partnership is
created hereby.
Section 2. TRUSTEE ACTION BINDING, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of Article
XI, the Trustees shall not be liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust, and subject to the
provisions of Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. ESTABLISHMENT OF RECORD DATES.
The Trustees may close the Share transfer books of the Trust maintained
with respect to any Series or Class for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or such Series or
Class, or the date for the payment of any dividend or the making of any
distribution to Shareholders, or the date for the allotment of rights, or the
date when any change or conversion or exchange of Shares of such Series or Class
shall go into effect; or in lieu of closing the Share transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or such Series or
Class, or the date for the payment of any dividend or the making of any
distribution to Shareholders of any Series or Class, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares of any Series or Class shall go into effect, or the last day on which the
consent or dissent of Shareholders of any Series or Class may be effectively
expressed for any purpose, as a record date for the determination of the
Shareholder entitled to notice of, and, to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of shares, or to exercise the
right to give such consent or dissent, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend or distribution, or to receive such allotment or
rights, or to exercise such rights, as the case may be, notwithstanding, after
such date fixed aforesaid, any transfer of any Shares on the books of the Trust
maintained with respect to such Series or Class. Nothing in the foregoing
sentence shall be construed as precluding the Trustees from setting different
record dates for different Series or Classes.
Section 4. TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of paragraphs (b), (c) and (d) of this Section 4.
(b) The Trustees may, by majority action, with the approval of the
holders of more than fifty percent of the outstanding Shares of each Series or
Class entitled to vote and voting separately by Series or Class, sell and convey
the assets of the Trust or any Series or Class to another trust or corporation.
Upon making provision for the payment of all liabilities, by assumption or
otherwise, the Trustees shall distribute the remaining proceeds belonging to
each Series or Class ratably among the holders of the Shares of that Series or
Class then outstanding.
(c) Subject to a Majority Shareholder Vote by the such Series or Class,
the Trustees may at any time sell and convert into money all the assets of the
Trust or any Series or Class. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities, accrued or contingent
belonging to each Series or Class, the Trustees shall distribute the remaining
assets belonging to each Series or Class ratably among the holders of the
outstanding Shares of that Series or Class.
(d) Upon completion of the distribution of the remaining proceeds of the
remaining assets as provided in paragraphs (b) and (c), the Trust or the
applicable Series or Class shall terminate and the Trustees shall be discharged
of any and all further liabilities and duties hereunder or with respect thereto
and the right, title and interest of all parties shall be canceled and
discharged.
Section 5. OFFICES OF THE TRUST, FILING OF COPIES, HEADINGS,
COUNTERPARTS.
The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be 50 Congress Street, SEE AMD. #7, DATED 7/5/94,
Boston, Massachusetts, and shall continue to maintain an office at such address
unless changed by the Trustees to another location in Massachusetts. The Trust
may maintain other offices as the Trustees may from time to time determine. The
original or a copy of this instrument and of each declaration of Trust
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each supplemental
declaration of trust shall be filed by the Trustees with the Massachusetts
Secretary of State and the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Headings are placed
herein for convenience of reference only and in case of any conflict, the text
of this instrument, rather than the headings shall control. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Section 6. APPLICABLE LAW.
The Trust set forth in this instrument is created under is to be
governed by and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
Section 7. AMENDMENTS - - GENERAL.
Prior to the initial issuance of Shares pursuant to Section 3 of Article
III, a majority of the Trustees then in office may amend or otherwise supplement
this instrument by making a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof. Subsequent to such initial issuance of
Shares, if authorized by a majority of the Trustees then in office and by of a
Majority of Shareholder Vote all Series and Classes then outstanding and
entitled to vote thereon (except that any amendments or supplements changing the
name of the Trust or pursuant to Section 8 hereunder may be made without
shareholder approval), or by any larger vote which may be required by applicable
law or this Declaration of Trust in any particular case, which amendment or
supplement thereafter shall form a part hereof. Any such amendment or supplement
(which may be in the form of a complete restatement) may be evidenced by either
(i) a supplemental Declaration of Trust signed by at least a majority of the
Trustees then in office or (ii) by a certificate of the President and Secretary
of the Trust setting forth such amendment or supplement and certifying that such
amendment or supplement has been duly authorized by the Trustees, and if
required, by the shareholders. Copies of the supplemental Declaration of Trust
or the certificate of the President and Secretary, as the case may be, shall be
filed as specified in Section 5 of this Article XII.
Section 8. AMENDMENTS - - SERIES.
The establishment and designation of any series or class of shares in
addition to those established and designated in Section 5 of Article III hereof
shall be effective upon the execution by a majority of the then Trustees of an
amendment to this Declaration of Trust, taking the form of a complete
restatement or otherwise, setting forth such establishment and designation and
the relative rights and preferences of any such Series or Class, or as otherwise
provided in such instrument.
Without limiting the generality of the foregoing, the Declaration of
Trust may be amended to:
(a) create one or more Series or Classes of Shares (in addition to any
Series or Classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all outstanding Shares as Shares
of particular Series or Classes in accordance with such eligibility
requirements;
(b) combine two or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall determine;
(c) change or eliminate any eligibility requirements for investment in
Shares of any Series or Class, including without limitation the power to provide
for the issue of Shares of any Series or Class in connection with any merger or
consolidation of the Trust with another Trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(d) change and designation of any Series or Class of Shares;
(e) change the method of allocating dividends among the various Series
and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series and
Classes of Shares;
(g) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of Shares which are
preferred over all other Series or Classes of Shares in respect of assets
specifically allocated thereto or any dividends paid by the Trust with respect
to any net income, however determined, earned from the investment or
reinvestment or any assets so allocated or otherwise and provide for any special
voting or other rights with respect to such Series or Classes.
Section 9. USE OF NAME. SEE AMD. #16, DATED 5/20/99.
IN WITNESS WHEREOF, the undersigned have executed this instrument the
day and year first above written.
/S/ JOHN F. DONAHUE /S/ J. JOSEPH MALONEY, JR.
John F. Donahue J. Joseph Maloney, Jr.
/S/ WILLIAM J. COPELAND /S/ GREGOR F. MEYER
William J. Copeland Gregor F. Meyer
/S/ J. CHRISTOPHER DONAHUE /S/ WESLEY W. POSVAR
J. Christopher Donahue Wesley W. Posvar
/S/ JAMES E. DOWD /S/ MARJORIE P. SMUTS
James E. Dowd Marjorie P. Smuts
/S/ LAWRENCE D. ELLIS, M.D. /S/ EDWARD L. FLAHERTY, JR.
Lawrence D. Ellis, M.D. Edward L. Flaherty, Jr.
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss:
COUNTY OF ALLEGHENY )
I hereby certify that on August 6, 1990, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in the County of Allegheny,
personally appeared JOHN F. DONAHUE, WILLIAM J. COPELAND, LAWRENCE D. ELLIS,
M.D., EDWARD L. FLAHERTY, JR., J. CHRISTOPHER DONAHUE, GREGOR F. MEYER, WESLEY
W. POSVAR, AND MAJORIE P. SMUTS, who acknowledged this foregoing Declaration of
Trust to be their act.
Witness my hand and notarial seal the day and year above written.
/S/MICHELE R. CHURILLA
Noarty Public
COMMONWEALTH OF MASSACHUSETTS )
) ss:
COUNTY OF SUFFOLK )
I hereby certify that on August 6, 1990, before me, the subscriber, a
Notary Public of the Commonwealth of Massachusetts, in the County of Suffolk
personally appeared JAMES E. DOWD and J. JOSEPH MALONEY, JR., who acknowledged
this foregoing Declaration of Trust to be his act.
Witness my hand and notarial seal the day and year above written.
/S/MARTHA M. CAMPELL
Noarty Public
My commission expires 5/25/95
<PAGE>
FEDERATED MUNICIPAL INCOME TRUST
Amendment No. 1
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional preferences of any existing Series or Class, the
Series and Classes shall be and are established and designated
as:
Michigan Municipal Income Fund
Ohio Municipal Income Fund
Pennsylvania Municipal Income Fund
The undersigned Assistant Secretary of Federated Municipal Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Trustees of the Trust on the 16th
day of May, 1991.
WITNESS the due execution hereof this 26th day of August, 1991.
/S/C. GRANT ANDERSON
C. Grant Anderson
Assistant Secretary
<PAGE>
FEDERATED MUNICIPAL INCOME TRUST
Amendment No. 2
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:
Michigan Municipal Income Fund
Ohio Municipal Income Fund
Investment Shares
Trust Shares
Pennsylvania Municipal Income Fund
Investment Shares
Trust Shares
The undersigned Assistant Secretary of Federated Municipal Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Trustees of the Trust on the 13th
day of November, 1991.
WITNESS the due execution hereof this 14th day of November, 1991.
/S/C. GRANT ANDERSON
C. Grant Anderson
Assistant Secretary
<PAGE>
FEDERATED MUNICIPAL INCOME TRUST
Amendment No. 3
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:
Michigan Municipal Income Fund
Ohio Municipal Income Fund
Fortress Shares
Trust Shares
Pennsylvania Municipal Income Fund
Investment Shares
Trust Shares
The undersigned Assistant Secretary of Federated Municipal Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, to become effective as of October 31, 1992, as
adopted by the Trustees of the Trust at a meeting held of the 27th day of
August, 1992.
WITNESS the due execution hereof this 31st day of August, 1992.
/S/ J. CRILLEY KELLY
J. Crilley Kelly
Assistant Secretary
<PAGE>
FEDERATED MUNICIPAL INCOME TRUST
Amendment No. 4
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Effective October 31, 1992:
Delete Section 1 in Article I and substitute in its place the following:
SECTION 1. NAME.
This Trust shall be known as Municipal Securities Income Trust.
Effective October 31, 1992:
Delete Section 2(b) in Article I and substitute in its place the
following:
SECTION 2. DEFINITIONS.
(b) The "Trust" refers to Municipal Securities Income Trust;
Effective September 16, 1992:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:
California Municipal Income Fund
Fortress Shares
Michigan Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Trust Shares
Pennsylvania Municipal Income Fund
Investment Shares
Trust Shares
The undersigned Assistant Secretary of Federated Municipal Income Trust
hereby certifies that the above stated Amendments are true and correct
Amendments to the Declaration of Trust, as adopted by the Trustees of the Trust
by unanimous consent on the 16th day of September, 1992.
WITNESS the due execution hereof this 17th day of September, 1992.
/S/ J. CRILLEY KELLY
J. Crilley Kelly, Assistant Secretary
<PAGE>
FEDERATED MUNICIPAL INCOME TRUST
Amendment No. 5
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:
California Municipal Income Fund
Fortress Shares
Florida Municipal Income Fund
Michigan Municipal Income Fund
New Jersey Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Trust Shares
Pennsylvania Municipal Income Fund
Investment Shares
Trust Shares
Texas Municipal Income Fund
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Trustees of the Trust, on the 2nd
day of February, 1993.
WITNESS the due execution hereof this 4th day of February, 1993.
/S/ J. CRILLEY KELLY
J. Crilley Kelly
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 6
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:
California Municipal Income Fund
Fortress Shares
Florida Municipal Income Fund
Maryland Municipal Income Fund
Michigan Municipal Income Fund
New Jersey Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Trust Shares
Pennsylvania Municipal Income Fund
Income Shares
Investment Shares
Trust Shares
Texas Municipal Income Fund
Virginia Municipal Income Fund
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Trustees of the Trust, on the
21st day of May, 1993.
WITNESS the due execution hereof this 24th day of May, 1993
/S/ J. CRILLEY KELLY
J. Crilley Kelly
Assistant Secretary
<PAGE>
ACCEPTED AS AMD. #7 IN MASS.
December 15, 1993
Ms. Sheila Burke
The Commonwealth of Massachusetts
Office of the Secretary of State
Room 1712 - Trust Division
One Ashburton Place
Boston, Massachusetts 02108
Re: MUNICIPAL SECURITIES INCOME TRUST
Dear Ms. Burke:
I, S. Elliott Cohan, Assistant Secretary of Municipal Securities Income Trust,
am writing to inform you that on November 18, 1993, the Board of Trustees voted
to change the Resident Agent of said Trust, from 176 Federal Street, Boston,
Massachusetts 02110 to Donnelly, Conroy & Gelhaar, One Post Office Square,
Boston, Massachusetts 02109-2105. Please return a date stamped copy of the
change.
Very truly yours,
S. Elliott Cohan
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 8
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
California Municipal Income Fund
Fortress Shares
Florida Municipal Income Fund
Maryland Municipal Income Fund
Michigan Intermediate Municipal Trust
New Jersey Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Trust Shares
Pennsylvania Municipal Income Fund
Class A Shares
Income Shares
Trust Shares
Texas Municipal Income Fund
Virginia Municipal Income Fund"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 19th day
of May, 1994, effective June 1, 1994.
WITNESS the due execution hereof this 1st day of June, 1994.
/S/ J. CRILLEY KELLY
J. Crilley Kelly, Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 9
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
California Municipal Income Fund
Fortress Shares
Florida Municipal Income Fund
Maryland Municipal Income Fund
Michigan Intermediate Municipal Trust
New Jersey Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Pennsylvania Municipal Income Fund
Class A Shares
Income Shares
Texas Municipal Income Fund
Virginia Municipal Income Fund"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 19th day
of May, 1994, effective September 1, 1994.
WITNESS the due execution hereof this 1st day of September, 1994.
/S/ J. CRILLEY KELLY
J. Crilley Kelly
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 10
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Delete the first paragraph of Section 5 in Article III and substitute in
its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
California Municipal Income Fund
Fortress Shares
Florida Municipal Income Fund
Maryland Municipal Income Fund
Michigan Intermediate Municipal Trust
New Jersey Municipal Income Fund
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Pennsylvania Municipal Income Fund
Class A Shares
Texas Municipal Income Fund
Virginia Municipal Income Fund"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 16th day
of November, 1994, effective November 18, 1994.
WITNESS the due execution hereof this 18th day of November, 1994.
/S/ J. CRILLEY KELLY
J. Crilley Kelly
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 11
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 in Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, INTER ALIA, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
California Municipal Income Fund
Fortress Shares
Michigan Intermediate Municipal Trust
New York Municipal Income Fund
Fortress Shares
Ohio Municipal Income Fund
Fortress Shares
Pennsylvania Municipal Income Fund
Class A Shares"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above-stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 16th day
of November, 1994, effective May 9, 1995.
WITNESS the due execution hereof this 9th day of May, 1995.
/S/ J. CRILLEY KELLY
J Crilley Kelly
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 12
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows, effective March 31, 1996:
Strike the first paragraph of Section 5 in Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, INTER ALIA, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan Intermediate Municipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above-stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 26th day
of February, 1996, effective March 31, 1996.
WITNESS the due execution hereof this 26th day of February, 1996.
/S/ CHARLES H. FIELD
Charles H. Field
Assistant Secretary
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MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 13
to
DECLARATION OF TRUST
Dated August 6, 1990
THIS Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 in Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, INTER ALIA, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and
designated as:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan Intermediate Municipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares"
The undersigned Assistant Secretary of Municipal Securities Income Trust
hereby certifies that the above-stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 24th day
of February, 1997.
WITNESS the due execution hereof this 24th day of February, 1997.
/S/ S. ELLIOTT COHAN
S. Elliott Cohan
Assistant Secretary
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 14
DECLARATION OF TRUST
As dated August 6, 1990
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, INTER ALIA, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:
Federated California Municipal Income Fund
Class A Shares
Class B Shares
Federated Michigan Intermediate Municipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares"
The undersigned hereby certify that the above stated Amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on the 18th day of November, 1997.
WITNESS the due execution hereof this 1st day of December, 1997.
/S/ JOHN F. DONAHUE /S/ EDWARD L. FLAHERTY, JR.
John F. Donahue Edward L. Flaherty, Jr.
/S/ THOMAS G. BIGLEY, JR. /S/ GLEN R. JOHNSON
Thomas G. Bigley, Jr. Glen R. Johnson
/S/ JOHN T. CONROY, JR. /S/ PETER E. MADDEN
John T. Conroy, Jr. Peter E. Madden
/S/ WILLIAM J. COPELAND /S/ JOHN E. MURRAY, JR.
William J. Copeland John E. Murray, Jr.
/S/ JAMES E. DOWD /S/ WESLEY W. POSVAR
James E. Dowd Wesley W. Posvar
/S/ LAWRENCE D. ELLIS, M.D. /S/ MARJORIE P. SMUTS
Lawrence D. Ellis, M.D. Marjorie P. Smuts
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 15
DECLARATION OF TRUST
As dated August 6, 1990
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS. Without
limiting the authority of the Trustees set forth in Article XII, Section
8, INTER ALIA, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class,
the Series and Classes of the Trust are established and designated as:
Federated California Municipal Income Fund
Class A Shares
Class B Shares
Federated Michigan Intermediate Municipal Trust
Federated New York Municipal Income Fund
Class A Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares"
The undersigned hereby certify that the above stated Amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on the 21st day of August, 1998.
WITNESS the due execution hereof this 21st day of August, 1998.
/S/ JOHN F. DONAHUE /S/ EDWARD L. FLAHERTY, JR.
John F. Donahue Edward L. Flaherty, Jr.
/S/ THOMAS G. BIGLEY /S/ GLEN R. JOHNSON
Thomas G. Bigley Glen R. Johnson
/S/ NICHOLAS P. CONSTANTAKIS /S/ PETER E. MADDEN
Nicholas P. Constantakis Peter E. Madden
/S/ JOHN T. CONROY, JR. /S/ JOHN E. MURRAY, JR.
John T. Conroy, Jr. John E. Murray, Jr.
/S/ WILLIAM J. COPELAND /S/ WESLEY W. POSVAR
William J. Copeland Wesley W. Posvar
/S/ JAMES E. DOWD /S/ MARJORIE P. SMUTS
James E. Dowd Marjorie P. Smuts
/S/ LAWRENCE D. ELLIS, M.D.
Lawrence D. Ellis, M.D.
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 16
DECLARATION OF TRUST
As dated August 6, 1990
This Declaration of Trust is amended as follows:
Strike Section 1 of Article I from the Declaration of Trust and substitute
in its place the following:
Section 1. NAME.
This Trust shall be known as Federated Municipal Securities Income Trust.
Strike Section 2(b) of Article I from the Declaration of Trust and
substitute in its place the following:
(b) The "Trust" refers to Federated Municipal Securities Income
Trust;
Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS. Without
limiting the authority of the Trustees set forth in Article XII, Section
8, INTER alia, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class,
the Series and Classes of the Trust are established and designated as:
Federated California Municipal Income Fund
Class A Shares
Class B Shares
Federated Michigan Intermediate Municipal Trust
Federated New York Municipal Income Fund
Class A Shares
Federated North Carolina Municipal Income Fund
Class A Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares"
Insert the following as Section 9 of Article XII of the Declaration of
Trust:
Section 9. USE OF NAME. The Trust acknowledges that Federated Investors
has reserved the right to grant the non-exclusive use of the name
"Federated" or any derivative thereof to any other investment company,
investment company portfolio, investment adviser, distributor, or other
business enterprise, and to withdraw from the Trust or owe or more Series
or Classes any right to use of the name "Federated".
The undersigned hereby certify that the above stated Amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees at a meeting on the 20th day of May, 1999.
WITNESS the due execution hereof this 20th day of May, 1999.
/S/ JOHN F. DONAHUE /S/ EDWARD L. FLAHERTY, JR.
John F. Donahue Edward L. Flaherty, Jr.
/S/ THOMAS G. BIGLEY, JR. /S/ PETER E. MADDEN
Thomas G. Bigley, Jr. Peter E. Madden
/S/ JOHN T. CONROY, JR. /S/ CHARLES F. MANSFIELD, JR.
John T. Conroy, Jr. Charles F. Mansfield, Jr.
/S/ NICHOLAS P. CONSTANTAKIS /S/ JOHN E. MURRAY, JR.
Nicholas P. Constantakis John E. Murray, Jr.
/S/ WILLIAM J. COPELAND /S/ WESLEY W. POSVAR
William J. Copeland Wesley W. Posvar
/S/ MARJORIE P. SMUTS
James E. Dowd Marjorie P. Smuts
/S/ LAWRENCE D. ELLIS, M.D.
Lawrence D. Ellis, M.D.
<PAGE>
MUNICIPAL SECURITIES INCOME TRUST
Amendment No. 17
DECLARATION OF TRUST
As dated August 6, 1990
EFFECTIVE IMMEDIATELY, this Declaration of Trust is amended as follows:
Strike Section 1 of Article I from the Declaration of Trust and substitute
in its place the following:
Section 1. NAME.
This Trust shall be known as Municipal Securities Income Trust.
Strike Section 2(b) of Article I from the Declaration of Trust and
substitute in its place the following:
(b) The "Trust" refers to Municipal Securities Income Trust;
Strike Section 9 of Article XII of the Declaration of Trust.
EFFECTIVE OCTOBER 1, 1999:
Strike Section 1 of Article I from the Declaration of Trust and substitute
in its place the following:
Section 1. NAME.
This Trust shall be known as Federated Municipal Securities Income Trust.
Strike Section 2(b) of Article I from the Declaration of Trust and
substitute in its place the following:
(b) The "Trust" refers to Federated Municipal Securities Income
Trust;
Insert the following as Section 9 of Article XII of the Declaration of
Trust:
Section 9. USE OF NAME. The Trust acknowledges that Federated Investors
has reserved the right to grant the non-exclusive use of the name
"Federated" or any derivative thereof to any other investment company,
investment company portfolio, investment adviser, distributor, or other
business enterprise, and to withdraw from the Trust or owe or more Series
or Classes any right to use of the name "Federated".
The undersigned President and Secretary hereby certify that the above
stated Amendment is a true and correct Amendment to the Declaration of Trust, as
adopted by the Board of Trustees at a meeting on the 20th day of May, 1999.
WITNESS the due execution hereof this 1st day of June, 1999.
/S/ RICHARD B. FISHER /S/ JOHN W. MCGONIGLE
Richard B. Fisher, President John W. McGonigle, Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of MUNICIPAL SECURITIES INCOME TRUST and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee October 4, 1999
John F. Donahue (Chief Executive Officer)
/s/Richard B. Fisher President October 4, 1999
Richard B. Fisher
/s/J. Christopher Donahue Executive Vice President October 4, 1999
J. Christopher Donahue and Trustee
/s/Richard J. Thomas Treasurer October 4, 1999
Richard J. Thomas (Principal Financial and
Accounting Officer)
/s/Thomas G. Bigley Trustee October 4, 1999
Thomas G. Bigley
/s/Nicholas P. Constantakis Trustee October 4, 1999
Nicholas P. Constantakis
/s/John T. Conroy, Jr. Trustee October 4, 1999
John T. Conroy, Jr.
/s/William J. Copeland Trustee* October 4, 1999
William J. Copeland
/s/James E. Dowd Trustee** October 4, 1999
James E. Dowd
/s/Lawrence D. Ellis, M.D. Trustee October 4, 1999
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee* October 4, 1999
Edward L. Flaherty, Jr.
/s/Peter E. Madden Trustee October 4, 1999
Peter E. Madden
/s/John E. Murray, Jr. Trustee October 4, 1999
John E. Murray, Jr.
/s/Wesley W. Posvar Trustee* October 4, 1999
Wesley W. Posvar
/s/Marjorie P. Smuts Trustee October 4, 1999
Marjorie P. Smuts
</TABLE>
*Resigned July 2, 1999
**Resigned May 23, 1999
Sworn to and subscribed before me this 13th day of October, 1999
/s/Madeline P. Kelly
Madeline P. Kelly
Notarial Seal
Madeline P. Kelly, Notary Public
Baldwin Boro, Allegheny County
My Commission Expires Feb. 22, 2000
Member, Pennsylvania Association of Notaries
Exhibit 23 under Form N-1A
Exhibit j under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
Federated Municipal Securities Income Trust:
We consent to the use in Post-Effective Amendment No. 30 to Registration
Statement 811-6165 of Federated Municipal Securities Income Trust (comprised of
the following portfolios: Federated California Municipal Income Fund, Federated
Michigan Intermediate Municipal Trust, Federated New York Municipal Income Fund,
Federated North Carolina Municipal Income Fund, Federated Ohio Municipal Income
Fund and Federated Pennsylvania Municipal Income Fund) of our report dated
October 15, 1999 appearing in the Prospectuses, which are a part of such
Registration Statement, and to the reference to us under the heading "Financial
Highlights" in such Prospectuses.
Boston, Massachusetts
October 29, 1999
