MUNICIPAL SECURITIES INCOME TRUST, 485APOS, 1999-08-31

MUNICIPAL SECURITIES INCOME TRUST
485APOS, 1999-08-31

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1933 Act File No. 33-36729
1940 Act File No. 811-6165

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
------

Pre-Effective Amendment No. ...................................

Post-Effective Amendment No. 29 .................................. X
---- ------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 28 ................................................. X
---- ------

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)
on _________________ pursuant to paragraph (b)

_ 60 days after filing pursuant to paragraph (a)(i) X on OCTOBER 29, 1999
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
California tax exempt securities.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information

October 31, 1999

<PAGE>

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:

CREDIT RISKS

Issuers of tax exempt securities may default in the payment of interest or
principal on the securities when due.

INTEREST RATE RISKS

Prices of tax exempt securities generally fall when interest rates rise.

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.

TAX RISKS

Any failure of tax exempt securities to meet certain applicable legal
requirements, or any proposed or actual changes in the federal or California tax
law, could adversely affect shareholders of the Fund.

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.

<PAGE>

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of Federated California Municipal
Income Fund as of the calendar year-end for each of six years.

The `y' axis reflects the "% Total Return" beginning with "-15" and increasing
in increments of 5% up to 20%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's Class A Shares start of business through the
calendar year ended December 31, 1998. The light gray shaded chart features six
distinct vertical bars, each shaded in charcoal, and each visually representing
by height the total return percentages for the calendar year stated directly at
its base. The calculated total return percentage for the Fund's Class A Shares
for each calendar year is stated directly at the top of each respective bar, for
the calendar years 1993 through 1998. The percentages noted are: 14.90%,
(10.44%), 19.42%, 6.39%, 9.68% and 6.40%, respectively.

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 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 six-month period from January 1,
1999 to June 30, 1999 was (1.65%).

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 the Lehman Brothers Revenue
Bond Index ("LBRBI") and the Lehman Brothers Municipal Bond Index ("LBMBI"),
both broad-based market indexes. LBRBI is a total return performance benchmark
for the long-term, investment grade, revenue bond market. Returns and attributes
for the LBRBI are calculated semi-monthly. 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 CLASS A CLASS B LBRBI LBMBI
SHARES SHARES

1 Year 0.63% 0.13% 0.00% 0.00%
5 Years 4.86% N/A 0.00% 0.00%
Start of 6.66% 2.12% 0.00% 0.00%
Performance1

1 THE FUND'S CLASS A SHARES AND CLASS B SHARES START OF PERFORMANCE DATES WERE
DECEMBER 2, 1992 AND DECEMBER 1, 1997, RESPECTIVELY.

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

<PAGE>

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's Class A Shares or Class B Shares.

SHAREHOLDER FEES CLASS A
CLASS B

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) 0.00%

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, Reductions and
Reimbursements)1
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS 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
0.69%
0.69%
Total Annual Fund Operating Expenses
1.59%
2.09% (5)
1 Although not contractually obligated to do so, the Adviser and the Distributor
waived, reduced 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, Reductions and Reimbursements of Fund
Expenses 1.09%
0.84%

Total Annual Fund Operating Expenses (after waivers and
reimbursements) 0.50%
1.25%

2The 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 0.00% for the year ended August 31,
1999.

3 The Distributor voluntarily reduced the distribution (12b-1) fee. The
Distributor can terminate this voluntary reduction at any time. The
distribution fee paid by the Fund's Class A Shares (after the voluntary
reduction) was 0.00% for the year ended August 31, 1999.

4 The Adviser voluntarily reimbursed certain operating expenses of the Fund. The
Adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) were 0.25% for
the year ended August 31, 1999.

5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

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,
REDUCTIONS 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 $604 $929 $1,277 $2,254
Expenses assuming no $604 $929 $1,277 $2,254
redemption
CLASS B

Expenses assuming redemption $762 $1,055 $1,324 $2,511
Expenses assuming no redemption $212 $655 $1,124 $2,511

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. Interest income from
the Fund's investments may be subject to AMT. The Fund invests primarily in
long-term, investment grade securities. 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: o.......current and expected U.S. economic growth;

o current and expected interest rates and inflation;

o the Federal Reserve's monetary policy; and

o 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:

o the economic feasibility of revenue bond financings and general purpose
financings;

o the financial condition of the issuer or guarantor; and

o 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.

The Adviser's ability to formulate an accurate interest rate outlook, coupled
with effective management of the Fund's duration as described above, is critical
to the Adviser's achievement of this component of its strategy. The Adviser will
seek to further enhance after tax total return by engaging in a relative value
analysis; that is, the Adviser will assess the cost of a tax exempt security
compared with other tax exempt securities and taxable securities such as U.S.
Treasury obligations. Finally, the Adviser will invest a portion of the
portfolio in tax exempt securities subject to AMT, which may offer higher
returns.

<PAGE>

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. 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

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

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.

<PAGE>

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 NOTES

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 thirteen months.

MUNICIPAL LEASES

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 market and credit risks of a zero coupon
security.

INVERSE FLOATERS

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 form of derivative contracts, 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 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. These transactions create leverage risks.

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

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

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.

<PAGE>

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

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 credit
enhanced by banks or companies in similar businesses or by issuers located in
the same state. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these
entities.

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
municipal 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 derivative 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'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.

MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES CHARGE2 DEFERRED SALES
INVESTMENT AMOUNTS1 CHARGE3

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

CLASS A SHARES

<PAGE>

Sales Charge as a Sales Charge as a
Purchase Amount Percentage of Public Percentage of NAV
Offering Price

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 greater1 0.00% 0.00%

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:

o purchasing Shares in greater quantities to reduce the applicable sales
charge;

o 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);

o 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

o 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:

o within 120 days of redeeming Shares of an equal or lesser amount;

O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);

o through wrap accounts or other investment programs where you pay the
investment professional directly for services;

o through investment professionals that receive no portion of the sales
charge;

o as a Federated Life Member (Class A Shares only) and their immediate family
members; or

o as a Trustee 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.

CLASS B SHARES

Shares Held Up To: CDSC
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%

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

o purchased with reinvested dividends or capital gains;

o purchased within 120 days of redeeming Shares of an equal or lesser amount;

o that you exchanged into the same share class of another Federated Fund
where the shares were held for the applicable CDSC holding period (other
than a money market fund);

o purchased through investment professionals who did not receive advanced
sales payments;

O if, after you purchase Shares, you become disabled as defined by the IRS;

o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement; or

o 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.

<PAGE>

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

o Shares that are not subject to a CDSC; and

o 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, investment advisers or 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

o Establish an account with the investment professional; and

O 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

o Establish your account with the Fund by submitting a completed New Account
Form; and

o 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 the Fund or its transfer agent incurs.

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 (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.

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.

<PAGE>

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

o through an investment professional if you purchased Shares through an
investment professional; or

o 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 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:

o Fund Name and Share Class, account number and account registration;

o amount to be redeemed or exchanged;

o signatures of all shareholders exactly as registered; and

o 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.

<PAGE>

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o your redemption will be sent to an address other than the address of
record;

o your redemption will be sent to an address of record that was changed
within the last 30 days;

o a redemption is payable to someone other than the shareholder(s) of record;
or

o 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:

o an electronic transfer to your account at a financial institution that is
an ACH member; or

o 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:

o to allow your purchase to clear;

o during periods of market volatility; or

o 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 PRIVILEGES

You may exchange Shares of the Fund into Shares of the same class of another
Federated fund. To do this, you must:

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

o 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:

o you redeem 12% or less of your account value in a single year;

o you reinvest all dividends and capital gains distributions; and

o 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 California
state personal income tax to the extent they are derived from interest on
obligations exempt from California personal income 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

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 the Annual Report.

(Financial statements to be filed by amendment)

<PAGE>

FEDERATED CALIFORNIA MUNICIPAL INCOME FUND

A Portfolio of Municipal Securities Income Trust

CLASS A SHARES

CLASS B SHARES

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 Semi-Annual Reports to
shareholders as they become available. The Annual Report 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 visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO. 811-6165

CUSIP 625922109 CUSIP 625922828

2092918A-00 (10/99)

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.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-341-7400.

October 31, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses

CUSIP 625922109
CUSIP 625922828

2092918B (10/99)

<PAGE>

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 March 31,
1996. Effective October 31, 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 regular federal 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.

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

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.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate risks, and may also expose the Fund to liquidity and leverage risks.

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

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. Treasury securities are generally regarded as having the lowest
credit risks.

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. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities. The Fund treats mortgage backed securities guaranteed by GSEs as
agency securities. Although a GSE guarantee protects against credit risks, it
does not reduce the market and prepayment risks of these mortgage backed
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. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

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 (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 investment objective may not be
changed by the Fund's Trustees without shareholder approval.

FUNDAMENTAL INVESTMENT POLICY

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.

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. For purposes of
this 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.

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

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

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 OF TRUSTEES (BOARD) UNLESS
AUTHORIZED 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.

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.

PURCHASES 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.

FUTURES TRANSACTIONS

The Fund may purchase and sell interest rate and index financial futures
contracts.Restricted Securities

The Fund may not invest its securities subject to restrictions on resale
under the Securities Act of 1933.

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. As a non-fundamental operating policy, 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 bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

o futures contracts and options are 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 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:

o the Trustees, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;

o any associated person of an investment dealer who has a sales agreement
with the Distributor; and

o 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:

o 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

o 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:

o 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;

o of Shares that represent a reinvestment within 120 days of a previous
redemption;

o of Shares held by the Trustees, 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;

o 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;

o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and

CLASS B SHARES ONLY

o 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.

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:

AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF PUBLIC
OFFERING PRICE

First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
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.

EXCHANGING SECURITIES FOR SHARES

You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.

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 Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.

In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

<PAGE>

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 [XXXX], the following shareholders owned of record, beneficially, or both,
5% or more of outstanding Shares: (To be filed by amendment.)

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

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 [XXXX], the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Class A and Class B Shares.

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.

- -----------------------------------------------------------------------------------------------------------------
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND FUND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST COMPLEX

JOHN F. DONAHUE*+# Chief Executive Officer and Director or $0 $0 for the Trust
Birth Date: July 28, Trustee of the Federated Fund Complex; and 54 other
1924 Chairman and Director, Federated Investors, investment
Federated Investors Inc.; Chairman and Trustee, Federated companies in the
Tower Investment Management Company; Chairman and Fund Complex
1001 Liberty Avenue Director, Federated Investment Counseling,
Pittsburgh, PA and Federated Global Investment Management
CHAIRMAN and TRUSTEE Corp.; Chairman, Passport Research, Ltd.

- -----------------------------------------------------------------------------------------------------------------

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $ $113,860.22 for the
Birth Date: February 3, Complex; Director, Member of Executive Trust and 54 other
1934 Committee, Children's Hospital of Pittsburgh; investment
15 Old Timber Trail Director, Robroy Industries, Inc. (coated companies in the
Pittsburgh, PA steel conduits/computer storage equipment); Fund Complex
TRUSTEE 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 Federated Fund $ $125,264.48 for the
Birth Date: June 23, Complex; President, Investment Properties Trust and 54
1937 Corporation; Senior Vice President, other investment
Wood/Commercial Dept. John R. Wood and Associates, Inc., Realtors; companies in the
John R. Wood Partner or Trustee in private real estate Fund Complex
Associates, Inc. ventures in Southwest Florida; formerly:
Realtors President, Naples Property Management, Inc.
3255 Tamiami Trail and Northgate Village Development Corporation.
North

Naples, FL

TRUSTEE

- -----------------------------------------------------------------------------------------------------------------

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $ $47,958.02 for the
Birth Date: September Complex; formerly: Partner, Andersen Trust and 39
3, 1939 Worldwide SC. other investment

175 Woodshire Drive companies in the
Pittsburgh, PA Fund Complex

TRUSTEE

- -----------------------------------------------------------------------------------------------------------------

JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $ $0 for the Trust
Birth Date: March 5, Fund Complex; Chairman, President and Chief and 40 other
1943 Executive Officer, Cunningham & Co., Inc. investment
353 El Brillo Way (strategic business consulting) ; Trustee companies in the
Palm Beach, FL Associate, Boston College; Director, EMC Fund Complex
TRUSTEE Corporation (computer storage systems);
formerly: Director, Redgate Communications.

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 Federated Fund $ $113,860.22 for the
Birth Date: October 11, Complex; Professor of Medicine, University of Trust and 54
1932 Pittsburgh; Medical Director, University of other investment
3471 Fifth Avenue Pittsburgh Medical Center - Downtown; companies in the
Suite 1111 Hematologist, Oncologist, and Internist, Fund Complex
Pittsburgh, PA University of Pittsburgh Medical Center;
TRUSTEE Member, National Board of Trustees, Leukemia
Society of America.

- -----------------------------------------------------------------------------------------------------------------
Director or Trustee of the Federated Fund $
PETER E. MADDEN Complex; formerly: Representative, $113,860.22 for the
Birth Date: March 16, Commonwealth of Massachusetts General Court; Trust and 54
1942 President, State Street Bank and Trust other investment
One Royal Palm Way Company and State Street Corporation. companies in the
100 Royal Palm Way Fund Complex
Palm Beach, FL Previous Positions: Director, VISA USA and
TRUSTEE VISA International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The

Boston Stock Exchange.

- -----------------------------------------------------------------------------------------------------------------

CHARLES F. MANSFIELD, Director or Trustee of some of the Federated $ $0 for the Trust
JR.++ Fund Complex; Management Consultant. and 43 other
Birth Date: April 10, investment
1945 Previous Positions: Chief Executive Officer, companies in the
80 South Road PBTC International Bank; Partner, Arthur Fund Complex

Westhampton Beach, NY Young & Company (now Ernst & Young LLP);
TRUSTEE 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., Director or Trustee of the Federated Fund $ $113,860.22 for the
J.D., S.J.D.# Complex; President, Law Professor, Duquesne Trust and 54
Birth Date: December University; Consulting Partner, Mollica & other investment
20, 1932 Murray; Director, Michael Baker Corp. companies in the
President, Duquesne (engineering, construction, operations, and Fund Complex
University technical services).
Pittsburgh, PA

TRUSTEE 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 Federated Fund $ $113,860.22 for the
Birth Date: June 21, Complex; Public Trust and 54
1935 Relations/Marketing/Conference Planning. other investment
4905 Bayard Street companies in the
Pittsburgh, PA Previous Positions: National Spokesperson, Fund Complex
TRUSTEE Aluminum Company of America; television
producer; business owner.

---
- ------------------------------------------------------------------------------------------- ---------------------

JOHN S. WALSH++ Director or Trustee of some of the Federated $ $0 for the Trust
Birth Date: November Fund Complex; President and Director, Heat and 41 other
28, 1957 Wagon, Inc. (manufacturer of construction investment
2007 Sherwood Drive temporary heaters); President and Director, companies in the
Valparaiso, IN Manufacturers Products, Inc. (distributor of Fund Complex
TRUSTEE 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 Vice President of the $0 $0 for the Trust
Birth Date: April 11, Federated Fund Complex; Director or Trustee and 16 other
1949 of some of the Funds in the Federated Fund investment
Federated Investors Complex; President and Director, Federated companies in the
Tower Investors, Inc.; President and Trustee, Fund Complex
1001 Liberty Avenue Federated Investment Management Company;
Pittsburgh, PA President and Director, Federated Investment
EXECUTIVE VICE Counseling and Federated Global Investment
PRESIDENT and TRUSTEE Management Corp.; President, Passport

Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

- -----------------------------------------------------------------------------------------------------------------

<PAGE>

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Trust
Birth Date: October 22, the Federated Fund Complex; President, and 1 other
1930 Executive Vice President and Treasurer of investment
Federated Investors some of the Funds in the Federated Fund company in the Fund
Tower Complex; Vice Chairman, Federated Investors, Complex
1001 Liberty Avenue Inc.; Vice President, Federated Investment
Pittsburgh, PA Management Company and Federated Investment
EXECUTIVE VICE PRESIDENT Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director,
Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.

- -----------------------------------------------------------------------------------------------------------------
$0

JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 for the Trust
Birth Date: October 26, Federated Fund Complex; Executive Vice and 54 other
1938 President, Secretary, and Director, Federated investment
Federated Investors Investors, Inc.; Trustee, Federated companies in the
Tower Investment Management Company; Director, Fund Complex
1001 Liberty Avenue Federated Investment Counseling and Federated
Pittsburgh, PA Global Investment Management Corp.; Director,
EXECUTIVE VICE PRESIDENT Federated Services Company; Director,

Federated Securities Corp.

- -----------------------------------------------------------------------------------------------------------------

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust
Birth Date: June 17, President - Funds Financial Services and 54 other
1954 Division, Federated Investors, Inc.; investment
Federated Investors formerly: various management positions within companies in the
Tower Funds Financial Services Division of Fund Complex

1001 Liberty Avenue Federated Investors, Inc.
Pittsburgh, PA

TREASURER

- -----------------------------------------------------------------------------------------------------------------

RICHARD B. FISHER President or Vice President of some of the $0 $0 for the Trust
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director and 6 other
Federated Investors or Trustee of some of the Funds in the investment
Tower Federated Fund Complex; Executive Vice companies in the
1001 Liberty Avenue President, Federated Investors, Inc.; Fund Complex
Pittsburgh, PA Chairman and Director, Federated Securities
PRESIDENT Corp.

- -----------------------------------------------------------------------------------------------------------------

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: March 3, various other Funds in the Federated Fund and 41 other
1949 Complex; Executive Vice President, Federated investment
Federated Investors Investment Counseling, Federated Global companies in the
Tower Investment Management Corp., Federated Fund Complex

1001 Liberty Avenue Investment Management Company and Passport
Pittsburgh, PA Research, Ltd.; Registered Representative,
CHIEF INVESTMENT OFFICER 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 the Fund's $0 $0 for the Trust
Birth Date: June 1, 1960 portfolio manager since March 1995. He is and 1 other
Federated Investors Vice President of the Trust. Mr. Albrecht investment
Tower joined Federated in 1989. He has been a company in the Fund
1001 Liberty Avenue Senior Portfolio Manager since 1997 and a Complex
Pittsburgh, PA Vice President of the Fund's investment
VICE PRESIDENT 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>

+ 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.

<PAGE>

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 Fund 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:

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE 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.

<PAGE>

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED AUGUST 31 1999 1998 1997
Advisory Fee Earned $ $110,704 $76,824
Advisory Fee Reduction $ $110,704 $76,824
Brokerage Commissions $ $0 $0
Administrative Fee $ $147,521 $125,002
12b-1 Fee
Class A Shares $ -- --
Class B Shares $ -- --
Shareholder Services Fee

Class A Shares $ -- --
Class B Shares $ -- --

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?

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 given for the one-year, five-year and Start of Performance periods
ended August 31, 1999.

Yield and Tax-Equivalent Yield given for the 30-day period ended August 31,
1999.

START OF PERFORMANCE
30-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS ON DECEMBER 2, 1992
CLASS A SHARES
<S> <C> <C> <C> <C> <C>
Total Return NA NA
Yield NA NA NA NA
Tax-Equivalent Yield NA NA NA NA
- -------------------------------------------------------------------------------------------------------

START OF PERFORMANCE

30-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS ON DECEMBER 1, 1997
CLASS B SHARES

Total Return NA NA NA
Yield NA NA NA NA
Tax-Equivalent Yield NA 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

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%
- -------------------------------------------------------------------------------------------------
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:
<S> <C> <C> <C> <C> <C>
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.

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%
- -------------------------------------------------------------------------------------------------
joint Return $1-43,050 $43,051-104,05$104,051-158,550$158,551-283,150 Over
283,150
<S> <C> <C> <C> <C> <C>
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>

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o 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;

o 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

o 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:

o LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance benchmark
for the long-term, investment grade, revenue bond market. Returns and
attributes for the index are calculated semi-monthly.

o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in 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.

o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

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 manages 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.

<PAGE>

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, INC. 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, INC. 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:

o Leading market positions in well-established industries;

o High rates of return on funds employed;

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

o Well-established access to a range of financial markets and assured sources
of alternate liquidity.

<PAGE>

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.

<PAGE>

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 Michigan tax
exempt securities.

CONTENTS

October 31, 1999

<PAGE>

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 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 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 at the time of
purchase. 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:

CREDIT RISKS

Issuers of tax exempt securities may default in the payment of interest or
principal on the securities when due.

INTEREST RATE RISKS

Prices of the tax exempt securities generally fall when interest rates rise.

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.

TAX RISKS

Any failure of tax exempt securities to meet certain applicable legal
requirements, or any proposed or actual changes in the federal or Michigan tax
law, could adversely affect shareholders of the Fund.

<PAGE>

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Michigan Intermediate Municipal Trust as of
the calendar year-end for each of seven years.

The `y' axis reflects the "% Total Return" beginning with "-7%" and increasing
in increments of 5% up to 13%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features seven distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1992
through 1998. The percentages noted are: 8.02%, 11.33%, (4.73%), 14.14%, 3.97%,
6.77% and 5.57%, respectively.

The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.

The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was (0.90%).

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), a broad-based market index. The LB7YRSGOI is an index of general
obligation bonds rated A or better with 6-8 years to maturity. Indexes are
unmanaged, and it is not possible to invest directly in an index.

CALENDAR PERIOD FUND LB7YRSGOI
1 Year 2.41%

5 Years 4.35%
Start of 6.26%

Performance1

1 The Fund's start of performance date was September 30, 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
rewards.

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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.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.00%
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) 0.00%
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 None
applicable)
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 the

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%
Total Actual Annual Fund Operating Expenses (after waivers) 0.50%

2 The adviser voluntarily waived a portion of the management fee during the
fiscal year ended August 31, 1999. The adviser can terminate this voluntary
waiver at any time. The management fee paid by the Fund (after voluntary
waiver) was 0.80% for the fiscal year ended August 31, 1999.

3 The shareholder services provider voluntarily waived a portion of the
shareholder services fee during the fiscal year ended August 31, 1999. The
shareholder services provider can terminate this voluntary waiver at any
time. The shareholder services fee paid by the Fund (after voluntary waiver)
was 0.07% for the fiscal year ended August 31, 1999.

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 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 3 YEARS 5 YEARS 10 YEARS
$399 $609 $836 $1,488

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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. 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 at the time of
purchase. 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:

o current and expected U.S. economic growth;

o current and expected interest rates and inflation;

o the Federal Reserve's monetary policy; and

o supply and demand factors related to the municipal market and the effect they
may have on the returns offered for various bond maturities.

o the economic feasibility of revenue bond financings and general purpose
financings;

o the financial condition of the issuer or guarantor; and

o 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.

HEDGING

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. 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

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

SPECIAL REVENUE BONDS

PRIVATE ACTIVITY BONDS

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

MUNICIPAL NOTES

VARIABLE RATE DEMAND INSTRUMENTS

MUNICIPAL LEASES

ZERO COUPON SECURITIES

INVERSE FLOATERS

CREDIT ENHANCEMENT

FUTURES CONTRACTS

Futures contracts are considered to be commodity contracts.

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

ASSET COVERAGE

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

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.

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CALL RISKS

SECTOR RISKS

TAX RISKS

Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.

Income from the Fund may be subject to AMT.

LEVERAGE RISKS

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 derivative 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,
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'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.

MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
INITIAL/SUBSEQUENT SALES CHARGE2 DEFERRED SALES
INVESTMENT AMOUNTS1 CHARGE3
$1,500/$100 3.00% 0.00%

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."

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SALES CHARGE WHEN YOU PURCHASE

<PAGE>

SALES CHARGE AS A SALES CHARGE AS A
PURCHASE AMOUNT PERCENTAGE OF PUBLIC PERCENTAGE OF NAV
OFFERING PRICE

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 greater1 0.00% 0.00%

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.