FEDERATED MUNICIPAL SECURITIES INCOME TRUST

485BPOS 1 fmsitform.htm FEDERATED MUNICIPAL SECURITIES INCOME TRUST




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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X
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    Pre-Effective Amendment No.
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    Post-Effective Amendment No. 38.........................        X
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                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X
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    Amendment No.  37.......................................        X
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                   FEDERATED MUNICIPAL SECURITIES INCOME TRUST
               (Exact Name of Registrant as Specified in Charter)

                            Federated Investors Funds
                              5800 Corporate Drive
                            Pittsburgh, PA 15237-7000
                    (Address of Principal Executive Offices)

                                 (412) 288-1900
                         (Registrant's Telephone Number)

                           John W. McGonigle, Esquire,
                            Federated Investors Tower
                               1001 Liberty Avenue
                            Pittsburgh, PA 15222-3779
                     (Name and Address of Agent for Service)

It is proposed that this filing will become effective:

  X   immediately upon filing pursuant to paragraph (b)
      on _________________ pursuant to paragraph (b)
      60 days after filing pursuant to paragraph (a)(i)
      on _________________ pursuant to paragraph (a)(i)
      75 days after filing pursuant to paragraph (a)(ii)
      on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

     This  post-effective  amendment  designates  a  new  effective  date  for a
previously filed post-effective amendment.

                                   Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, DC  20037

Federated
World-Class Investment Manager

Federated North Carolina Municipal Income Fund

A Portfolio of Federated Municipal Securities Income Trust

PROSPECTUS

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October 31, 2004

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CLASS A SHARES

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A mutual fund seeking to provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of North Carolina by investing primarily in a portfolio of long-term, investment-grade North Carolina tax-exempt securities.

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

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 14

What Do Shares Cost? 17

How is the Fund Sold? 21

How to Purchase Shares 23

How to Redeem and Exchange Shares 25

Account and Share Information 28

Who Manages the Fund? 29

Legal Proceedings 30

Financial Information 31

Risk/Return Summary

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WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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The Fund's investment objective is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of North Carolina. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund invests its assets so that, normally, distributions of annual interest income are exempt from federal regular income tax and the personal income taxes imposed by the state of North Carolina. Interest from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations (AMT). The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities of greater than ten years. The Fund's portfolio securities will be primarily long-term, investment-grade securities. The Fund may invest in derivative contracts to implement its investment strategies as more fully described herein.

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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:

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Interest Rate Risks. Prices of tax-exempt securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of fixed-income securities with longer durations.

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

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Call Risks. Issuers of tax-exempt securities may redeem the securities prior to maturity at a price below their current market value.

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Sector Risks. Since the Fund invests primarily in issuers from North Carolina, the Fund may be subject to additional risks compared to funds that invest in multiple states. North Carolina's economy is heavily dependent upon certain industries, such as agriculture, manufacturing and tourism. Any downturn in these and other industries may adversely affect the economy of the state.

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Liquidity Risks. Trading opportunities are more limited for tax-exempt securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. Liquidity risk also refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. Over-the-counter derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

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Tax Risks. The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.
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.

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Prepayment Risks. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also, when interest rates fall, the price of mortgage-backed securities may not raise to as great an extent as that of other fixed-income securities.

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Risks of Investing in Derivative Contracts. Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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Non-Diversification Risk. 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.

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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.

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Risk/Return Bar Chart and Table

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The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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The total returns shown in the bar chart 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.

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The Fund's Class A Shares total return for the nine-month period from January 1, 2004 to September 30, 2004 was 1. 11%

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Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 6.84% (quarter ended March 31, 1995). Its lowest quarterly return was (5.19)% (quarter ended March 31, 1994).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund are reduced to reflect applicable sales charges. Return Before Taxes is shown. In addition, Return After Taxes is shown for the Fund to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Lehman Brothers Municipal Bond Index (LBMB), a broad-based market index, and the Lipper North Carolina Municipal Debt Funds Average (LNCMDFA), an average of funds with similar objectives. The LBMB is a broad market performance benchmark for the tax-exempt bond market. To be included in the LBMB, bonds must have a minimum credit rating Baa. The LNCMDFA represents the average of the total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective category. Index returns shown do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in a mutual fund's performance. Indexes are unmanaged and it is not possible to invest directly in an index or an average.

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(For the periods ended December 31, 2003)

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<R>Share Class</R>	1 Year	5 Years	10 Years
<R>Class A Shares:</R>
Return Before Taxes	<R> 0. 68%</R>	<R>4. 32%</R>	<R> 4. 77%</R>
Return After Taxes on Distributions¹	<R> 0. 68%</R>	<R>4. 31%</R>	<R> 4. 75%</R>
Return After Taxes on Distributions and Sale of Fund Shares¹	<R> 1. 86%</R>	<R>4. 32%</R>	<R> 4. 72%</R>
LBMB	<R> 5. 31%</R>	<R> 5. 83%</R>	<R>6. 03%</R>
LNCMDFA	<R> 4. 53%</R>	<R>4. 62%</R>	<R> 4. 88%</R>

1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

What are the Fund's Fees and Expenses?

FEDERATED NORTH CAROLINA 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.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		4.50%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		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 applicable)		None
Exchange Fee		None

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.40%
Distribution (12b-1) Fee³		0.25%
Shareholder Services Fee		0.25%
Other Expenses⁴		0.45%
Total Annual Fund Operating Expenses		1.35%

1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the adviser, distributor, administrator and transfer agent waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2004.
Total Waivers of Fund Expenses		0.56%
Total Actual Annual Fund Operating Expenses (after waivers)		0.79%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.13% for the fiscal year ended August 31, 2004.
3 The distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2004.
4 The administrator and transfer agent voluntarily waived a portion of their fees. The administrator and transfer agent can terminate these voluntary waivers at any time. Total other operating expenses paid by the Fund (after these voluntary waivers) were 0.41% for the fiscal year ended August 31, 2004.

EXAMPLE

The Example is intended to help you compare the cost of investing in the Fund's Class A Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund 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 operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

1 Year		$ 581
3 Years		$ 858
5 Years		$1,156
10 Years		$2,001

What are the Fund's Investment Strategies?

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The Fund invests primarily in a portfolio of investment-grade securities. The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities greater than ten years. The Fund's investment adviser (Adviser) actively manages the Fund's portfolio, seeking to manage the interest rate risk and credit risk assumed by the Fund and to provide superior levels of after-tax total return.

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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 uses hedging transactions for purposes of duration management. The Adviser considers a variety of factors in formulating its interest rate outlook, including the following:

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve's monetary policy; and
supply and demand factors related to the municipal market and the effect they may have on the returns offered for various bond maturities.

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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:

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the economic feasibility of revenue bond financings and general purpose financings;
the financial condition of the issuer or guarantor; and
political developments that may affect credit quality.

The Adviser monitors the credit risks of all portfolio securities on an ongoing basis by reviewing periodic financial data and ratings of nationally recognized statistical rating organizations (NRSROs).

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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.

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The Fund may enter into derivative contracts as hedging transactions, as more fully described herein. The Fund also may use derivative contracts to implement its overall investment strategies in a more cost effective or efficient manner. For example, the Fund may purchase derivative contracts rather than individual securities in order to gain exposure to the municipal bond sector.

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Because the Fund refers to North Carolina municipal investments in its name, it has an investment policy that it will normally invest its assets so that at least 80% of the income that it distributes will be exempt from federal regular income tax and the personal income taxes imposed by the state of North Carolina. This policy may not be changed without shareholder approval.

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HEDGING

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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 derivative contract that would normally increase in value under the same circumstances. The Fund may also attempt to hedge by using combinations of different derivative contracts, or derivative contracts and securities. The Fund's ability to hedge may be limited by the costs of the derivative 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 derivative contracts that cover a narrow range of circumstances; or (3) involve the sale of derivative 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.

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Temporary Defensive Investments

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The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may also cause the Fund to receive and distribute taxable income to investors. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

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What are the Principal Securities in Which the Fund Invests?

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TAX-EXEMPT SECURITIES

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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.

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General Obligation Bonds

General obligation bonds are supported by the issuer's power to exact property or other taxes. The issuer must impose and collect taxes sufficient to pay principal and interest on the bonds. However, the issuer's authority to impose additional taxes may be limited by its charter or state law.

Special Revenue Bonds

Special revenue bonds are payable solely from specific revenues received by the issuer such as specific taxes, assessments, tolls or fees. Bondholders may not collect from the municipality's general taxes or revenues. For example, a municipality may issue bonds to build a toll road and pledge the tolls to repay the bonds. Therefore, a shortfall in the tolls normally would result in a default on the bonds.

Private Activity Bonds

Private activity bonds are special revenue bonds used to finance private entities. For example, a municipality may issue bonds to finance a new factory to improve its local economy. The municipality would lend the proceeds from its bonds to the company using the factory, and the company would agree to make loan payments sufficient to repay the bonds. The bonds would be payable solely from the company's loan payments, not from any other revenues of the municipality. Therefore, any default on the loan normally would result in a default on the bonds.

The interest on many types of private activity bonds is subject to AMT. The Fund may invest in bonds subject to AMT.

Tax Increment Financing Bonds

Tax increment financing (TIF) bonds are payable from increases in taxes or other revenues attributable to projects financed by the bonds. For example, a municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds would be payable solely from any increase in sales taxes collected from merchants in the area. The bonds could default if merchants' sales, and related tax collections, failed to increase as anticipated.

Municipal Leases

Municipalities may enter into leases for equipment or facilities. In order to comply with state public financing laws, these leases are typically subject to annual appropriation. In other words, a municipality may end a lease, without penalty, by not providing for the lease payments in its annual budget. After the lease ends, the lessor can resell the equipment or facility but may lose money on the sale.

The Fund may invest in securities supported by pools of municipal leases. The most common type of lease-backed securities are certificates of participation (COPs). However, the Fund may also invest directly in individual leases.

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a "coupon payment"). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate risks and credit risks of a zero coupon security.

Inverse Floaters

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An inverse floater has a floating or variable interest rate that moves in the opposite direction of market interest rates. When market interest rates go up, the interest rate paid on the inverse floater goes down; when market interest rates go down, the interest rate paid on the inverse floater goes up. Inverse floaters generally respond more rapidly to market interest rate changes than fixed-rate, tax-exempt securities. Inverse floaters are subject to interest rate risks and leverage risks.

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Municipal Mortgage-Backed Securities

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Municipal mortgage-backed securities are special revenue bonds the proceeds of which may be used to provide mortgage loans for single family homes or to finance multifamily housing. Municipal mortgage-backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Municipal mortgage-backed securities generally have fixed interest rates.

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PACS

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PACs (planned amortization classes) are a sophisticated form of municipal mortgage-backed security issued with a company class. PACs receive principal payments and prepayments at a specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs to control prepayment risks by increasing the risks to their companion classes.

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Credit Enhancement

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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.

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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 holders. Either form of credit enhancement reduces credit risks by providing another source of payment for a fixed-income security.

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DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, commodities, financial indices or other assets or instruments. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset or instrument. The other party to a derivative contract is referred to as a counterparty.

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The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange-traded contracts.

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Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument, 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. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.

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The Fund may trade in the following types of derivative contracts, as well as combinations of these contracts:

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Futures Contracts

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Futures 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 has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts.

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The Fund may buy or sell the following types of futures contracts: interest rate and index financial futures contracts.

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Options

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Options are rights to buy or sell an underlying asset for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts, forward contracts and swaps.

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Swaps

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Swaps are contracts in which two parties agree to pay each other (swap) the returns derived from underlying assets with differing characteristics. Most swaps do not involve the delivery of the underlying assets by either party, and the parties might not own the assets underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms. Common types of swaps in which the Fund may invest include: interest rate swaps, cap and floors, and total return swaps.

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SPECIAL TRANSACTIONS

Delayed Delivery Transactions

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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.

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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.

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Investment Ratings for Investment-Grade Securities

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The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, an NRSRO, assigns ratings to investment-grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade.

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If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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Prices of fixed-income securities rise and fall in response to changes in the interest rates paid by similar securities. Generally, when interest rates rise, prices of fixed-income securities fall. However, market factors, such as the demand for particular fixed-income securities, may cause the price of certain fixed-income securities to fall while the prices of other securities rise or remain unchanged.

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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.

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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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Many fixed-income securities receive credit ratings from NRSROs such as Standard & Poor's and Moody's Investors Service. These NRSROs 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.

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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

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Call risk is the possibility that an issuer may redeem a fixed-income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.

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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.

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SECTOR RISKS

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A substantial part of the Fund's portfolio may be comprised of securities issued by North Carolina issuers or credit enhanced by banks, insurance companies or companies with other similar characteristics. As a result, the Fund will be more susceptible to any economic, business, political or other developments which generally affect North Carolina issuers or these credit enhancing entities.

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North Carolina's economy is heavily dependent upon certain industries, such as agriculture, manufacturing and tourism. Any downturn in these and other industries may adversely affect the economy of the state. Since the Fund invests primarily in issuers from a single state, the Fund may be subject to additional risks compared to funds that invest in multiple states.

TAX RISKS

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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.

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

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The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Additionally, the Fund may not be able to close out certain derivative contracts when it wants to. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.

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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.

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LIQUIDITY RISKS

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Trading opportunities are more limited for fixed-income securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. 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.

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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. OTC derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

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PREPAYMENT RISKS

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Unlike traditional fixed-income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on municipal mortgage-backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a fund holding municipal mortgage-backed securities.

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For example, when interest rates decline, the values of municipal mortgage-backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on municipal mortgage-backed securities.

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Conversely, when interest rates rise, the values of municipal mortgage-backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of municipal mortgage-backed securities, and cause their value to decline more than traditional fixed-income securities.

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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RISKS ASSOCIATED WITH NONINVESTMENT-GRADE SECURITIES

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Securities rated below investment grade, also known as junk bonds, generally entail greater market, credit and liquidity risks than investment-grade securities. For example, their prices are more volatile, economic downturns and financial setbacks may affect their prices more negatively, and their trading market may be more limited. The Fund may invest up to 35% of its assets in noninvestment-grade securities.

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What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus ), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed-income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost. Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. Options traded in the over-the-counter market are generally valued according to the mean between the last bid and the last asked price for the option as provided by an investment dealer or other financial institution that deals in the option.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	4.50%	0.00%

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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

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The following table lists the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the table and described below.

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Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
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%

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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.

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REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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Your investment may qualify for a reduction or elimination of the sales charge, also known as a breakpoint discount. The breakpoint discounts offered by the Fund are indicated in the table above. You or your investment professional must notify the Fund's Transfer Agent of any applicable breakpoint discount at the time of purchase.

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In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your investment professional or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint (Qualifying Accounts). Qualifying Accounts mean those Class A Share accounts in the Federated funds held directly or through an investment professional or a through a single-participant retirement account by you, your spouse, and/or your children under age 21, which can be linked using tax identification numbers (TINs) or social security numbers (SSNs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs or SSNs, are not Qualifying Accounts.

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In order to verify your eligibility for a breakpoint discount, you will be required to provide to your investment professional or the Transfer Agent certain information on your New Account Form and may be required to provide account statements regarding Qualifying Accounts. If you purchase through an investment professional, you may be asked to provide additional information and records as required by the investment professional. Failure to provide proper notification or verification of eligibility for a breakpoint discount may result in your not receiving a breakpoint discount to which you are otherwise entitled. Breakpoint discounts apply only to your current purchase and do not apply retroactively to previous purchases. The sales charges applicable to the Shares offered in this Prospectus, and the breakpoint discounts offered with respect to such Shares, are described in full in this Prospectus. Because the Prospectus is available on Federated's website free of charge, Federated does not disclose this information separately on the website.

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Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares, may be reduced or eliminated by:

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Larger Purchases

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

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Concurrent Purchases

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combining concurrent purchases of Class A Shares of the Fund made by a trustee or fiduciary for a single trust estate or single fiduciary account; or made by a Qualifying Account in the same share class of two or more Federated funds (other than money market funds);

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Accumulated Purchases

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achieving accumulated purchase discounts by including previous Class A Share purchases in determining the applicable sales charge on any additional Class A Shares purchased; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

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Letter of Intent

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signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. (Call your investment professional or the Fund for more information.) 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.

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ELIMINATING THE SALES CHARGE

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Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

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through a financial intermediary that did not receive a dealer reallowance on the purchase;

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with reinvested dividends or capital gains;

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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account);

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as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any investment professional that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or

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pursuant to the exchange privilege.

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SALES CHARGE WHEN YOU REDEEM

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Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

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To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

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Shares that are not subject to a CDSC; and

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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.)

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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

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<R>Class A Shares:</R>

<R>If you make a purchase of Class A Shares in the amount of $1 million or more and your investment professional received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.</R>

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If your investment qualifies for a reduction or elimination of the CDSC, you or your investment professional must notify the Transfer Agent at the time of redemption. If the Transfer Agent is not notified, the CDSC will apply.

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Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

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representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;

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purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;

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purchased by Trustees and employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of an investment professional that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;

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purchased through an investment professional that did not receive an advance commission on the purchase;

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purchased with reinvested dividends or capital gains;

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redeemed by the Fund when it closes an account for not meeting the minimum balance requirements;

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purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period. (The holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange.)

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How is the Fund Sold?

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to customers of financial institutions such as broker/dealers, banks, fiduciaries and investment advisers, or to individuals, directly or through investment professionals. The Fund may not be a suitable investment for retirement plans or for non-North Carolina taxpayers because it invests in North Carolina tax-exempt securities.

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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

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SERVICE FEES

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The Fund may pay fees (Service Fees) to financial institutions or to Federated Shareholder Services Company (FSSC), a subsidiary of Federated Investors, Inc., for providing services to shareholders and maintaining shareholder accounts. Under certain agreements, rather than paying financial institutions directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial institutions.

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ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

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The Distributor may pay out of its own resources amounts (including items of material value) to certain financial institutions that support the sale of Shares or provide services to Fund shareholders. The amounts of these payments could be significant, and may create an incentive for the financial institution or its employees or associated persons to recommend or sell Shares of the Fund to you. In some cases, such payments may be made by or funded from the resources of companies affiliated with the Distributor (including the Adviser). These payments are not reflected in the fees and expenses listed in the fee table section of the Fund's prospectus because they are not paid by the Fund.

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These payments are negotiated and may be based on such factors as the number or value of Shares that the financial institution sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial institution. These payments may be in addition to payments made by the Fund to the financial institution under the Rule 12b-1 Plan and/or Service Fees arrangement. You can ask your financial institution for information about any payments it receives from the Distributor or the Fund and any services provided.

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How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

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You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or State Street Bank and Trust Company, the Fund's transfer agent.

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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

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Make your check payable to The Federated Funds , note your account number on the check, and send it to:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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The Federated Funds
66 Brooks Drive
Braintree, MA 02184

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Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

THROUGH AN EXCHANGE

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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.

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BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

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You may redeem or exchange Shares by sending a written request to the Fund.

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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:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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Send requests by private courier or overnight delivery service to:

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The Federated Funds
66 Brooks Drive
Braintree, MA 02184

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All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging , the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

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Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

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your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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A Medallion signature guarantee is designed to protect your account from fraud. Obtain a Medallion 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.

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PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The Fund's management or 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

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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.

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ADDITIONAL CONDITIONS

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Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption or exchange request. For your protection, send your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

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If you purchase Shares just before the record date for 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 record date for a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

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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

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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 regular 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 Fund's dividends will be exempt from the North Carolina taxes discussed above to the extent they are derived from interest on obligations exempt from such taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.

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Who Manages the Fund?

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The Board of Trustees (the "Board") 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. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $ 198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1, 650 employees. More than 5, 000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

J. Scott Albrecht

J. Scott Albrecht has been the Fund's Portfolio Manager since June 1999. He is Vice President of the Trust. Mr. Albrecht joined Federated in 1989. He has been a Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University.

Mary Jo Ochson

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Mary Jo Ochson has been the Fund's Portfolio Manager since June 1999. Ms. Ochson was named Chief Investment Officer of tax-exempt fixed-income products in 2004. She joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996 . Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

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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.

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Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ("Funds") from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website at www.federatedinvestors.com , and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders.

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Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts.

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The Board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund Shares, or other adverse consequences for the Funds.

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Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per Share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(For a Share Outstanding Throughout Each Period)

	Year Ended August 31,
	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$10.92		$11.07		$10.99		$10.45		$10.44
Income From Investment Operations:
Net investment income	0.48		0.48		0.50	¹	0.50		0.49
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.13		(0.15	)	0.08	¹	0.54		0.02
TOTAL FROM INVESTMENT OPERATIONS	0.61		0.33		0.58		1.04		0.51
Less Distributions:
Distributions from net investment income	(0.48	)	(0.48	)	(0.50	)	(0.50	)	(0.49	)
Distributions from net realized gain on investments and futures contracts	--		--		--		--		(0.01	)
TOTAL DISTRIBUTIONS	(0.48	)	(0.48	)	(0.50	)	(0.50	)	(0.50	)
Net Asset Value, End of Period	$11.05		$10.92		$11.07		$10.99		$10.45
Total Return²	5.61	%	2.93	%	5.48	%	10.23	%	5.14	%

Ratios to Average Net Assets:
Expenses	0.79	%	0.79	%	0.79	%	0.79	%	0.79	%
Net investment income	4.26	%	4.22	%	4.62	%¹	4.71	%	4.77	%
Expense waiver/reimbursement³	0.56	%	0.49	%	0.61	%	0.68	%	0.79	%
Supplemental Data:
Net assets, end of period (000 omitted)	$56,289		$82,430		$55,261		$47,235		$41,449
Portfolio turnover	16	%	16	%	21	%	28	%	66	%

1 Effective September 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share or net realized and unrealized gain (loss) on investments per share, but increased the ratio or net investment income to average net assets from 4.61% to 4.62%. Per share, ratios and supplemental data for the periods prior to September 1, 2001 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated October 31, 2004, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's website at www.federatedinvestors.com.

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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Investment Company Act File No. 811-6165

Federated
World-Class Investment Manager

Federated North Carolina Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313923500

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G02671-01 (10/ 04)

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Federated is a registered mark of Federated Investors, Inc. 2004 (c)Federated Investors, Inc.

FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND
A Portfolio of Federated Municipal Securities Income Trust
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Statement of Additional Information

October 31, 2004

Class A Shares
This Statement of Additional Information (SAI) is not a prospectus.
Read this SAI in conjunction with the prospectus for Federated North
Carolina Municipal Income Fund (Fund), dated October 31, 2004. 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.

Contents
How is the Fund Organized?................................1
Securities in Which the Fund Invests......................1
What Do Shares Cost?......................................1
How is the Fund Sold?.....................................1
Subaccounting Services....................................1
Redemption in Kind........................................1
Massachusetts Partnership Law.............................1
Account and Share Information.............................1
Tax Information...........................................1
Who Manages and Provides Services to the Fund?............1
How Does the Fund Measure Performance?....................1
Who is Federated Investors, Inc.?.........................1
Financial Information.....................................1
Investment Ratings........................................1
Addresses.................................................1

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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 Trust changed its name from Municipal Securities
Income Trust to Federated Municipal Securities Income Trust on October
1, 1999. The CCB North Carolina Municipal Securities Fund (the Former
Fund) was established on July 22, 1992 and was reorganized as a
portfolio of the Trust on July 23, 1999. The Fund's investment adviser
is Federated Investment Management Company (Adviser).

SECURITIES IN WHICH THE FUND INVESTS

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The principal securities in which the Fund invests are discussed in the
Fund's prospectus. In pursuing its investment strategy, the Fund may
also 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.

The following describes the types of fixed-income securities, in
addition to those listed in the prospectus, in which the Fund may
invest.

MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many
municipalities issue such notes to fund their current operations before
collecting taxes or other municipal revenues. Municipalities may also
issue notes to fund capital projects prior to issuing long- term bonds.
The issuers typically repay the notes at the end of their fiscal year,
either with taxes, other revenues or proceeds from newly issued notes
or bonds.

Variable Rate Demand Instruments
Variable rate demand instruments are tax-exempt securities that require
the issuer or a third party, such as a dealer or bank, to repurchase
the security for its face value upon demand. The securities also pay
interest at a variable rate intended to cause the securities to trade
at their face value. The Fund treats demand instruments as short-term
securities, because their variable interest rate adjusts in response to
changes in market rates, even though their stated maturity may extend
beyond 13 months.

CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of
credit, bond insurance and surety bonds. Credit enhancement also
includes arrangements where securities or other liquid assets secure
payment of a fixed-income security. If a default occurs, these assets
may be sold and the proceeds paid to the security's holders. Either
form of credit enhancement reduces credit risks by providing another
source of payment for a fixed-income security.

Derivative Contracts
Derivative contracts are financial instruments that require payments
based upon changes in the values of designated (or underlying)
securities, commodities, currencies, financial indices or other assets.
Some derivative contracts (such as futures, forwards and options)
require payments relating to a future trade involving the underlying
asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other
party to a derivative contract is referred to as a counterparty.

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.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty.
OTC contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts
with more specialized terms may be more difficult to price than
exchange-traded contracts.

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. OTC contracts also expose the Fund to
credit risks in the event that a counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts, as
well as combinations of these contracts, including, but not limited to,
options on futures contracts, options on forward contracts and options
on swaps.

Futures Contracts
Futures 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 has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity
Exchange Act and, therefore, is not subject to registration or
regulation as a commodity pool operator under that Act. Futures
contracts traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of contracts: interest
rate and index financial futures contracts.

Options
Options are rights to buy or sell an underlying asset or instrument for
a specified price (the exercise price) during, or at the end of, a
specified period. The seller (or writer) of the option receives a
payment, or premium, from the buyer, which the writer keeps regardless
of whether the buyer uses (or exercises) the option. Options can trade
on exchanges or in the OTC market and may be bought or sold on a wide
variety of underlying assets or instruments, including financial
indices, individual securities, and other derivative instruments, such
as futures contracts. Options that are written on futures contracts
will be subject to margin requirements similar to those applied to
futures contracts.

CALL OPTIONS
A call option gives the holder (buyer) the right to buy the underlying
asset from the seller (writer) of the option. The Fund may use call
options in the following ways:

|X| Buy call options on indices, individual securities, index futures
and financial futures in anticipation of an increase in the value of
the underlying asset or instrument; and
|X| Write call options on indices, portfolio securities, index
futures and financial futures to generate income from premiums, and
in anticipation of a decrease or only limited increase in the value
of the underlying asset. If a call written by the Fund is exercised,
the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the
premium received.

PUT OPTIONS
A put option gives the holder the right to sell the underlying asset to
the writer of the option. The Fund may use put options in the following
ways:

|X| Buy put options on indices, individual securities, index futures
and financial futures in anticipation of a decrease in the value of
the underlying asset; and
|X| Write put options on indices, portfolio securities, index futures
and financial futures to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of
the underlying asset. In writing puts, there is a risk that the Fund
may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price.
|X| The Fund may also buy or write options, as needed, to close out
existing option positions.

Swaps
Swaps are contracts in which two parties agree to pay each other (swap)
the returns derived from underlying assets with differing
characteristics. Most swaps do not involve the delivery of the
underlying assets by either party, and the parties might not own the
assets underlying the swap. The payments are usually made on a net
basis so that, on any given day, the Fund would receive (or pay) only
the amount by which its payment under the contract is less than (or
exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are
known by a variety of names including caps, floors and collars. Common
swap agreements that the Fund may use include:

INTEREST RATE SWAPS
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a
stated principal amount of fixed-income securities, in return for
payments equal to a different fixed or floating rate times the same
principal amount, for a specific period. For example, a $10 million
London Interbank Offer Rate (LIBOR) swap would require one party to pay
the equivalent of the LIBOR rate of interest (which fluctuates) on $10
million principal amount in exchange for the right to receive the
equivalent of a stated fixed rate of interest on $10 million principal
amount.

TOTAL RATE OF RETURN SWAPS
Total rate of return swaps are contracts in which one party agrees to
make payments of the total return from the underlying asset during the
specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another underlying asset.

CAPS AND FLOORS
Caps and Floors are contracts in which one party agrees to make
payments only if an interest rate or index goes above (Cap) or below
(Floor) a certain level in return for a fee from the other party.

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Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a
security from a dealer or bank and agrees to sell the security back at
a mutually agreed-upon time and price. The repurchase price exceeds the
sale price, reflecting the Fund's return on the transaction. This
return is unrelated to the interest rate on the underlying security.
The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions, such as securities dealers,
deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or
subcustodian will monitor the value of the underlying security each day
to ensure that the value of the security always equals or exceeds the
repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the
Fund is the seller (rather than the buyer) of the securities, and
agrees to repurchase them at an agreed-upon time and price. A reverse
repurchase agreement may be viewed as a type of borrowing by the Fund.
Reverse repurchase agreements are subject to credit risks. In addition,
reverse repurchase agreements create leverage risks because the Fund
must repurchase the underlying security at a higher price, regardless
of the market value of the security at the time of repurchase.

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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.

TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of
the United States.

BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks.
Bank instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances.

AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (GSE) acting under federal authority. Some
GSE securities are supported by the full faith and credit of the United
States. These include the Government National Mortgage Association,
Small Business Administration, Farm Credit System Financial Assistance
Corporation, Farmer's Home Administration, Federal Financing Bank,
General Services Administration, Department of Housing and Urban
Development, Export-Import Bank, Overseas Private Investment
Corporation and Washington Metropolitan Area Transit Authority Bonds.

Other GSE securities receive support through federal subsidies, loans
or other benefits. For example, the U.S. Treasury is authorized to
purchase specified amounts of securities issued by (or otherwise make
funds available to) the Federal Home Loan Bank System, Federal Home
Loan Mortgage Corporation, Federal National Mortgage Association,
Student Loan Marketing Association and Tennessee Valley Authority in
support of such obligations.

A few GSE securities have no explicit financial support, but are
regarded as having implied support because the federal government
sponsors their activities. These include the Farm Credit System,
Financing Corporation and Resolution Funding Corporation.

Investors regard agency securities as having low credit risks, but not
as low as Treasury securities.

A Fund treats mortgage-backed securities guaranteed by a GSE as if
issued or guaranteed by a federal agency. Although such a guarantee
protects against credit risks, it does not reduce market and prepayment
risks.

CORPORATE DEBT SECURITIES
Corporate debt securities are fixed-income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities.

COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer.

For example, inter-fund lending is permitted only (a) to meet
shareholder redemption requests, and (b) to meet commitments arising
from "failed" trades. All inter-fund loans must be repaid in seven
days or less. The Fund's participation in this program must be
consistent with its investment policies and limitations, and must meet
certain percentage tests. Inter-fund loans may be made only when the
rate of interest to be charged is more attractive to the lending
Federated fund than market-competitive rates on overnight repurchase
agreements (Repo Rate) and more attractive to the borrowing Federated
fund than the rate of interest that would be charged by an unaffiliated
bank for short-term borrowings (Bank Loan Rate), as determined by the
Board. The interest rate imposed on inter-fund loans is the average of
the Repo Rate and the Bank Loan Rate.

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk
factors are outlined below.

Credit Risks

Fixed-income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a AAA municipal security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or
market conditions. A security's spread may also increase if the
security's rating is lowered, or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price
of the security to decline.

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.

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.

The federal income tax treatment of payments in respect of certain
derivative contracts is unclear. Additionally, the Fund may not be able
to close out certain derivative contracts when it wants to.
Consequently, the Fund may receive payments that are treated as
ordinary income for federal income tax purposes.

Liquidity Risks
Liquidity risk also refers to the possibility that the Fund may not be
able to sell a security or close out a derivatives 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. OTC derivative contracts generally carry greater liquidity risk
than exchange-traded contracts.

Investments can have these same results if their returns are based on a
multiple of a specified index, security or other benchmark.

Risks of Investing in Derivative Contracts
The Fund's use of derivative contracts involves risks different from,
or possibly greater than, the risks associated with investing directly
in securities and other traditional investments. First, changes in the
value of the derivative contracts in which the Fund invests may not be
correlated with changes in the value of the underlying asset or if they
are correlated, may move in the opposite direction than originally
anticipated. Second, while some strategies involving derivatives may
reduce the risk of loss, they may also reduce potential gains or, in
some cases, result in losses by offsetting favorable price movements in
portfolio holdings. Third, there is a risk that derivative contracts
may be mispriced or improperly valued and, as a result, the Fund may
need to make increased cash payments to the counterparty. Finally,
derivative contracts may cause the Fund to realize increased ordinary
income or short-term capital gains (which are treated as ordinary
income for Federal income tax purposes) and, as a result, may increase
taxable distributions to shareholders. Derivative contracts may also
involve other risks described in the prospectus and this SAI, such as
interest rate, credit, liquidity and leverage risks.
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FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICY
The Fund's investment objective is to provide current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of North Carolina.

Under normal circumstances, the Fund will invest its assets so that at
least 80% of the income that it distributes will be exempt from federal
regular income tax and the personal income taxes imposed by the state
of North Carolina.

The investment objective and policy may not be changed by the Fund's
Board without shareholder approval.

INVESTMENT LIMITATIONS

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the Investment Company
Act of 1940 (1940 Act).

Underwriting
The Fund may not underwrite the securities of other issuers, except
that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities
Act of 1933.

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Fund may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that
the Fund may purchase securities of companies that deal in commodities.
For purposes of this restriction, investments in transaction 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.

Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests.

The above limitations cannot be changed unless authorized by the Board
and by the "vote of a majority of its outstanding voting securities,"
as defined by the 1940 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.

For purposes of the above limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a
domestic bank or savings association having capital, surplus and
undivided profits in excess of $100,000,000 at the time of investment
to be "cash items." Except with respect to borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value
or net assets will not result in a violation of such limitation.

Buying on Margin
The Fund will not purchase any securities on margin, provided that the
Fund may obtain short-term credits necessary for the clearance of
purchases and sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities.

Investing in Illiquid Securities
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, over-the-counter options and
certain restricted securities and municipal leases determined by the
Board not to be liquid.

Restricted Securities
The Fund may invest its securities subject to restrictions on resale
under the Securities Act of 1933.

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such limitation.

In applying the Fund's commodities limitation, investments in
transactions involving futures contracts and options, forward currency
contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.

In applying the Fund's concentration limitation, investments in certain
industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry. In addition:
(1) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (2) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (3) asset-backed securities will be
classified according to the underlying assets securing such securities.
In addition bank instruments will be limited to instruments of domestic
banks. To conform to the current view of the SEC staff that only
domestic bank instruments may be excluded from industry concentration
limitations, the Fund will not exclude foreign bank instruments from
industry concentration tests as long as the policy of the SEC remains
in effect. The Fund will consider concentration to be the investment of
more than 25% of the value of its total assets in any one industry.
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DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:

o futures contracts and options are generally valued at market
values established by the exchanges on which they are traded at the
close of trading on such exchanges. Options traded in the
over-the-counter market are generally valued according to the mean
between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that
deals in the option. The Board may determine in good faith that
another method of valuing such investments is necessary to appraise
their fair market value;

o for fixed-income securities, according to the mean between bid
and asked prices as furnished by an independent pricing service,
except that fixed-income securities with remaining maturities of less
than 60 days at the time of purchase may be valued at amortized cost;
and

o for all other securities at fair value as determined in
accordance with procedures established by and under the general
supervision of 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.

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 pays a portion of this charge to investment
professionals that are eligible to receive it (the "Dealer
Reallowance") and retains any remaining portion of the front-end sales
charge.

When an investment professional's customer purchases Shares, the
investment professional may receive a Dealer Reallowance as follows:

Class A Shares
Dealer Reallowance
as a Percentage of
Purchase Amount Public Offering Price
Less than $100,000 4.00%
$100,000 but less than $250,000 3.25%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1 million 1.80%
$1 million or greater 0.00%

ADVANCE COMMISSIONS
-------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the
investment professional may receive an advance commission as follows:

Advance commissions are calculated on a year by year basis based on
amounts invested during that year. Accordingly, with respect to
additional purchase amounts, the advance commission breakpoint resets
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
commission will be paid only on those purchases that were not
previously subject to a front-end sales charge or dealer advance
commission. Certain retirement accounts may not be eligible for this
program.

RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale
of Shares such as advertising and marketing of Shares (including
printing and distributing prospectuses and sales literature to
prospective shareholders and financial institutions) and providing
incentives to investment professionals to sell Shares. The Rule 12b-1
Plan is also designed to cover the cost of administrative services
performed in conjunction with the sale of Shares, including, but not
limited to, shareholder services, recordkeeping services and
educational services, as well as costs of implementing and operating
the Rule 12b-1 Plan. The Rule 12b-1 Plan allows the Distributor to
contract with investment professionals to perform activities covered by
the Plan. The Rule 12b-1 Plan is expected to benefit the Fund in a
number of ways. For example, it is anticipated that the Plan will help
the Fund attract and retain assets, thus providing cash for orderly
portfolio management and Share redemptions and possibly helping to
stabilize or reduce other operating expenses.

The Fund may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Fund pay for any expenses of
the Distributor that exceed the maximum Rule 12b-1 Plan fee.

The maximum Rule 12b-1 Plan fee that can be paid in any one year may
not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a
number of years to recoup these expenses.

Additional Payments to Financial Institutions
The Distributor may pay out of its own resources amounts (including
items of material value) to certain financial institutions. In some
cases, such payments may be made by, or funded from the resources of,
companies affiliated with the Distributor (including the Adviser).
While NASD regulations limit the sales charges that you may bear, there
are no limits with regard to the amounts that the Distributor may pay
out of its own resources. In addition to the payments which are
generally described herein and in the prospectus, the financial
institution also may receive payments under the Rule 12b-1 Plan and/or
Service Fees.

You can ask your financial institution for information about any
payments it receives from the Distributor or the Federated funds and
any services provided.

The following examples illustrate the types of instances in which the
Distributor may make additional payments to financial institutions.

Supplemental Payments
The Distributor may make supplemental payments to certain financial
institutions that are holders or dealers of record for accounts in one
or more of the Federated funds. These payments may be based on such
factors as the number or value of Shares the financial institution
sells or may sell; the value of client assets invested; or the type and
nature of services or support furnished by the financial institution.

Processing Support Payments
The Distributor may make payments to financial institutions that sell
Federated fund shares to help offset their costs associated with client
account maintenance support, statement processing and transaction
processing. The types of payments that the Distributor may make under
this category include payment of ticket charges on a per transaction
basis; payment of networking fees; and payment for ancillary services
such as setting up funds on the financial institution's mutual fund
trading system.

Retirement Plan Program Servicing Payments
The Distributor may make payments to certain financial institutions who
sell Federated fund shares through retirement plan programs. A
financial institution may perform retirement plan program services
itself or may arrange with a third party to perform retirement plan
program services. In addition to participant recordkeeping, reporting,
or transaction processing, retirement plan program services may include
services rendered to a plan in connection with fund/investment
selection and monitoring; employee enrollment and education; plan
balance rollover or separation, or other similar services.

Other Benefits to Financial Institutions
From time to time, the Distributor, at its expense, may provide
additional compensation to financial institutions that sell or arrange
for the sale of Shares. Such compensation may include financial
assistance to financial institutions that enable the Distributor to
participate in or present at conferences or seminars, sales or training
programs for invited employees, client and investor events and other
financial institution-sponsored events.

The Distributor also may hold or sponsor, at its expense, sales events,
conferences and programs for employees or associated persons of
financial institutions and may pay the travel and lodging expenses of
attendees. The Distributor also may provide, at its expense, meals and
entertainment in conjunction with meetings with financial
institutions. Other compensation may be offered to the extent not
prohibited by applicable laws, regulations or the rules of any
self-regulatory agency, such as the NASD.
</R>

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
1940 Act, 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.

<R>

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable
as partners under Massachusetts law for obligations of the Trust. To
protect its shareholders, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of its shareholders
for acts or obligations of the Trust.

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote.

All Shares of the Trust have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that
Fund or class are entitled to vote.

Trustees may be removed by the Board or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Board
upon the written request of shareholders who own at least 10% of the
Trust's outstanding Shares of all series entitled to vote.

As of October 1, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Edward Jones
& Co., Maryland Heights, MO, owned approximately 2,513,052 Shares
(49.09%) and McWood & Company, Raleigh, NC, owned approximately
977,219 Shares (19.09%).

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.

Edward Jones & Co. is organized in the state of Missouri and is a
subsidiary of Jones Financial Companies LLLP; organized in the state of
Missouri.

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code (the Code) applicable to regulated investment companies.
If these requirements are not met, it will not receive special tax
treatment and will be subject to federal corporate income tax.

The Fund will be treated as a single, separate entity for federal
income tax purposes so that income earned and capital gains and losses
realized by the Trust's other portfolios will be separate from those
realized by the Fund.

The Fund is entitled to a loss carry-forward, which may reduce the
taxable income or gain that the Fund would realize, and to which the
shareholder would be subject, in the future.

STATE TAXES
Under existing North Carolina laws, shareholders of the Fund will not
be subject to North Carolina income taxes on Fund dividends to the
extent that such dividends represent exempt-interest dividends as
defined in the Code, which are directly attributable to: (a) interest
on obligations issued by or on behalf of the state of North Carolina,
or its political subdivisions; or (b) interest on obligations of the
United States or any other issuer whose obligations are exempt from
state income taxes under federal law.

To the extent that Fund dividends are attributable to other sources,
such dividends will be subject to the state's income taxes.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and
for exercising all the Trust's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of
each person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Trust comprises seven portfolios and the
Federated Fund Complex consists of 44 investment companies (comprising
136 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all
portfolios in the Federated Fund Complex and serves for an indefinite
term.

As of October 1, 2004, the Fund's Board and Officers as a group owned
less than 1% of the Fund's outstanding Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Name Aggregate Total
Birth Date Compensation Compensation
Address Principal Occupation(s) for Past From Fund From Trust and
Positions Held with Five Years, Other Directorships (past Federated Fund
Trust Held and Previous Position(s) fiscal year) Complex
Date Service Began (past calendar
year)

Principal Occupations: Chairman $0 $0
John F. Donahue* and Director or Trustee of the
Birth Date: July Federated Fund Complex; Chairman
28, 1924 and Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.
Began serving:
August 1990 Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and
Director, Federated Investment
Counseling.

Principal Occupations: Principal $0 $0
J. Christopher Executive Officer and President
Donahue* of the Federated Fund Complex;
Birth Date: April Director or Trustee of some of
11, 1949 the Funds in the Federated Fund
PRESIDENT AND Complex; President, Chief
TRUSTEE Executive Officer and Director,
Began serving: Federated Investors, Inc.;
August 1990 Chairman and Trustee, Federated
Investment Management Company;
Trustee, Federated Investment
Counseling; Chairman and
Director, Federated Global
Investment Management Corp.;
Chairman, Federated Equity
Management Company of
Pennsylvania, Passport Research,
Ltd. and Passport Research II,
Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services
Company.

Previous Positions: President,
Federated Investment Counseling;
President and Chief Executive
Officer, Federated Investment
Management Company, Federated
Global Investment Management
Corp. and Passport Research, Ltd.

Principal Occupations: Director $209.37 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
TRUSTEE University of Pittsburgh Medical
Began serving: Center.
August 1990
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F.
Donahue is the father of J. Christopher Donahue; both are "interested"
due to the positions they hold with Federated and its subsidiaries.
Lawrence D. Ellis, M.D. is "interested" because his son-in-law is
employed by the Fund's principal underwriter, Federated Securities Corp.
-------------------------------------------------------------------------

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Name Total Comp-
Birth Date Aggregate ensation
Address Compensation From Trust and
Positions Held with Principal Occupation(s) for Past From Fund Federated Fund
Trust Five Years, Other Directorships (past Complex
Date Service Began Held and Previous Position(s) fiscal year) (past calendar
year)

Principal Occupation: Director $230.31 $163,350
Thomas G. Bigley or Trustee of the Federated Fund
Birth Date: Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held:
Pittsburgh, PA Director, Member of Executive
TRUSTEE Committee, Children's Hospital
Began serving: of Pittsburgh; Director,
November 1994 University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director $230.31 $163,350
John T. Conroy, Jr. or Trustee of the Federated Fund
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
3838 North Tamiami Previous Positions: President,
Trail Investment Properties
Suite 402 Corporation; Senior Vice
Naples, FL President, John R. Wood and
TRUSTEE Associates, Inc., Realtors;
Began serving: President, Naples Property
August 1991 Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director $230.31 $163,350
Nicholas P. or Trustee of the Federated Fund
Constantakis Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Drive Director and Member of the Audit
Pittsburgh, PA Committee, Michael Baker
TRUSTEE Corporation (engineering and
Began serving: energy services worldwide).
February 1998
Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director $209.37 $148,500
John F. Cunningham or Trustee of the Federated Fund
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
TRUSTEE Executive Officer, Cunningham
Began serving: July & Co., Inc. (strategic
1999 business consulting); Trustee
Associate, Boston College.

Previous Positions: Director,
Redgate Communications and EMC
Corporation (computer storage
systems); 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.

Principal Occupation: Director $209.37 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions:
Began serving: Representative, Commonwealth of
August 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director,
VISA USA and VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust Corporation;
Director, The Boston Stock
Exchange.

Principal Occupations: Director $230.31 $163,350
Charles F. or Trustee of the Federated Fund
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
TRUSTEE Previous Positions: Chief
Began serving: Executive Officer, PBTC
January 1999 International Bank; Partner,
Arthur Young & Company (now
Ernst & Young LLP); Chief
Financial Officer of Retail
Banking Sector, Chase Manhattan
Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine
Midland Bank); Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.

Principal Occupations: Director $251.24 $178,200
John E. Murray, or Trustee of the Federated Fund
Jr., J.D., S.J.D. Complex; Chancellor and Law
Birth Date: Professor, Duquesne University;
December 20, 1932 Partner, Murray, Hogue &
Chancellor, Lannis.
Duquesne University
Pittsburgh, PA Other Directorships Held:
TRUSTEE Director, Michael Baker Corp.
Began serving: (engineering, construction,
February 1995 operations and technical
services).

Previous Positions: President,
Duquesne University; Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean
and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director $209.37 $148,500
Marjorie P. Smuts or Trustee of the Federated Fund
Birth Date: June Complex; Public
21, 1935 Relations/Marketing
4905 Bayard Street Consultant/Conference
Pittsburgh, PA Coordinator.
TRUSTEE
Began serving: Previous Positions: National
August 1990 Spokesperson, Aluminum Company
of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director $209.37 $148,500
John S. Walsh or Trustee of the Federated Fund
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
TRUSTEE Director, Manufacturers
Began serving: July Products, Inc. (distributor of
1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.

Previous Position: Vice
President, Walsh & Kelly,
Inc.

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

OFFICERS**

Name
Birth Date
Address
Positions Held with Trust
----------------------------- Principal Occupation(s) and Previous Position(s)
Date Service Began
Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND Inc.
SECRETARY
Began serving: June 1995 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.,
Federated Services Company and Federated Securities
Corp.

Principal Occupations: Principal Financial Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
Began serving: November 1998 Previous Positions: Vice President, Federated
Administrative Services; held various management
positions within Funds Financial Services Division of
Federated Investors, Inc.

Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE CHAIRMAN Federated Securities Corp.
Began serving: August 2002
Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc. and
Director and Chief Executive Officer, Federated
Securities Corp.

Principal Occupations: Mary Jo Ochson has been the
Mary Jo Ochson Fund's Portfolio Manager since June 1999. Ms. Ochson
Birth Date: September 12, was named Chief Investment Officer of tax-exempt
1953 fixed-income products in 2004. She joined Federated in
CHIEF INVESTMENT OFFICER 1982 and has been a Senior Portfolio Manager and a
Began serving: May 2004 Senior Vice President of the Fund's Adviser since
1996. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of
Pittsburgh.

J. Scott Albrecht has been the Fund's Portfolio Manager
J. Scott Albrecht since June 1999. He is Vice President of the Trust. Mr.
Birth Date: June 1, 1960 Albrecht joined Federated in 1989. He has been a Senior
VICE PRESIDENT Portfolio Manager since 1997 and a Vice President of
Began serving: November 1998 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.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------

** Officers do not receive any compensation from the Fund.
-------------------------------------------------------------------------
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer
and Assistant Secretary of Federated and an officer of its various
advisory and underwriting subsidiaries, has served as a Term Member on
the Board of Directors of Duquesne University, Pittsburgh,
Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Trustee of the Fund, served as President of Duquesne from
1988 until his retirement from that position in 2001, and became
Chancellor of Duquesne on August 15, 2001. It should be noted that Mr.
Donahue abstains on any matter that comes before Duquesne's Board that
affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings
Board Committee Held
Committee Members Committee Functions During Last
Fiscal Year
Executive In between meetings of the full Board, Eight
John F. Donahue the Executive Committee generally may
John E. Murray, Jr., exercise all the powers of the full
J.D., S.J.D. Board in the management and direction
of the business and conduct of the
affairs of the Trust in such manner as
the Executive Committee shall deem to
be in the best interests of the Trust.
However, the Executive Committee cannot
elect or remove Board members, increase
or decrease the number of Trustees,
elect or remove any Officer, declare
dividends, issue shares or recommend to
shareholders any action requiring
shareholder approval.

Audit The purposes of the Audit Committee are Six
Thomas G. Bigley to oversee the accounting and financial
John T. Conroy, Jr. reporting process of the Fund, the
Nicholas P. Fund`s internal control over financial
Constantakis reporting, and the quality, integrity
Charles F. Mansfield, and independent audit of the Fund`s
Jr. financial statements. The Committee
also oversees or assists the Board with
the oversight of compliance with legal
requirements relating to those matters,
approves the engagement and reviews the
qualifications, independence and
performance of the Fund`s independent
auditors, acts as a liaison between the
independent auditors and the Board and
reviews the Fund`s internal audit
function.

Nominating One
Thomas G. Bigley The Nominating Committee, whose members
John T. Conroy, Jr. consist of all Independent Trustees,
Nicholas P. selects and nominates persons for
Constantakis election to the Fund`s Board when
John F. Cunningham vacancies occur. The Committee will
Peter E. Madden consider candidates recommended by
Charles F. Mansfield, shareholders, Independent Trustees,
Jr. officers or employees of any of the
John E. Murray, Jr. Fund`s agents or service providers and
Marjorie P. Smuts counsel to the Fund. Any shareholder
John S. Walsh who desires to have an individual
considered for nomination by the
Committee must submit a recommendation
in writing to the Secretary of the
Fund, at the Fund's address appearing
on the back cover of this Statement of
Additional Information. The
recommendation should include the name
and address of both the shareholder and
the candidate and detailed information
concerning the candidate's
qualifications and experience. In
identifying and evaluating candidates
for consideration, the Committee shall
consider such factors as it deems
appropriate. Those factors will
ordinarily include: integrity,
intelligence, collegiality, judgment,
diversity, skill, business and other
experience, qualification as an
"Independent Trustee," the existence of
material relationships which may create
the appearance of a lack of
independence, financial or accounting
knowledge and experience, and
dedication and willingness to devote
the time and attention necessary to
fulfill Board responsibilities.

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

Board ownership of shares in the fund and in the federated family of
Investment companies AS OF DECEMBER 31, 2003
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

Independent
Board Member Name
Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden None Over $100,000
Charles F. Mansfield, Jr. None $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts None Over $100,000
John S. Walsh None Over $100,000
</R>
-------------------------------------------------------------------------

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions
for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Trust or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties imposed upon it by its contract
with the Trust.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's
investment advisory contract. The Board's decision to approve the
contract reflects the exercise of its business judgment on whether to
continue the existing arrangements. During its review of the contract,
the Board considers many factors, among the most material of which are:
the Fund's investment objectives and long term performance; the
Adviser's management philosophy, personnel and processes; the
preferences and expectations of Fund shareholders and their relative
sophistication; the continuing state of competition in the mutual fund
industry; comparable fees in the mutual fund industry; the range and
quality of services provided to the Fund and its shareholders by the
Federated organization in addition to investment advisory services; and
the Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board
also considers whether there has occurred a circumstance or event that
would constitute a reason for it to not renew an advisory contract. In
this regard, the Board is mindful of the potential disruptions of the
Fund's operations and various risks, uncertainties and other effects
that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most
shareholders have invested in the Fund on the strength of the Adviser's
industry standing and reputation and in the expectation that the
Adviser will have a continuing role in providing advisory services to
the Fund.

The Board also considers the compensation and benefits received by the
Adviser. This includes fees received for services provided to the Fund
by other entities in the Federated organization and research services
received by the Adviser from brokers that execute fund trades, as well
as advisory fees. In this regard, the Board is aware that various
courts have interpreted provisions of the 1940 Act and have indicated
in their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services
provided by the Adviser, including the performance of the Fund; the
Adviser's cost of providing the services; the extent to which the
Adviser may realize "economies of scale" as the Fund grows larger; any
indirect benefits that may accrue to the Adviser and its affiliates as
a result of the Adviser's relationship with the Fund; performance and
expenses of comparable funds; and the extent to which the independent
Board members are fully informed about all facts bearing on the
Adviser's service and fee. The Fund's Board is aware of these factors
and takes them into account in its review of the Fund's advisory
contract.

The Board considers and weighs these circumstances in light of its
substantial accumulated experience in governing the Fund and working
with Federated on matters relating to the Federated funds, and is
assisted in its deliberations by the advice of independent legal
counsel. In this regard, the Board requests and receives a significant
amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of
the Board, and furnishes additional reports in connection with the
particular meeting at which the Board's formal review of the advisory
contracts occurs. In between regularly scheduled meetings, the Board
may receive information on particular matters as the need arises.
Thus, the Board's evaluation of an advisory contract is informed by
reports covering such matters as: the Adviser's investment philosophy,
personnel, and processes; the Fund's short- and long-term performance
(in absolute terms as well as in relationship to its particular
investment program and certain competitor or "peer group" funds), and
comments on the reasons for performance; the Fund's expenses (including
the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds,
with due regard for contractual or voluntary expense limitations); the
use and allocation of brokerage commissions derived from trading the
Fund's portfolio securities; the nature and extent of the advisory and
other services provided to the Fund by the Adviser and its affiliates;
compliance and audit reports concerning the Federated funds and the
Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are
responding to them.

The Board also receives financial information about Federated,
including reports on the compensation and benefits Federated derives
from its relationships with the Federated funds. These reports cover
not only the fees under the advisory contracts, but also fees received
by Federated's subsidiaries for providing other services to the
Federated funds under separate contracts (e.g., for serving as the
Federated funds' administrator). The reports also discuss any indirect
benefit Federated may derive from its receipt of research services from
brokers who execute Federated fund trades.

The Board bases its decision to approve an advisory contract on the
totality of the circumstances and relevant factors, and with a view to
past and future long-term considerations. Not all of the factors and
considerations identified above are relevant to every Federated fund,
nor does the Board consider any one of them to be determinative.
Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach
consideration of every Federated fund's advisory contract as if that
were the only Federated fund.

<R>

Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser,
provides certain support services to the Adviser. The fee for these
services is paid by the Adviser and not by the Fund.

</R>

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.

Code of Ethics Restrictions on Personal Trading

As required by SEC rules, the Fund, its Adviser, and its Distributor
have adopted codes of ethics. These codes govern securities trading
activities of investment personnel, Fund Trustees, and certain other
employees. Although they do permit these people to trade in
securities, including those that the Fund could buy, they also contain
significant safeguards designed to protect the Fund and its
shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.

Voting Proxies on Fund Portfolio Securities
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio. The Board has also approved
the Adviser's policies and procedures for voting the proxies, which are
described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of
proposals that the Adviser anticipates will enhance the long-term value
of the securities being voted. Generally, this will mean voting for
proposals that the Adviser believes will: improve the management of a
company; increase the rights or preferences of the voted securities;
and/or increase the chance that a premium offer would be made for the
company or for the voted securities.

The following examples illustrate how these general policies may apply
to proposals submitted by a company's board of directors. However,
whether the Adviser supports or opposes a proposal will always depend
on the specific circumstances described in the proxy statement and
other available information.

On matters of corporate governance, generally the Adviser will vote for
proposals to: require independent tabulation of proxies and/or
confidential voting by shareholders; reorganize in another jurisdiction
(unless it would reduce the rights or preferences of the securities
being voted); and repeal a shareholder rights plan (also known as a
"poison pill"). The Adviser will generally vote against the adoption of
such a plan (unless the plan is designed to facilitate, rather than
prevent, unsolicited offers for the company).

On matters of capital structure, generally the Adviser will vote:
against proposals to authorize or issue shares that are senior in
priority or voting rights to the securities being voted; for proposals
to grant preemptive rights to the securities being voted; and against
proposals to eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser
will vote: for stock incentive plans that align the recipients'
interests with the interests of shareholders without creating undue
dilution; and against proposals that would permit the amendment or
replacement of outstanding stock incentives with new stock incentives
having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and
similar transactions in accordance with the general policy, based upon
its analysis of the proposed transaction. The Adviser will vote
proxies in contested elections of directors in accordance with the
general policy, based upon its analysis of the opposing slates and
their respective proposed business strategies. Some transactions may
also involve proposed changes to the company's corporate governance,
capital structure or management compensation. The Adviser will vote on
such changes based on its evaluation of the proposed transaction or
contested election. In these circumstances, the Adviser may vote in a
manner contrary to the general practice for similar proposals made
outside the context of such a proposed transaction or change in the
board. For example, if the Adviser decides to vote against a proposed
transaction, it may vote for anti-takeover measures reasonably designed
to prevent the transaction, even though the Adviser typically votes
against such measures in other contexts.

The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board. The Adviser
believes that a company's board should manage its business and
policies, and that shareholders who seek specific changes should strive
to convince the board of their merits or seek direct representation on
the board.

In addition, the Adviser will not vote if it determines that the
consequences or costs outweigh the potential benefit of voting. For
example, if a foreign market requires shareholders casting proxies to
retain the voted shares until the meeting date (thereby rendering the
shares "illiquid" for some period of time), the Adviser will not vote
proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee),
to exercise all voting discretion granted to the Adviser by the Board
in accordance with the proxy voting policies. The Adviser has hired
Investor Responsibility Research Center (IRRC) to obtain, vote, and
record proxies in accordance with the Proxy Committee's directions.
The Proxy Committee directs IRRC by means of Proxy Voting Guidelines,
and IRRC may vote any proxy as directed in the Proxy Voting Guidelines
without further direction from the Proxy Committee (and may make any
determinations required to implement the Proxy Voting Guidelines).
However, if the Proxy Voting Guidelines require case-by-case direction
for a proposal, IRRC will provide the Proxy Committee with all
information that it has obtained regarding the proposal and the Proxy
Committee will provide specific direction to IRRC. The Adviser's proxy
voting procedures generally permit the Proxy Committee to amend the
Proxy Voting Guidelines, or override the directions provided in such
Guidelines, whenever necessary to comply with the proxy voting
policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter
on which a proxy is sought may present a potential conflict between the
interests of the Fund (and its shareholders) and those of the Adviser
or Distributor. This may occur where a significant business
relationship exists between the Adviser (or its affiliates) and a
company involved with a proxy vote. A company that is a proponent,
opponent, or the subject of a proxy vote, and which to the knowledge of
the Proxy Committee has this type of significant business relationship,
is referred to as an "Interested Company."

The Adviser has implemented the following procedures in order to avoid
concerns that the conflicting interests of the Adviser have influenced
proxy votes. Any employee of the Adviser who is contacted by an
Interested Company regarding proxies to be voted by the Adviser must
refer the Interested Company to a member of the Proxy Committee, and
must inform the Interested Company that the Proxy Committee has
exclusive authority to determine how the Adviser will vote. Any Proxy
Committee member contacted by an Interested Company must report it to
the full Proxy Committee and provide a written summary of the
communication. Under no circumstances will the Proxy Committee or any
member of the Proxy Committee make a commitment to an Interested
Company regarding the voting of proxies or disclose to an Interested
Company how the Proxy Committee has directed such proxies to be voted.
If the Proxy Voting Guidelines already provide specific direction on
the proposal in question, the Proxy Committee shall not alter or amend
such directions. If the Proxy Voting Guidelines require the Proxy
Committee to provide further direction, the Proxy Committee shall do so
in accordance with the proxy voting policies, without regard for the
interests of the Adviser with respect to the Interested Company. If
the Proxy Committee provides any direction as to the voting of proxies
relating to a proposal affecting an Interested Company, it must
disclose to the Fund's Board information regarding: the significant
business relationship; any material communication with the Interested
Company; the matter(s) voted on; and how, and why, the Adviser voted as
it did.

If the Fund holds shares of another investment company for which the
Adviser (or an affiliate) acts as an investment adviser, the Proxy
Committee will vote the Fund's proxies in the same proportion as the
votes cast by shareholders who are not clients of the Adviser at any
shareholders' meeting called by such investment company, unless
otherwise directed by the Board.

<R>

Proxy Voting Report
A report on "Form N-PX" of how the Fund voted any proxies during the
most recent 12-month period ended June 30 is available through
Federated's website. Go to www.federatedinvestors.com; select
"Products;" select the Fund; then use the link to "Prospectuses and
Regulatory Reports" to access the link to Form N-PX.

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. The Adviser will generally use those who
are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The
Adviser 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 Administrative Services (FAS), a subsidiary of Federated,
provides administrative personnel and services (including certain legal
and financial reporting services) necessary to operate the Fund. FAS
provides these at the following annual rate of the average aggregate
daily net assets of all Federated funds as specified below:

The administrative fee received during any fiscal year shall be at
least $150,000 per portfolio. FAS may voluntarily waive a portion of
its fee and may reimburse the Fund for expenses.
-------------------------------------------------------------------------

FAS 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.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, the Fund's registered transfer
agent, maintains all necessary shareholder records.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Fund,
Deloitte & Touche LLP, conducts its audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States), which require it to plan and perform its audits to provide
reasonable assurance about whether the Fund's financial statements and
financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

-------------------------- 2004 2003 2002
For the Year Ended August 31
Advisory Fee Earned $270,316 $278,114 $197,688
Advisory Fee Reduction 184,639 160,699 179,646
Administrative Fee 125,537 125,000 125,000
12b-1 Fee:
Class A Shares -- -- --
Shareholder Services Fee:
Class A Shares 168,948 -- --

HOW DOES THE FUND MEASURE PERFORMANCE?
-------------------------------------------------------------------------

The Fund may advertise Share performance by using the SEC's standard
methods for calculating performance applicable to all mutual funds. The
SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Share performance reflects the effect of non-recurring charges, such as
maximum sales charges, which, if excluded, would increase the total
return and yield. The performance of Shares depends upon such variables
as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences
in the Fund's or any class of Shares' expenses; and various other
factors.

Share performance fluctuates on a daily basis largely because net
earnings and/or the value of portfolio holdings fluctuate daily. Both
net earnings and offering price per Share are factors in the
computation of yield and total return.

Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year and ten-year
periods ended August 31, 2004.

Yield and Tax-Equivalent Yield are given for the 30-day period ended
August 31, 2004.

30-Day Period 1 Year 5 Years 10 Years
Class A Shares:
Total Return
Before Taxes N/A 0.90% 4.88% 5.18%
After Taxes on N/A 0.90% 4.88% 5.16%
Distributions
After Taxes on
Distributions and N/A 2.07% 4.84% 5.10%
Sale of Shares
Yield 3.40% N/A N/A N/A
Tax-Equivalent Yield 5.99% N/A N/A N/A

</R>

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 $10,000 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
$10,000, less any applicable sales charge, adjusted over the period by
any additional Shares, assuming the annual reinvestment of all
dividends and distributions. Total returns after taxes are calculated
in a similar manner, but reflect additional standard assumptions
required by the SEC.

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
the maximum combined federal and state 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.

<R>

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 tax-exempt 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 2004 State of North Carolina
Tax Bracket:
Federal 10.00% 15.00% 25.00% 28.00% 33.00% 35.00%
Combined
Federal ------- 22.00% 32.75% 36.25% 41.25% 43.25%
& State 16.00%
Single $0- $7,151- $29,051- $70,351- $146,751- Over
--------------- --------------------------------------------------------------------
Return: $7,150 $29,050 $70,350 $146,750 $319,100 $319,100
Tax-Exempt
--------------- --------------------------------------------------------------------
Yield Taxable Yield Equivalent
---------------------------------------------------------------------------------------
0.50% 0.60% 0.64% 0.74% 0.78% 0.85% 0.88%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1.00% 1.19% 1.28% 1.49% 1.57% 1.70% 1.76%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1.50% 1.79% 1.92% 2.23% 2.35% 2.55% 2.64%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
2.00% 2.38% 2.56% 2.97% 3.14% 3.40% 3.52%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
2.50% 2.98% 3.21% 3.72% 3.92% 4.26% 4.41%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
3.00% 3.57% 3.85% 4.46% 4.71% 5.11% 5.29%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
3.50% 4.17% 4.49% 5.20% 5.49% 5.96% 6.17%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
4.00% 4.76% 5.13% 5.95% 6.27% 6.81% 7.05%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
4.50% 5.36% 5.77% 6.69% 7.06% 7.66% 7.93%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
5.00% 5.95% 6.41% 7.43% 7.84% 8.51% 8.81%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
5.50% 6.55% 7.05% 8.18% 8.63% 9.36% 9.69%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
6.00% 7.14% 7.69% 8.92% 9.41% 10.21% 10.57%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
6.50% 7.74% 8.33% 9.67% 10.20% 11.06% 11.45%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
7.00% 8.33% 8.97% 10.41% 10.98% 11.91% 12.33%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
7.50% 8.93% 9.62% 11.15% 11.76% 12.77% 13.22%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
8.00% 9.52% 10.26% 11.90% 12.55% 13.62% 14.10%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
8.50% 10.12% 10.90% 12.64% 13.33% 14.47% 14.98%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
9.00% 10.71% 11.54% 13.38% 14.12% 15.32% 15.86%
---------------------------------------------------------------------------------------
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.

TAX EQUIVALENCY TABLE

Taxable Yield Equivalent for 2004 State of North Carolina
Tax Bracket:
Federal 10.00% 15.00% 25.00% 28.00% 33.00% 35.00%
Combined
Federal ------- 22.00% 32.75% 35.75% 41.25% 43.25%
& State 16.00%
Joint $0- $14,301- $58,101- $114,651- $174,701- Over
--------------- --------------------------------------------------------------------
Return: $14,300 $58,100 $114,650 $174,700 $311,950 $319,100
Tax-Exempt
--------------- --------------------------------------------------------------------
Yield Taxable Yield Equivalent
---------------------------------------------------------------------------------------
0.50% 0.60% 0.64% 0.74% 0.78% 0.85% 0.88%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1.00% 1.19% 1.28% 1.49% 1.56% 1.70% 1.76%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1.50% 1.79% 1.92% 2.23% 2.33% 2.55% 2.64%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
2.00% 2.38% 2.56% 2.97% 3.11% 3.40% 3.52%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
2.50% 2.98% 3.21% 3.72% 3.89% 4.26% 4.41%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
3.00% 3.57% 3.85% 4.46% 4.67% 5.11% 5.29%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
3.50% 4.17% 4.49% 5.20% 5.45% 5.96% 6.17%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
4.00% 4.76% 5.13% 5.95% 6.23% 6.81% 7.05%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
4.50% 5.36% 5.77% 6.69% 7.00% 7.66% 7.93%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
5.00% 5.95% 6.41% 7.43% 7.78% 8.51% 8.81%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
5.50% 6.55% 7.05% 8.18% 8.56% 9.36% 9.69%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
6.00% 7.14% 7.69% 8.92% 9.34% 10.21% 10.57%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
6.50% 7.74% 8.33% 9.67% 10.12% 11.06% 11.45%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
7.00% 8.33% 8.97% 10.41% 10.89% 11.91% 12.33%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
7.50% 8.93% 9.62% 11.15% 11.67% 12.77% 13.22%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
8.00% 9.52% 10.26% 11.90% 12.45% 13.62% 14.10%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
8.50% 10.12% 10.90% 12.64% 13.23% 14.47% 14.98%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
9.00% 10.71% 11.54% 13.38% 14.01% 15.32% 15.86%
---------------------------------------------------------------------------------------
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.
Furthermore, additional state and local taxes paid on comparable
taxable investments were not used to increase federal deductions.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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:

Lehman Brothers Municipal Bond Index
Lehman Brothers Municipal Bond Index is a broad market performance
benchmark for the tax-exempt bond market. To be included in the Lehman
Brothers Municipal Bond Index, bonds must have a minimum credit rating
of at least Baa. They must have an outstanding par value of at least $3
million and be issued as part of a transaction of at least $50 million.
The index includes both zero coupon bonds and bonds subject to the
alternative minimum tax.

Lipper North Carolina Municipal Debt Funds Index
Lipper North Carolina Municipal Debt Funds Index is an index of funds
that invest at least 65% of assets in municipal debt issued in the top
four credit ratings.

Lipper Inc.
Lipper Inc. ranks funds in various fund categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends
and takes into account any change in offering price over a specific
period of time. From time to time, the Fund will quote its Lipper
ranking in advertising and sales literature.

Morningstar, Inc.
Morningstar, Inc., and independent rating service, is the publisher of
the bi-weekly Mutual Fund Values, Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have
gained the confidence of thousands of financial institutions and
individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At
Federated, success in investment management does not depend solely on
the skill of a single portfolio manager. It is a fusion of individual
talents and state-of-the-art industry tools and resources. Federated's
investment process involves teams of portfolio managers and analysts,
and investment decisions are executed by traders who are dedicated to
specific market sectors and who handle trillions of dollars in annual
trading volume.

Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 2003, Federated managed 14
bond funds with approximately $3.8 billion in assets and 22 money
market funds with approximately $23.0 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 32 years' experience. As
of December 31, 2003, Federated managed 36 equity funds totaling
approximately $25.6 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, 2003, Federated
managed 11 money market funds and 4 bond funds with assets
approximating $61.7 billion and $3.4 billion, respectively.
Federated's corporate bond decision making--based on intensive,
diligent credit analysis--is backed by over 30 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, 2003, Federated managed 7
mortgage-backed, 3 multi-sector government funds, 4 government/agency
and 19 government money market mutual funds, with assets approximating
$4.9 billion, $0.9 billion, $2.9 billion and $56.2 billion,
respectively. Federated trades approximately $90.4 billion in U.S.
government and mortgage-backed securities daily and places
approximately $35 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 $50 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, 2003, Federated managed
$136.2 billion in assets across 52 money market funds, including 19
government, 10 prime, 22 municipal and 1 euro-denominated with assets
approximating $56.2 billion, $59.4 billion, $20.6 billion and $173.9
million, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Global Equity - Stephen F.
Auth is responsible for overseeing the management of Federated's
domestic and international equity products; Global Fixed-Income - Mary
Jo Ochson and Robert J. Ostrowski are responsible for overseeing the
management of Federated's domestic and international fixed-income and
high yield products; and Money Markets - Deborah A. Cunningham is
responsible for overseeing the management of Federated's money market
fund products.

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $6.2 trillion to the approximately
8,300 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 3,035 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.

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.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage
firms nationwide--Federated has over 2,000 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.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended August
31, 2004 are incorporated herein by reference to the Annual Report to
Shareholders of North Carolina Municipal Income Fund dated August 31,
2004.

INVESTMENT RATINGS

AA--Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity for
timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favourable business and
economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon sustained,
favourable business or economic developments. A 'CC' rating indicates
that default of some kind appears probable. 'C' ratings signal imminent
default.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset
protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate
liquidity.

Prime-2--Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt 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-- A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This indicates
that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the
obligor's capacity to meet its financial commitment on the obligation
is satisfactory.

Fitch Ratings Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
Under their national rating scale, this rating is assigned to the
"best" credit risk relative to all others in the same country and is
normally assigned to all financial commitments issued or guaranteed by
the sovereign state. Where the credit risk is particularly strong, a
"+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
However, the margin of safety is not as great as in the case of the
higher ratings.

Last Updated: August 2004

ADDRESSES

federated north carolina municipal income fund

Class A Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Custodian, Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

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Federated
World-Class Investment Manager

Federated New York Municipal Income Fund

A Portfolio of Federated Municipal Securities Income Trust

PROSPECTUS

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October 31, 2004

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CLASS A SHARES
CLASS B SHARES

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A mutual fund seeking to provide current income exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax) and the personal income taxes imposed by the state of New York and New York municipalities by investing primarily in a portfolio of long-term, investment-grade New York tax exempt securities.

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Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 13

What Do Shares Cost? 16

How is the Fund Sold? 22

How to Purchase Shares 23

How to Redeem and Exchange Shares 25

Account and Share Information 28

Who Manages the Fund? 29

Legal Proceedings 30

Financial Information 32

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide current income exempt from federal regular income tax (federal regular income tax does not include the federal alternative minimum tax) and the personal income taxes imposed by the state of New York and New York municipalities. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund invests its assets so that, normally, distributions of annual interest income are exempt from federal regular income tax and the personal income taxes imposed by the state of New York and New York municipalities. Interest from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations (AMT). The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities greater than ten years. The Fund's portfolio securities will be primarily long-term, investment-grade securities. The Fund may invest in derivative contracts to implement its investment strategies as more fully described herein.

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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:

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Interest Rate Risks. Prices of tax-exempt securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of tax-exempt securities with longer durations.

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

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Call Risks. Issuers of tax-exempt securities may redeem the securities prior to maturity at a price below their current market value.

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Sector Risks. Since the Fund invests primarily in issuers from New York, the Fund may be subject to additional risks compared to funds that invest in multiple states. New York's economy is relatively diversified across the manufacturing, agriculture and service sectors. However, New York City is a major component of the regional economy and is more exposed to downturns in the financial, real estate, and insurance industries.

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Liquidity Risks. Trading opportunities are more limited for tax-exempt securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. Liquidity risk also refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. Over-the-counter derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

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Tax Risks. The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.

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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.

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Prepayment Risks. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also when interest rates fall, the price of municipal mortgage-backed securities may not raise to as great an extent as that of other fixed-income securities.

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Risks of Investing in Derivative Contracts. Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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Non-Diversification Risk. 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.

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Other risk factors associated with an investment in the Fund include risks associated with noninvestment-grade securities.

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Risk/Return Bar Chart and Table

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The Fund's Class A Shares total return for the nine-month period from January 1, 2004 to September 30, 2004 was 2. 82%.

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Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 8.13% (quarter ended March 31, 1995). Its lowest quarterly return was (7.14)% (quarter ended March 31, 1994).

Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A Shares and Class B Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for the Fund's Class A Shares and Class B Shares. In addition, Return After Taxes is shown for the Fund's Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Lehman Brothers Municipal Bond Index (LBMB), a broad-based market index, and Lipper New York Municipal Debt Funds Average (LNYMDFA). The LBMB is a broad market performance benchmark for the tax-exempt bond market. To be included in the LBMB, bonds must have a minimum credit rating Baa. The LNYMDFA represents the average of the total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective category. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in a mutual fund's performance. Indexes are unmanaged and it is not possible to invest directly in an index or an average.

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(For the periods ended December 31, 2003)

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Share Class	1 Year	5 Years	10 Years	Start of Performance¹
Class A Shares:
Return Before Taxes	<R> 0.97%</R>	<R>3.43%</R>	<R>4.52%</R>	N/A
Return After Taxes on Distributions²	<R> 0.97%</R>	<R>3.43%</R>	<R>4.52%</R>	N/A
Return After Taxes on Distributions and Sale of Fund Shares²	<R> 2.06%</R>	<R>3.59%</R>	<R>4.57%</R>	N/A
Class B Shares:
Return Before Taxes	<R>(0.55)%</R>	<R>N/A</R>	<R>N/A</R>	<R>0.62%</R>
LBMB	<R> 5.31%</R>	<R>5.83%</R>	<R>6.03%</R>	N/A
<R>LNYMDFA </R>	<R> 4.78%</R>	<R>4.73%</R>	<R>5.11%</R>	N/A

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1 The Fund's Class B Shares start of performance date was September 5 , 2002.

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2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B Shares will differ from those shown above for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED NEW YORK MUNICIPAL INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold Class A Shares and Class B Shares of the Fund.

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 and Reimbursement)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.40%	0.40%
Distribution (12b-1) Fee³	0.25%	0.75%
Shareholder Services Fee	0.25%	0.25%
Other Expenses⁴	0.78%	0.78%
Total Annual Fund Operating Expenses	1.68%	2.18%⁵

1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the adviser and distributor waived and reimbursed certain amounts for Class A and Class B Shares. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2004.
Total Waivers and Reimbursement of Fund Expenses	1.07%	0.82%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursement)	0.61%	1.36%
2 The adviser has voluntarily waived the management fee for Class A and Class B Shares. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2004.
3 The distributor has voluntarily waived the distribution (12b-1) fee for Class A Shares for the fiscal year ending August 31, 2004. The distributor can terminate this voluntary waiver at any time. The distribution (12b-1) fee paid by the Fund for Class A Shares (after the voluntary waiver) was 0.00% for the fiscal year ended August 31, 2004.
4 The adviser has voluntarily reimbursed other operating expenses of the Fund. The adviser can terminate this voluntary reimbursement at any time. The total other operating expenses paid by the Fund (after the voluntary reimbursement) was 0.36% for the fiscal year ended August 31, 2004.
5 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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This Example is intended to help you compare the cost of investing in the Fund's Class A and Class B Shares with the cost of investing in other mutual funds.

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The Example assumes that you invest $10,000 in the Fund's Class A and Class B Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A and Class B Shares operating expenses are before waivers and reimbursements as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

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Share Class	1 Year	3 Years	5 Years	10 Years
Class A Shares:
Expenses assuming redemption	<R>$ 613</R>	<R> $ 956</R>	<R>$1, 321</R>	<R>$2, 348</R>
Expenses assuming no redemption	<R>$ 613</R>	<R> $ 956</R>	<R>$1, 321</R>	<R>$2, 348</R>
Class B Shares:
Expenses assuming redemption	<R>$ 771</R>	<R>$1, 082</R>	<R>$1, 370</R>	<R>$2, 387</R>
Expenses assuming no redemption	<R>$ 221</R>	<R> $ 682</R>	<R>$1, 170</R>	<R>$2, 387</R>

What are the Fund's Investment Strategies?

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The Fund invests primarily in investment-grade securities. The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities greater than ten years. The Fund's investment adviser (Adviser) actively manages the Fund's portfolio, seeking to manage the interest rate risk and credit risk assumed by the Fund and provide superior levels of after-tax total return.

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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 longer portfolio duration. When the Adviser expects interest rates to increase, it will shorten the portfolio duration. The Adviser uses hedging transactions for purposes of duration management. The Adviser considers a variety of factors in formulating its interest rate outlook, including the following:

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current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve Board's monetary policy; and
supply and demand factors related to the municipal market and the effect they may have on the returns offered for various bond maturities.

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the economic feasibility of revenue bond financings and general purpose financings;
the financial condition of the issuer or guarantor; and
political developments that may affect credit quality.

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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.

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The Fund may enter into derivatives contracts as hedging transactions, as more fully described herein. The Fund also may use derivatives contracts to implement its overall investment strategies in a more cost effective or efficient manner. For example, the Fund may purchase derivatives contracts rather than individual securities in order to gain exposure to the municipal bond sector.

Because the Fund refers to New York municipal investments in its name, it has an investment policy that it will normally invest its assets so that at least 80% of the income that it distributes will be exempt from federal regular income tax and the personal income taxes imposed by the state of New York and New York municipalities. This policy may not be changed without shareholder approval.

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 derivative contract that would normally increase in value under the same circumstances. The Fund may also attempt to hedge by using combinations of different derivatives contracts, or derivatives contracts and securities. The Fund's ability to hedge may be limited by the costs of the derivatives 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 derivatives contracts that cover a narrow range of circumstances; or (3) involve the sale of derivatives 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

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The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. 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. This may also cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

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What are the Principal Securities in Which the Fund Invests?

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TAX-EXEMPT SECURITIES

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Tax-exempt securities are fixed-income securities that pay interest that is not subject to federal regular income taxes. Fixed-income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed-income security must repay the principal amount of the security, normally within a specified time.

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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.

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General Obligation Bonds

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Special Revenue Bonds

Private Activity 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 Leases

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Zero Coupon Securities

Inverse Floaters

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Municipal Mortgage-Backed Securities

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Municipal mortgage-backed securities are special revenue bonds, the proceeds of which may be used to provide mortgage loans for single family homes or to finance multifamily housing. Municipal mortgage-backed securities represent interest in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Municipal mortgage-backed securities generally have fixed-interest rates.

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PACs

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PACS (planned amortization classes) are a sophisticated form of municipal mortgage-backed security issued with a company class. PACs receive principal payments and prepayments at a specified rate. In addition, PACs will receive the companies classes' shares of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs to control prepayment risks by increasing the risks to their companion classes.

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CREDIT ENHANCEMENT

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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.

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DERIVATIVE CONTRACTS

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The Fund may trade in the following types of derivative contracts, as well as combinations of these contracts:

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Futures Contracts

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The Fund may buy or sell the following types of futures contracts: interest rate and index financial futures contracts.

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Options

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Swaps

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SPECIAL TRANSACTIONS

Delayed Delivery Transactions

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Asset Coverage

In order to secure its obligations in connection with derivative 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.

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Investment Ratings for Investment-Grade Securities

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The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, an NRSRO, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade.

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If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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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.

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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

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SECTOR RISKS

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A substantial part of the Fund's portfolio may be comprised of securities issued by New York issuers or credit enhanced by banks, insurance companies or companies with similar characteristics. As a result, the Fund will be more susceptible to any economic, business, political or other developments which generally affect New York issuers or these credit enhancing entities. New York's economy is relatively diversified across the manufacturing, agriculture and service sectors. However, New York City is a major component of the regional economy and is more exposed to downturns in the financial, real estate, and insurance industries. Since the Fund invests primarily in issuers from a single state, the Fund may be subject to additional risks compared to funds that invest in multiple states.

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TAX RISKS

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

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LEVERAGE RISKS

Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain. Investments can have these same results if their returns are based on a multiple of a specified index, security or other benchmark.

LIQUIDITY RISKS

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Trading opportunities are more limited for fixed-income securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. These features 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.

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Prepayment Risks

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Unlike traditional fixed-income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due), payments on municipal mortgage-backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding municipal mortgage-backed securities.

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Risks of Investing in Derivative Contracts

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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Risks Associated With Noninvestment-Grade Securities

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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.

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What Do Shares Cost?

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NAV is determined at the end of regular trading (normally 4:00 p.m. eastern time) each day the NYSE is open.

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The Fund generally values fixed-income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost. Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. Options traded in the over-the-counter market are generally valued according to the mean between the last bid and the last asked price for the option as provided by an investment dealer or other financial institution that deals in the option.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	4.50%	0.00%
Class B	$1,500/$100	None	5.50%

<R>

1 The minimum subsequent investment amounts for Systematic Investment Programs ( SIPs) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $ 100,000 or more of Class B Shares will be invested in Class A 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. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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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."

<R>

As shown in the table above, each class of Shares has a different sales charge structure. In addition, the ongoing annual operating expenses ("expense ratios"), as well as the compensation payable to investment professionals, also vary among the classes. Before you decide which class to purchase, you should review the different charges and expenses of each class carefully, in light of your personal circumstances, and consult with your investment professional.

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<R>

Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class B Shares do not have front-end sales charges, but the deferred sales charges imposed on redemptions of Class B Shares do not vary at all in relation to the amounts invested. Rather, these charges decrease with the passage of time (ultimately going to zero after seven years).

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<R>

You should also consider that the expense ratio for Class A Shares will be lower than that for Class B Shares. Thus, the fact that no front-end charges are ever imposed on purchases of Class B Shares does not always make them preferable to Class A Shares.

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<R>

SALES CHARGE WHEN YOU PURCHASE

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<R>

The following table lists the sales charges which will be applied to your share purchase, subject to the breakpoint discounts indicated in the table as described below:

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Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
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%

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<R>

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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<R>

In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your investment professional or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint ("Qualifying Accounts"). Qualifying Accounts mean those Class A Share accounts in the Federated funds held directly or through an investment professional or a through a single-participant retirement account by you, your spouse, and/or your children under age 21, which can be linked using tax identification numbers (TINs) or social security numbers (SSNs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs or SSNs, are not Qualifying Accounts.

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Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

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<R>

Larger Purchases

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<R>

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

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<R>

Concurrent Purchases

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combining concurrent purchases of Class A Shares of the Fund made by a trustee or fiduciary for a single trust estate or single fiduciary account; or made by a Qualifying Account in the same share class of two or more Federated funds (other than money market funds);

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Accumulated Purchases

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<R>

achieving accumulated purchase discounts by including previous Class A Share purchases in determining the applicable sales charge on any additional Class A Shares purchased; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

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Letter of Intent

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signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. (Call your investment professional or the Fund for more information.) 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.

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ELIMINATING THE SALES CHARGE

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<R>

Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

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through a financial intermediary that did not receive a dealer reallowance on the purchase;

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with reinvested dividends or capital gains;

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<R>

as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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<R>

as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);

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<R>

as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any investment professional that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or

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pursuant to the exchange privilege.

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SALES CHARGE WHEN YOU REDEEM

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Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

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<R>

To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

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Shares that are not subject to a CDSC; and

<R>

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.)

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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

<R>Class A Shares </R>
<R>If you make a purchase of Class A Shares in the amount of $1 million or more and your investment professional received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.</R>
<R>Class B Shares:</R>
<R>Shares Held Up To:</R>		<R>CDSC</R>
<R>1 Year</R>		<R>5.50%</R>
<R>2 Years</R>		<R>4.75%</R>
<R>3 Years</R>		<R>4.00%</R>
<R>4 Years</R>		<R>3.00%</R>
<R>5 Years</R>		<R>2.00%</R>
<R>6 Years</R>		<R>1.00%</R>
<R>7 Years or More</R>		<R>0.00%</R>

<R>

</R>
<R>

Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

</R>
<R>

representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;

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purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;

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purchased by Trustees and employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of an investment professional that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;

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purchased through an investment professional that did not receive an advance commission on the purchase;

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purchased with reinvested dividends or capital gains;

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redeemed by the Fund when it closes an account for not meeting the minimum balance requirements;

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purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period. (The holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange.); and

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<R>

which are qualifying redemptions of Class B Shares under a Systematic Withdrawal Program (Class B Shares only).

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How is the Fund Sold?

<R>

The Fund offers two Share classes: Class A Shares and Class B Shares, each representing interests in a single portfolio of securities. The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to customers of financial institutions, such as broker/dealers, banks, fiduciaries or investment advisers, or to individuals, directly or through investment professionals. The Fund may not be a suitable investment for retirement plans or for non-New York taxpayers because it invests in New York tax-exempt securities.

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RULE 12B-1 PLAN

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</R>
<R>

SERVICE FEES

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<R>

ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

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<R>

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How to Purchase Shares

You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares. Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

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</R>

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

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Make your check payable to The Federated Funds , note your account number on the check, and send it to:

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<R>

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

</R>
<R>

If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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<R>

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

</R>

THROUGH AN EXCHANGE

<R>

</R>

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.

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

<R>

You may redeem or exchange Shares by sending a written request to the Fund.

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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:

<R>

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

</R>

Send requests by private courier or overnight delivery service to:

<R>

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

</R>

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;

<R>

signatures of all shareholders exactly as registered and

</R>

if exchanging , the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

<R>

Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

</R>

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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</R>

PAYMENT METHODS FOR REDEMPTIONS

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

Generally, it is not advisable to continue to purchase Class A Shares subject to a sales charge while redeeming Shares using this program.

Systematic Withdrawal Program (SWP) On Class B Shares

You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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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.

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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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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</R>

DIVIDENDS AND CAPITAL GAINS

<R>

</R>

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

<R>

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 regular 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 Fund's dividends will be exempt from the New York taxes discussed above to the extent they are derived from interest on obligations exempt from such taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.

</R>

Who Manages the Fund?

<R>

</R>
<R>

The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $ 198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1, 650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

</R>

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 Trust. Mr. Albrecht joined Federated in 1989. He has been a Senior Portfolio Manager since 1997 and a Vice President of the Fund's Adviser since 1994. He was a Portfolio Manager from 1994 to 1996. Mr. Albrecht is a Chartered Financial Analyst and received his M.S. in Public Management from Carnegie Mellon University.

Mary Jo Ochson

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Mary Jo Ochson has been the Fund's Portfolio Manager since 1997. Ms Ochson was named Chief Investment Officer of tax-exempt, fixed-income products in 2004 and is Vice President of the Trust. She joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996 . Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

</R>

ADVISORY FEES

<R>

Legal Proceedings

</R>
<R>

As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website www.federatedinvestors.com , and any future press releases on this subject will also be posted there.

</R>
<R>

The board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

</R>

Financial Information

FINANCIAL HIGHLIGHTS

<R>

</R>

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 Highlights - Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$10.44		$10.59		$10.80		$10.29		$10.36
Income From Investment Operations:
Net investment income	0.46		0.44		0.49	¹	0.52		0.53
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.21		(0.15	)	(0.20	)¹	0.51		(0.07	)
TOTAL FROM INVESTMENT OPERATIONS	0.67		0.29		0.29		1.03		0.46
Less Distributions:
Distributions from net investment income	(0.46	)	(0.44	)	(0.50	)	(0.52	)	(0.53	)
Net Asset Value, End of Period	$10.65		$10.44		$10.59		$10.80		$10.29
Total Return²	6.51	%	2.81	%	2.79	%	10.29	%	4.64	%

Ratios to Average Net Assets:
Expenses	0.61	%	0.76	%	0.91	%	0.91	%	0.84	%
Net investment income	4.32	%	4.19	%	4.72	%¹	4.97	%	5.23	%
Expense waiver/reimbursement³	1.07	%	1.16	%	1.10	%	1.39	%	1.42	%
Supplemental Data:
Net assets, end of period (000 omitted)	$27,600		$26,673		$23,466		$23,011		$21,392
Portfolio turnover	15	%	8	%	35	%	40	%	31	%

1 Effective September 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share, the net realized and unrealized gain (loss) on investments per share, or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for the periods prior to September 1, 2001 have not been restated to reflect this change in presentation.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

Financial Highlights - Class B Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended 8/31/2004		Period Ended 8/31/2003	¹
Net Asset Value, Beginning of Period	$10.44		$10.65
Income From Investment Operations:
Net investment income	0.38		0.36
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.21		(0.21	)
TOTAL FROM INVESTMENT OPERATIONS	0.59		0.15
Less Distributions:
Distributions from net investment income	(0.38	)	(0.36	)
Net Asset Value, End of Period	$10.65		$10.44
Total Return²	5.72	%	1.42	%

Ratios to Average Net Assets:
Expenses	1.36	%	1.51	%³
Net investment income	3.57	%	3.36	%³
Expense waiver/reimbursement⁴	0.82	%	0.91	%³
Supplemental Data:
Net assets, end of period (000 omitted)	$21,802		$19,000
Portfolio turnover	15	%	8	%

1 Reflects operations for the period from September 5, 2002 (date of initial public investment) to August 31, 2003.

3 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free of charge.

<R>

</R>
<R>

You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's website at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

</R>

Investment Company Act File No. 811-6165

Federated
World-Class Investment Manager

Federated New York Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313923401
Cusip 313923880

<R>

2092919A-FS (10/ 04)

Federated is a registered mark of Federated Investors, Inc. 2004 (c)Federated Investors, Inc.

FEDERATED NEW YORK MUNICIPAL INCOME FUND
A Portfolio of Federated Municipal Securities Income Trust

Statement of additional Information

<R>

October 31, 2004

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 New York Municipal Income Fund (Fund),
dated October 31, 2004.

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.

Contents
How is the Fund Organized?...............1
Securities in Which the Fund Invests.....1
What Do Shares Cost?.....................7
How is the Fund Sold?....................9
Subaccounting Services..................10
Redemption in Kind......................10
Massachusetts Partnership Law...........11
Account and Share Information...........11
Tax Information.........................11
Who Manages and Provides Services to
the Fund?.............................12
How Does the Fund Measure Performance?..21
Who is Federated Investors, Inc.?.......23
Financial Information...................25
Investment Ratings......................25
Addresses...............................27

</R>

HOW IS THE FUND ORGANIZED?

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).

SECURITIES IN WHICH THE FUND INVESTS

<R>

The principal securities in which the Fund invests are discussed in the Fund's
prospectus. In pursuing its investment strategy, the Fund may also invest in the
following securities for any purpose that is consistent with its investment objective.

</R>

SECURITIES DESCRIPTIONS AND TECHNIQUES

The following describes the types of fixed income securities, in addition to those
listed in the prospectus, in which the Fund may invest:
</R>

</R>

Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If a
default occurs, these assets may be sold and the proceeds paid to the security's
holders. Either form of credit enhancement reduces credit risks by providing another
source of payment for a fixed income security.

Derivative Contracts
<R>

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, commodities,
currencies, financial indices or other assets. Some derivative contracts (such as
futures, forwards and options) require payments relating to a future trade involving
the underlying asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other party to a
derivative contract is referred to as a counterparty.

</R>

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.
The Fund may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other OTC
contracts. In addition, OTC contracts with more specialized terms may be more
difficult to price than exchange traded contracts.
<R>

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. OTC contracts also expose
the Fund to credit risks in the event that a counterparty defaults on the contract.
</R>

The Fund may trade in the following types of derivative contracts, as well as
combinations of these contracts, including, but not limited to, options on futures
contracts, options on forward contracts and options on swaps.

Futures Contracts
Futures contracts provide for the future sale by one party and purchase by another
party of a specified amount of an underlying asset or instrument 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. Futures contracts traded OTC are frequently
referred to as forward contracts.
The Fund may buy or sell the following types of futures (including forward)
contracts: interest rate and index financial futures contracts.

Options
Options are rights to buy or sell an underlying asset or instrument for a specified
price (the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset or instrument
from the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset or instrument to the writer of the option. The writer of
the option receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option. If the Fund writes
options on futures contracts, it will be subject to margin requirements similar to
those applied to futures contracts.

Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the returns
derived from underlying assets or instruments with differing characteristics. Most
swaps do not involve the delivery of the underlying assets or instruments by either
party, and the parties might not own the assets or instruments underlying the swap.
The payments are usually made on a net basis so that, on any given day, the Fund
would receive (or pay) only the amount by which its payment under the contract is
less than (or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements that the
Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular payments
equal to a fixed or floating interest rate times a stated, notional principal amount
of fixed income securities, in return for payments equal to a different fixed or
floating rate times the same notional principal amount, for a specific period. For
example, a $10 million London Interbank Offer Rate (LIBOR) swap would require one
party to pay the equivalent of the LIBOR rate of interest (which fluctuates) on
$10 million notional principal amount in exchange for the right to receive the
equivalent of a stated fixed rate of interest on $10 million notional principal
amount.
Caps and Floors
Caps and floors are contracts in which one party agrees to make payments only if an
interest rate or index goes above (cap) or below (floor) a certain level in return
for a fee from the other party.
Total Return Swaps
Total return swaps are contracts in which one party agrees to make payments of the
total return from the underlying asset or instrument during the specified period, in
return for payments equal to a fixed or floating rate of interest or the total return
from another underlying asset or instrument.
<R>

Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed-upon time
and price. The repurchase price exceeds the sale price, reflecting the Fund's return
on the transaction. This return is unrelated to the interest rate on the underlying
security. The Fund will enter into repurchase agreements only with banks and other
recognized financial institutions, such as securities dealers, deemed creditworthy by
the Adviser.
The Fund's custodian or subcustodian will take possession of the securities subject
to repurchase agreements. The Adviser or subcustodian will monitor the value of the
underlying security each day to ensure that the value of the security always equals
or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them at an
agreed-upon time and price. A reverse repurchase agreement may be viewed as a type of
borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In
addition, reverse repurchase agreements create leverage risks because the Fund must
repurchase the underlying security at a higher price, regardless of the market value
of the security at the time of repurchase.

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.

Treasury Securities
Treasury securities are direct obligations of the federal government of the United
States.

Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank instruments
include bank accounts, time deposits, certificates of deposit and banker's
acceptances.

Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses. Notes,
bonds, debentures and commercial paper are the most prevalent types of corporate debt
securities.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than nine months.
Companies typically issue commercial paper to pay for current expenditures. Most
issuers constantly reissue their commercial paper and use the proceeds (or bank
loans) to repay maturing paper. If the issuer cannot continue to obtain liquidity in
this fashion, its commercial paper may default. The short maturity of commercial
paper reduces both the market and credit risks as compared to other debt securities
of the same issuer.

SPECIAL TRANSACTIONS

For example, inter-fund lending is permitted only (a) to meet shareholder redemption
requests, and (b) to meet commitments arising from "failed" trades. All inter-fund
loans must be repaid in seven days or less. The Fund's participation in this program
must be consistent with its investment policies and limitations, and must meet
certain percentage tests. Inter-fund loans may be made only when the rate of
interest to be charged is more attractive to the lending Federated fund than
market-competitive rates on overnight repurchase agreements (Repo Rate) and more
attractive to the borrowing Federated fund than the rate of interest that would be
charged by an unaffiliated bank for short-term borrowings (Bank Loan Rate), as
determined by the Board. The interest rate imposed on inter-fund loans is the
average of the Repo Rate and the Bank Loan Rate.

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 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.

The federal income tax treatment of payments in respect of certain derivative
contracts is unclear. Additionally, the Fund may not be able to close out certain
derivative contracts when it wants to. Consequently, the Fund may receive payments
that are treated as ordinary income for federal income tax purposes.

Liquidity Risks
Liquidity risk also refers to the possibility that the Fund may not be able to sell a
security or close out a derivatives 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. OTC derivative contracts generally carry greater
liquidity risk than exchange-traded contracts.

Leverage Risks
Leverage risk is created when an investment exposes the Fund to a level of risk that
exceeds that 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 of Investing in Derivative Contracts
The Fund's use of derivative contracts involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and other
traditional investments. First, changes in the value of the derivative contracts in
which the Fund invests may not be correlated with changes in the value of the
underlying asset or if they are correlated, may move in the opposite direction than
originally anticipated. Second, while some strategies involving derivatives may
reduce the risk of loss, they may also reduce potential gains or, in some cases,
result in losses by offsetting favorable price movements in portfolio holdings.
Third, there is a risk that derivatives contracts may be mispriced or improperly
valued and, as a result, the Fund may need to make increased cash payments to the
counterparty. Finally, derivative contracts may cause the Fund to realize increased
ordinary income or short-term capital gains (which are treated as ordinary income for
Federal income tax purposes) and, as a result, may increase taxable distributions to
shareholders. Derivative contracts may also involve other risks described in this
SAI, such as interest rate, credit, liquidity and leverage risks.
</R>

Fundamental INVESTMENT Objective and Policy
The investment objective of the Fund is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of New
York and New York municipalities. Under normal circumstances, the Fund will invest
its assets so that at least 80% of its annual interest income is exempt from federal
regular income tax and the personal income taxes imposed by the state of New York and
New York municipalities. The fundamental investment objective and policy may not be
changed by the Fund's Board without shareholder approval.

INVESTMENT LIMITATIONS

Issuing Senior Securities and Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior securities to the
maximum extent permitted under the Investment Company Act of 1940, as amended (the
1940 Act).

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction does
not prevent the Fund from investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein. The Fund may
exercise its rights under agreements relating to such securities, including the right
to enforce security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund may
purchase securities of companies that deal in commodities.

Underwriting
The Fund may not underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, lending its
assets to broker/dealers or institutional investors and investing in loans, including
assignments and participation interests.

Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be deemed
to constitute an industry.
The above limitations cannot be changed unless authorized by the Board and by the
"vote of a majority of its outstanding voting securities," as defined by the 1940
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.

For purposes of the above limitations, the Fund considers certificates of deposit and
demand and time deposits issued by a U.S. branch of a domestic bank or savings
association having capital, surplus and undivided profits in excess of $100,000,000
at the time of investment to be "cash items." Except with respect to borrowing money,
if a percentage limitation is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value or net assets will not
result in a violation of such limitation.

Buying on Margin
The Fund will not purchase securities on margin, provided that the Fund may obtain
short-term credits necessary for the clearance of purchases and sales of securities
and further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with permissible activities.

Illiquid Securities
The Fund will not purchase securities for which there is no readily available market,
or enter into repurchase agreements or purchase time deposits maturing in more than
seven days if immediately after and as a result, the value of such securities would
exceed, in the aggregate, 15% of the Fund's net assets.

Restricted Securities
The Fund may purchase securities subject to restrictions on resale under the federal
securities laws.
Except with respect to borrowing money, if a percentage limitation is adhered to at
the time of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
In applying the Fund's commodities restriction, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are not
deemed to be investments in commodities.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to end users of their services, for example,
automobile finance, bank finance and diversified finance will each be considered a
separate industry; and (c) asset backed securities will be classified according to
the underlying assets securing such securities. To conform to the current view of the
SEC staff that only domestic bank instruments may be excluded from industry
concentration limitations, the Fund will not exclude foreign bank instruments from
industry concentration tests as long as the policy of the SEC remains in effect. The
Fund will consider concentration to be the investment of more than 25% of the value
of its total assets in any one industry.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:

<R>

o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;

o futures contracts and options are generally valued at market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are generally valued
according to the mean between the last bid and the last asked price for the option
as provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value;

o for fixed income securities, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that fixed income securities
with remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and

o for all other securities at fair value as determined in accordance with
procedures established by and under the general supervision of the Board.

</R>

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.

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.

<R>

</R>

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor pays a portion of this charge to investment professionals that are
eligible to receive it (the "Dealer Reallowance") and retains any remaining portion
of the front-end sales charge.

When an investment professional's customer purchases Shares, the investment
professional may receive a Dealer Reallowance as follows:

Dealer Reallowance
as a Percentage of
Purchase Amount Public Offering Price
Less than $100,000 4.00%
$100,000 but less than $250,000 3.25%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1 million 1.80%
$1 million or greater 0.00%

ADVANCE COMMISSIONS
--------------------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the investment
professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Purchase Amount Public Offering Price
First $1 million - $5 million 0.75%
Next $5 million - $20 million 0.50%
Over $20 million 0.25%
Advance commissions are calculated on a year by year basis based on amounts invested
during that year. Accordingly, with respect to additional purchase amounts, the
advance commission breakpoint resets 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 commission will be paid only on
those purchases that were not previously subject to a front-end sales charge or
dealer advance commission. Certain retirement accounts may not be eligible for this
program.

Advance Commission
as a Percentage of
Class B Shares Public Offering Price
All Purchase Amounts Up to 5.50%

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

RULE 12B-1 PLAN (Class A Shares and Class B Shares)
<R>

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor
for activities principally intended to result in the sale of Shares such as
advertising and marketing of Shares (including printing and distributing prospectuses
and sales literature to prospective shareholders and financial institutions) and
providing incentives to investment professionals to sell Shares. The Plan is also
designed to cover the cost of administrative services performed in conjunction with
the sale of Shares, including, but not limited to, shareholder services,
recordkeeping services and educational services, as well as the costs of implementing
and operating the Plan. The Rule 12b-1 Plan allows the Distributor to contract with
investment professionals to perform activities covered by the Plan. The Rule 12b-1
Plan is expected to benefit the Fund in a number of ways. For example, it is
anticipated that the Plan will help the Fund attract and retain assets, thus
providing cash for orderly portfolio management and Share redemptions and possibly
helping to stabilize or reduce other operating expenses. In addition, the Plan is
integral to the multiple class structure of the Fund, which promotes the sale of
Shares by providing a range of options to investors. The Fund's service providers
that receive asset-based fees also benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in any
one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of years to
recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the Rule 12b-1
Plan fees related to Class B Shares may be paid to third parties who have provided
the funds to make advance commission payments to investment professionals.

Additional Payments to Financial Institutions
The Distributor may pay out of its own resources amounts (including items of material
value) to certain financial institutions. In some cases, such payments may be made
by, or funded from the resources of, companies affiliated with the Distributor
(including the Adviser). While NASD regulations limit the sales charges that you may
bear, there are no limits with regard to the amounts that the Distributor may pay out
of its own resources. In addition to the payments which are generally described
herein and in the prospectus, the financial institution also may receive payments
under the Rule 12b-1 Plan and Service Fees.

You can ask your financial institution for information about any payments it receives
from the Distributor or the Federated funds and any services provided.

The following examples illustrate the types of instances in which the Distributor may
make additional payments to financial institutions.

Supplemental Payments
The Distributor may make supplemental payments to certain financial institutions that
are holders or dealers of record for accounts in one or more of the Federated funds.
These payments may be based on such factors as the number or value of Shares the
financial institution sells or may sell; the value of client assets invested; or the
type and nature of services or support furnished by the financial institution.

Processing Support Payments
The Distributor may make payments to financial institutions that sell Federated fund
shares to help offset their costs associated with client account maintenance support,
statement processing and transaction processing. The types of payments that the
Distributor may make under this category include payment of ticket charges on a per
transaction basis; payment of networking fees; and payment for ancillary services
such as setting up funds on the financial institution's mutual fund trading system.

Retirement Plan Program Servicing Payments
The Distributor may make payments to certain financial institutions who sell
Federated fund shares through retirement plan programs. A financial institution may
perform retirement plan program services itself or may arrange with a third party to
perform retirement plan program services. In addition to participant recordkeeping,
reporting, or transaction processing, retirement plan program services may include
services rendered to a plan in connection with fund/investment selection and
monitoring; employee enrollment and education; plan balance rollover or separation,
or other similar services.

Other Benefits to Financial Institutions
From time to time, the Distributor, at its expense, may provide additional
compensation to financial institutions that sell or arrange for the sale of Shares.
Such compensation may include financial assistance to financial institutions that
enable the Distributor to participate in or present at conferences or seminars, sales
or training programs for invited employees, client and investor events and other
financial institution-sponsored events.

The Distributor also may hold or sponsor, at its expense, sales events, conferences
and programs for employees or associated persons of financial institutions and may
pay the travel and lodging expenses of attendees. The Distributor also may provide,
at its expense, meals and entertainment in conjunction with meetings with financial
institutions. Other compensation may be offered to the extent not prohibited by
applicable laws, regulations or the rules of any self-regulatory agency, such as the
NASD.

</R>

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 1940 Act, 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.

<R>

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as partners
under [Massachusetts] law for obligations of the Trust. To protect its shareholders,
the Trust has filed legal documents with Massachusetts that expressly disclaim the
liability of its shareholders for acts or obligations of the Trust.

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and other
matters submitted to shareholders for vote.

All Shares of the Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only Shares of that Fund or class are entitled to
vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written request
of shareholders who own at least 10% of the Trust's outstanding Shares.

As of October 1, 2004, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class A Shares: MLPF&S for the Sole Benefit of
its Customers, Jacksonville, FL owned approximately 517,783 Shares (20.12%).
As of October 1, 2004, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class B Shares: Citigroup Global Markets Inc., New
York, NY owned approximately 383,386 Shares (18.71%).

TAX INFORMATION

The Fund will be treated as a single, separate entity for federal income tax purposes
so that income earned and capital gains and losses realized by the Trust's other
portfolios will be separate from those realized by the Fund.

The Fund is entitled to a loss carry-forward, which may reduce the taxable income or
gain that the Fund would realize, and to which the shareholder would be subject, in
the future.

STATE TAXES
Under existing New York laws, distributions made by the Fund will not be subject to
New York state or New York City personal income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Code, and represent
interest income attributable to obligations of the state of New York and its
political subdivisions, as well as certain other obligations, the interest on which
is exempt from New York state and New York City personal income taxes, such as, for
example, certain obligations of the Commonwealth of Puerto Rico. Conversely, to the
extent that distributions made by the Fund are derived from other types of
obligations, such distributions will be subject to New York state and New York City
personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that will be
exempt from New York state and New York City personal income taxes. However, the Fund
will report to shareholders at least annually what percentage of the dividends it
actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business tax to the extent that they are exempt from the New York City personal
income tax.
Dividends paid by the Fund are not excluded from net income in determining New York
State or New York City franchise taxes on corporations or financial institutions.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The following
tables give information about each Board member and the senior officers of the Fund.
Where required, the tables separately list Board members who are "interested persons"
of the Fund (i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each person
listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The Trust
comprises seven portfolios and Federated Fund Complex consists of 44 investment
companies (comprising 136 portfolios). Unless otherwise noted, each Officer is
elected annually. Unless otherwise noted, each Board member oversees all portfolios
in the Federated Fund Complex and serves for an indefinite term.

As of October 1, 2004, the Fund's Board and Officers as a group owned less than 1% of
the Fund's outstanding Class A and B Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Aggregate
Compensation
From Fund
(past Total
Name fiscal year) Compensation
Birth Date ------------ From Fund and
Address Federated Fund
Positions Held with Complex
-------------------- Principal Occupation(s) for Past (past calendar
Trust Five Years, Other Directorships year)
Date Service Began Held and Previous Position(s) ---------------

Principal Occupations: Director $193.51 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
TRUSTEE University of Pittsburgh Medical
Began serving: Center.
August 1990
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue is the
father of J. Christopher Donahue; both are "interested" due to the positions they
hold with Federated and its subsidiaries. Lawrence D. Ellis, M.D. is "interested"
because his son-in-law is employed by the Fund's principal underwriter, Federated
Securities Corp.
--------------------------------------------------------------------------------------

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Name Aggregate
Birth Date Compensation Total
Address From Fund Compensation
Positions Held with (past From Fund and
Trust Principal Occupation(s) for Past fiscal year) Federated Fund
Date Service Began Five Years, Other Directorships Complex
-------------------- Held and Previous Position(s) (past calendar
year)

Principal Occupation: Director $212.85 $163,350
Thomas G. Bigley or Trustee of the Federated Fund
Birth Date: Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held:
Pittsburgh, PA Director, Member of Executive
TRUSTEE Committee, Children's Hospital
Began serving: of Pittsburgh; Director,
November 1994 University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director $212.85 $163,350
John T. Conroy, Jr. or Trustee of the Federated Fund
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
3838 North Tamiami Previous Positions: President,
Trail Investment Properties
Suite 402 Corporation; Senior Vice
Naples, FL President, John R. Wood and
TRUSTEE Associates, Inc., Realtors;
Began serving: President, Naples Property
August 1991 Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director $212.85 $163,350
Nicholas P. or Trustee of the Federated Fund
Constantakis Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Drive Director and Member of the Audit
Pittsburgh, PA Committee, Michael Baker
TRUSTEE Corporation (engineering and
Began serving: energy services worldwide).
February 1998
Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director $193.51 $148,500
John F. Cunningham or Trustee of the Federated Fund
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
TRUSTEE Executive Officer, Cunningham
Began serving: July & Co., Inc. (strategic
1999 business consulting); Trustee
Associate, Boston College.

Principal Occupation: Director $193.51 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions:
Began serving: Representative, Commonwealth of
August 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director,
VISA USA and VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust Corporation;
Director, The Boston Stock
Exchange.

Principal Occupations: Director $212.85 $163,350
Charles F. or Trustee of the Federated Fund
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
TRUSTEE Previous Positions: Chief
Began serving: Executive Officer, PBTC
January 1999 International Bank; Partner,
Arthur Young & Company (now
Ernst & Young LLP); Chief
Financial Officer of Retail
Banking Sector, Chase Manhattan
Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine
Midland Bank); Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.

Principal Occupations: Director $232.18 $178,200
John E. Murray, or Trustee of the Federated Fund
Jr., J.D., S.J.D. Complex; Chancellor and Law
Birth Date: Professor, Duquesne University;
December 20, 1932 Partner, Murray, Hogue &
Chancellor, Lannis.
Duquesne University
Pittsburgh, PA Other Directorships Held:
TRUSTEE Director, Michael Baker Corp.
Began serving: (engineering, construction,
February 1995 operations and technical
services).

Previous Positions: President,
Duquesne University; Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean
and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director $193.51 $148,500
Marjorie P. Smuts or Trustee of the Federated Fund
Birth Date: June Complex; Public
21, 1935 Relations/Marketing
4905 Bayard Street Consultant/Conference
Pittsburgh, PA Coordinator.
TRUSTEE
Began serving: Previous Positions: National
August 1990 Spokesperson, Aluminum Company
of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director $193.51 $148,500
John S. Walsh or Trustee of the Federated Fund
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
TRUSTEE Director, Manufacturers
Began serving: July Products, Inc. (distributor of
1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.

Previous Position: Vice
President, Walsh & Kelly,
Inc.

OFFICERS**
--------------------------------------------------------------------------------------

Name
Birth Date
Address
Positions Held with Trust
-------------------------------- Principal Occupation(s) and Previous Position(s)
Date Service Began
Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive
Birth Date: October 26, 1938 Vice President, Secretary and Director, Federated
EXECUTIVE VICE PRESIDENT AND Investors, Inc.
SECRETARY
Began serving: August 1990 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment
Counseling; Director, Federated Global Investment
Management Corp., Federated Services Company and
Federated Securities Corp.

Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE CHAIRMAN Federated Securities Corp.
Began serving: August 2002
Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.
and Director and Chief Executive Officer, Federated
Securities Corp.

J. Scott Albrecht has been the Fund's Portfolio
J. Scott Albrecht Manager since 1995. He is Vice President of the
Birth Date: June 1, 1960 Trust. Mr. Albrecht joined Federated in 1989. He has
VICE PRESIDENT been a Senior Portfolio Manager since 1997 and a Vice
Began serving: November 1998 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.

** Officers do not receive any compensation from the Fund.
--------------------------------------------------------------------------------------
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant
Secretary of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of Duquesne
University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Trustee of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne on August
15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes
before Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings
--------------- Committee Held
Members Committee Functions During Last
Board Committee Fiscal Year
Executive In between meetings of the full Board, Eight
John F. Donahue the Executive Committee generally may
John E. Murray, exercise all the powers of the full Board
Jr., J.D., S.J.D. in the management and direction of the
business and conduct of the affairs of
the Trust in such manner as the Executive
Committee shall deem to be in the best
interests of the Trust. However, the
Executive Committee cannot elect or
remove Board members, increase or
decrease the number of Trustees, elect or
remove any Officer, declare dividends,
issue shares or recommend to shareholders
any action requiring shareholder approval.

Audit The purposes of the Audit Committee are Six
Thomas G. Bigley to oversee the accounting and financial
John T. Conroy, Jr. reporting process of the Funds, the
Nicholas P. Fund`s internal control over financial
Constantakis reporting, and the quality, integrity and
Charles F. independent audit of the Fund`s financial
Mansfield, Jr. statements. The Committee also oversees
or assists the Board with the oversight
of compliance with legal requirements
relating to those matters, approves the
engagement and reviews the
qualifications, independence and
performance of the Fund`s independent
registered public accounting firm, acts
as a liaison between the independent
registered public accounting firm and the
Board and reviews the Fund`s internal
audit function.

Nominating One
Thomas G. Bigley The Nominating Committee, whose members
John T. Conroy, Jr. consist of all Independent Trustees,
Nicholas P. selects and nominates persons for
Constantakis election to the Fund`s/ Board when
John F. Cunningham vacancies occur. The Committee will
Peter E. Madden consider candidates recommended by
Charles F. shareholders, Independent Trustees,
Mansfield, Jr. officers or employees of any of the
John E. Murray, Jr. Fund`s/ agents or service providers and
Marjorie P. Smuts counsel to the Fund. Any shareholder who
John S. Walsh desires to have an individual considered
for nomination by the Committee must
submit a recommendation in writing to the
Secretary of the Fund, at the Fund's
address appearing on the back cover of
this Statement of Additional Information.
The recommendation should include the
name and address of both the shareholder
and the candidate and detailed
information concerning the candidate's
qualifications and experience. In
identifying and evaluating candidates for
consideration, the Committee shall
consider such factors as it deems
appropriate. Those factors will
ordinarily include: integrity,
intelligence, collegiality, judgment,
diversity, skill, business and other
experience, qualification as an
"Independent Trustee," the existence of
material relationships which may create
the appearance of a lack of independence,
financial or accounting knowledge and
experience, and dedication and
willingness to devote the time and
attention necessary to fulfill Board
responsibilities.

Board ownership of shares in the fund and in the FEDERATED family of Investment
companies AS OF DECEMBER 31, 2003
--------------------------------------------------------------------------------------
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated
Board Member Name in Fund Family of
Investment
Companies
John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

Independent
Board Member Name
Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden None Over $100,000
Charles F. Mansfield, Jr. $10,001-$50,000 $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts None Over $100,000
John S. Walsh None Over $100,000

--------------------------------------------------------------------------------------
</R>

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.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's investment
advisory contract. The Board's decision to approve the contract reflects the exercise
of its business judgment on whether to continue the existing arrangements. During
its review of the contract, the Board considers many factors, among the most material
of which are: the Fund's investment objectives and long term performance; the
Adviser's management philosophy, personnel and processes; the preferences and
expectations of Fund shareholders and their relative sophistication; the continuing
state of competition in the mutual fund industry; comparable fees in the mutual fund
industry; the range and quality of services provided to the Fund and its shareholders
by the Federated organization in addition to investment advisory services; and the
Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board also considers
whether there has occurred a circumstance or event that would constitute a reason for
it to not renew an advisory contract. In this regard, the Board is mindful of the
potential disruptions of the Fund's operations and various risks, uncertainties and
other effects that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most shareholders have
invested in the Fund on the strength of the Adviser's industry standing and
reputation and in the expectation that the Adviser will have a continuing role in
providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the Adviser. This
includes fees received for services provided to the Fund by other entities in the
Federated organization and research services received by the Adviser from brokers
that execute fund trades, as well as advisory fees. In this regard, the Board is
aware that various courts have interpreted provisions of the 1940 Act and have
indicated in their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services provided by the
Adviser, including the performance of the Fund; the Adviser's cost of providing the
services; the extent to which the Adviser may realize "economies of scale" as the
Fund grows larger; any indirect benefits that may accrue to the Adviser and its
affiliates as a result of the Adviser's relationship with the Fund; performance and
expenses of comparable funds; and the extent to which the independent Board members
are fully informed about all facts bearing on the Adviser's service and fee. The
Fund's Board is aware of these factors and takes them into account in its review of
the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its substantial
accumulated experience in governing the Fund and working with Federated on matters
relating to the Federated funds, and is assisted in its deliberations by the advice
of independent legal counsel. In this regard, the Board requests and receives a
significant amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of the Board, and
furnishes additional reports in connection with the particular meeting at which the
Board's formal review of the advisory contracts occurs. In between regularly
scheduled meetings, the Board may receive information on particular matters as the
need arises. Thus, the Board's evaluation of an advisory contract is informed by
reports covering such matters as: the Adviser's investment philosophy, personnel, and
processes; the Fund's short- and long-term performance (in absolute terms as well as
in relationship to its particular investment program and certain competitor or "peer
group" funds), and comments on the reasons for performance; the Fund's expenses
(including the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds, with due
regard for contractual or voluntary expense limitations); the use and allocation of
brokerage commissions derived from trading the Fund's portfolio securities; the
nature and extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the Federated
funds and the Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are responding to
them.

The Board also receives financial information about Federated, including reports on
the compensation and benefits Federated derives from its relationships with the
Federated funds. These reports cover not only the fees under the advisory contracts,
but also fees received by Federated's subsidiaries for providing other services to
the Federated funds under separate contracts (e.g., for serving as the Federated
funds' administrator). The reports also discuss any indirect benefit Federated may
derive from its receipt of research services from brokers who execute Federated fund
trades.

The Board bases its decision to approve an advisory contract on the totality of the
circumstances and relevant factors, and with a view to past and future long-term
considerations. Not all of the factors and considerations identified above are
relevant to every Federated fund, nor does the Board consider any one of them to be
determinative. Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach consideration of
every Federated fund's advisory contract as if that were the only Federated fund.

<R>

Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser, provides certain
support services to the Adviser. The fee for these services is paid by the Adviser
and not by 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.

</R>

Code of Ethics Restrictions on Personal Trading

As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted
codes of ethics. These codes govern securities trading activities of investment
personnel, Fund Trustees, and certain other employees. Although they do permit these
people to trade in securities, including those that the Fund could buy, they also
contain significant safeguards designed to protect the Fund and its shareholders from
abuses in this area, such as requirements to obtain prior approval for, and to
report, particular transactions.

Voting Proxies on Fund Portfolio Securities
The Board has delegated to the Adviser authority to vote proxies on the securities
held in the Fund's portfolio. The Board has also approved the Adviser's policies and
procedures for voting the proxies, which are described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of proposals that the
Adviser anticipates will enhance the long-term value of the securities being voted.
Generally, this will mean voting for proposals that the Adviser believes will:
improve the management of a company; increase the rights or preferences of the voted
securities; and/or increase the chance that a premium offer would be made for the
company or for the voted securities.

The following examples illustrate how these general policies may apply to proposals
submitted by a company's board of directors. However, whether the Adviser supports
or opposes a proposal will always depend on the specific circumstances described in
the proxy statement and other available information.

On matters of corporate governance, generally the Adviser will vote for proposals to:
require independent tabulation of proxies and/or confidential voting by shareholders;
reorganize in another jurisdiction (unless it would reduce the rights or preferences
of the securities being voted); and repeal a shareholder rights plan (also known as a
"poison pill"). The Adviser will generally vote against the adoption of such a plan
(unless the plan is designed to facilitate, rather than prevent, unsolicited offers
for the company).

On matters of capital structure, generally the Adviser will vote: against proposals
to authorize or issue shares that are senior in priority or voting rights to the
securities being voted; for proposals to grant preemptive rights to the securities
being voted; and against proposals to eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser will vote: for
stock incentive plans that align the recipients' interests with the interests of
shareholders without creating undue dilution; and against proposals that would permit
the amendment or replacement of outstanding stock incentives with new stock
incentives having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote proxies relating
to proposed mergers, capital reorganizations, and similar transactions in accordance
with the general policy, based upon its analysis of the proposed transaction. The
Adviser will vote proxies in contested elections of directors in accordance with the
general policy, based upon its analysis of the opposing slates and their respective
proposed business strategies. Some transactions may also involve proposed changes to
the company's corporate governance, capital structure or management compensation.
The Adviser will vote on such changes based on its evaluation of the proposed
transaction or contested election. In these circumstances, the Adviser may vote in a
manner contrary to the general practice for similar proposals made outside the
context of such a proposed transaction or change in the board. For example, if the
Adviser decides to vote against a proposed transaction, it may vote for anti-takeover
measures reasonably designed to prevent the transaction, even though the Adviser
typically votes against such measures in other contexts.

The Adviser generally votes against proposals submitted by shareholders without the
favorable recommendation of a company's board. The Adviser believes that a company's
board should manage its business and policies, and that shareholders who seek
specific changes should strive to convince the board of their merits or seek direct
representation on the board.

In addition, the Adviser will not vote if it determines that the consequences or
costs outweigh the potential benefit of voting. For example, if a foreign market
requires shareholders casting proxies to retain the voted shares until the meeting
date (thereby rendering the shares "illiquid" for some period of time), the Adviser
will not vote proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee), to exercise
all voting discretion granted to the Adviser by the Board in accordance with the
proxy voting policies. The Adviser has hired Investor Responsibility Research Center
(IRRC) to obtain, vote, and record proxies in accordance with the Proxy Committee's
directions. The Proxy Committee directs IRRC by means of Proxy Voting Guidelines,
and IRRC may vote any proxy as directed in the Proxy Voting Guidelines without
further direction from the Proxy Committee (and may make any determinations required
to implement the Proxy Voting Guidelines). However, if the Proxy Voting Guidelines
require case-by-case direction for a proposal, IRRC will provide the Proxy Committee
with all information that it has obtained regarding the proposal and the Proxy
Committee will provide specific direction to IRRC. The Adviser's proxy voting
procedures generally permit the Proxy Committee to amend the Proxy Voting Guidelines,
or override the directions provided in such Guidelines, whenever necessary to comply
with the proxy voting policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter on which a
proxy is sought may present a potential conflict between the interests of the Fund
(and its shareholders) and those of the Adviser or Distributor. This may occur where
a significant business relationship exists between the Adviser (or its affiliates)
and a company involved with a proxy vote. A company that is a proponent, opponent,
or the subject of a proxy vote, and which to the knowledge of the Proxy Committee has
this type of significant business relationship, is referred to as an "Interested
Company."

The Adviser has implemented the following procedures in order to avoid concerns that
the conflicting interests of the Adviser have influenced proxy votes. Any employee
of the Adviser who is contacted by an Interested Company regarding proxies to be
voted by the Adviser must refer the Interested Company to a member of the Proxy
Committee, and must inform the Interested Company that the Proxy Committee has
exclusive authority to determine how the Adviser will vote. Any Proxy Committee
member contacted by an Interested Company must report it to the full Proxy Committee
and provide a written summary of the communication. Under no circumstances will the
Proxy Committee or any member of the Proxy Committee make a commitment to an
Interested Company regarding the voting of proxies or disclose to an Interested
Company how the Proxy Committee has directed such proxies to be voted. If the Proxy
Voting Guidelines already provide specific direction on the proposal in question, the
Proxy Committee shall not alter or amend such directions. If the Proxy Voting
Guidelines require the Proxy Committee to provide further direction, the Proxy
Committee shall do so in accordance with the proxy voting policies, without regard
for the interests of the Adviser with respect to the Interested Company. If the
Proxy Committee provides any direction as to the voting of proxies relating to a
proposal affecting an Interested Company, it must disclose to the Fund's Board
information regarding: the significant business relationship; any material
communication with the Interested Company; the matter(s) voted on; and how, and why,
the Adviser voted as it did.

If the Fund holds shares of another investment company for which the Adviser (or an
affiliate) acts as an investment adviser, the Proxy Committee will vote the Fund's
proxies in the same proportion as the votes cast by shareholders who are not clients
of the Adviser at any shareholders' meeting called by such investment company, unless
otherwise directed by the Board.

<R>

Proxy Voting Report
A report on "Form N-PX" of how the Fund voted any proxies during the most recent
12-month period ended June 30 is available through Federated's Internet site. Go to
www.federatedinvestors.com; select "Products;" select the Fund; then use the link to
"Prospectuses and Regulatory Reports" to access the link to Form N-PX.

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can be
obtained elsewhere. The Adviser 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 Administrative Services (FAS), a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. FAS provides these at the
following annual rate of the average aggregate daily net assets of all Federated
funds as specified below:

Average Aggregate Daily
Maximum Administrative Fee Net Assets of the Federated
Funds
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion
The administrative fee received during any fiscal year shall be at least $150,000 per
portfolio and $40,000 per each additional class of Shares. FAS may voluntarily waive
a portion of its fee and may reimburse the Fund for expenses.
--------------------------------------------------------------------------------------

FAS 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.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, the Fund's registered transfer agent, maintains
all necessary shareholder records.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Fund, Deloitte & Touche
LLP, conducts its audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require it to plan and perform its
audits to provide reasonable assurance about whether the Fund's financial statements
and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES
For the Year Ended August
31 2004 2003 2002
--------------------------

Advisory Fee Earned $194,916 $138,241 $92,871
Advisory Fee Reduction 194,916 138,241 92,871
Administrative Fee 155,409 155,000 125,000
12b-1 Fee:
Class A Shares -- -- --
Class B Shares 159,606 73,900 --
Shareholder Services Fee:
Class A Shares 68,620 61,767 --
Class B Shares 53,202 24,633 --

--------------------------------------------------------------------------------------
Fees are allocated among classes based on their pro rata share of Fund assets, except
for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only
by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard methods for
calculating performance applicable to all mutual funds. The SEC also permits this
standard performance information to be accompanied by non-standard performance
information.

Share performance reflects the effect of non-recurring charges, such as maximum sales
charges, which, if excluded, would increase the total return and yield. The
performance of Shares depends upon such variables as: portfolio quality; average
portfolio maturity; type and value of portfolio securities; changes in interest
rates; changes or differences in the Fund's or any class of Shares' expenses; and
various other factors.

Share performance fluctuates on a daily basis largely because net earnings and/or the
value of portfolio holdings fluctuate daily. Both net earnings and offering price per
Share are factors in the computation of yield and total return.

Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year and ten-year or start of
performance periods ended August 31, 2004.

Yield and Tax-Equivalent Yield are given for the 30-day period ended August 31, 2004.

30-Day Period 1 Year 5 Years 10 Years
Class A Shares:
Total Return
Before Taxes N/A 1.73% 4.40% 5.20%
After Taxes on N/A 1.73% 4.40% 5.20%
Distributions
After Taxes on
Distributions and Sale N/A 2.63% 4.44% --------------
of Shares 5.19%
Yield 3.50%
Tax-Equivalent Yield 6.07%

--------------------------------------------------------------------------------------- Start of
Performance
30-Day Period 1 Year 5 Years on 9/5/2002
Class B Shares:
Total Return
Before Taxes N/A 0.22% -- 1.23%
After Taxes on N/A 0.22% -- 1.23%
Distributions
After Taxes on
Distributions and Sale N/A 1.43% -- 1.58%
of Shares
Yield 2.92%
Tax-Equivalent Yield 5.07%

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 $10,000 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 $10,000,
less any applicable sales charge, adjusted over the period by any additional Shares,
assuming the annual reinvestment of all dividends and distributions. Total returns
after taxes are calculated in a similar manner, but reflect additional standard
assumptions required by the SEC.

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 the maximum combined
federal and state 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 tax exempt 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.

Taxable Yield Equivalent for 2004 State of New York
Tax Bracket:
Federal 10.00% 15.00% 25.00% 28.00% 33.00% 35.00%
Combined
Federal 14.000% 21.850% 31.850% 35.375% 40.375% 42.375%
& State
Joint Return: $0- $14,301- $58,101- $117,251- $178,651- Over
$58,100 $117,250 $178,650 $319,100 $319,100
$14,300
Single Return: $0 - $7,151- $29,051- $70,351- $146,751- Over
$7,150 $29,050-- $70,350 $146,750 $319,100 $319,100

Tax-Exempt Taxable Yield Equivalent
Yield
0.50% 0.58% 0.64% 0.73% 0.77% 0,84% 0.87%
1.00% 1.16% 1.28% 1.47% 1.55% 1.68% 1.74%
1.50% 1.74% 1.92% 2.20% 2.32% 2.52% 2.60%
2.00% 2.33% 2.56% 2.93% 3.09% 3.35% 3.47%
2.50% 2.91% 3.20% 3.67% 3.87% 4.19% 4.34%
3.00% 3.49% 3.84% 4.40% 4.64% 5.03% 5.21%
3.50% 4.07% 4.48% 5.14% 5.42% 5.87% 6.07%
4.00% 4.65% 5.12% 5.87% 6.19% 6.71% 6.94%
4.50% 5.23% 5.76% 6.60% 6.96% 7.55% 7.81%
5.00% 5.81% 6.40% 7.34% 7.74% 8.39% 8.68%
5.50% 6.40% 7.04% 8.07% 8.51% 9.22% 9.54%
6.00% 6.98% 7.68% 8.80% 9.28% 10.06% 10.41%
6.50% 7.56% 8.32% 9.54% 10.06% 10.90% 11.28%
7.00% 8.14% 8.96% 10.27% 10.83% 11.74% 12.15%
7.50% 8.72% 9.60% 11.01% 11.61% 12.58% 13.02%
8.00% 9.30% 10.24% 11.74% 12.38% 13.42% 13.88%
8.50% 9.88% 10.88% 12.47% 13.15% 14.26% 14.75%
9.00% 10.47% 11.52% 13.21% 13.93% 15.09% 15.62%
---------------------------------------------------------------------------------------
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
--------------------------------------------------------------------------------------

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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:

Lehman Brothers Municipal Bond Index
Lehman Brothers Municipal Bond Index is a broad market performance benchmark for the
tax exempt bond market. To be included in the Lehman Brothers Municipal Bond Index,
bonds must have a minimum credit rating of at least Baa. They must have an
outstanding par value of at least $3 million and be issued as part of a transaction
of at least $50 million. The index includes both zero coupon bonds and bonds subject
to the Alternative Minimum Tax.

Lipper Inc.
Lipper Inc. ranks funds in various fund categories by making comparative calculations
using total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in offering
price over a specific period of time. From time to time, the Fund will quote its
Lipper ranking in the "New York Municipal Bond Funds" category in advertising and
sales literature.

Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly
Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment products
have a history of competitive performance and have gained the confidence of thousands
of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound methodologies
backed by fundamental and technical research. At Federated, success in investment
management does not depend solely on the skill of a single portfolio manager. It is a
fusion of individual talents and state-of-the-art industry tools and resources.
Federated's investment process involves teams of portfolio managers and analysts, and
investment decisions are executed by traders who are dedicated to specific market
sectors and who handle trillions of dollars in annual trading volume.

Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 2003, Federated managed 14 bond funds
with approximately $3.8 billion in assets and 22 money market funds with
approximately $23.0 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 32 years' experience. As of December
31, 2003, Federated managed 36 equity funds totaling approximately $25.6 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, 2003, Federated managed 11 money
market funds and 4 bond funds with assets approximating $61.7 billion and $3.4
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 30 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, 2003, Federated managed 7 mortgage
backed, 3 multi-sector government funds, 4 government/agency and 19 government money
market mutual funds, with assets approximating $4.9 billion, $0.9 billion, $2.9
billion and $56.2 billion, respectively. Federated trades approximately $90.4 billion
in U.S. government and mortgage backed securities daily and places approximately $35
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 $50 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, 2003, Federated managed
$136.2 billion in assets across 52 money market funds, including 19 government, 10
prime, 22 municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various investment
sectors within Federated are: Global Equity - Stephen F. Auth is responsible for
overseeing the management of Federated's domestic and international equity products;
Global Fixed Income - Mary Jo Ochson and Robert J. Ostrowski are responsible for
overseeing the management of Federated's domestic and international fixed income and
high yield products; and Money Markets - Deborah A. Cunningham is responsible for
overseeing the management of Federated's money market fund products.

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial goals through
mutual funds. These investors, as well as businesses and institutions, have entrusted
over $6.2 trillion to the approximately 8,300 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 3,035 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.

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.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 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.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended August 31, 2004 are
incorporated herein by reference to the Annual Report to Shareholders of Federated
New York Municipal Income Fund dated August 31, 2004.

INVESTMENT RATINGS

AA--Very high credit quality. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time; however,
business or financial alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk is present,
but a limited margin of safety remains. Financial commitments are currently being
met; however, capacity for continued payment is contingent upon a sustained,
favourable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon sustained, favourable business or
economic developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market positions
in well established industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset protection,
broad margins in earning coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets and assured
sources of alternate liquidity.

Prime-2--Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt 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-- A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated with a
plus sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

Fitch Ratings Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. Under their national rating
scale, this rating is assigned to the "best" credit risk relative to all others in
the same country and is normally assigned to all financial commitments issued or
guaranteed by the sovereign state. Where the credit risk is particularly strong, a
"+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. However, the margin of
safety is not as great as in the case of the higher ratings.

ADDRESSES
Federated New York 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, Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

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Federated
World-Class Investment Manager

Federated Ohio Municipal Income Fund

A Portfolio of Federated Municipal Securities Income Trust

PROSPECTUS

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October 31, 2004

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class f shares

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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 Ohio and Ohio municipalities by investing primarily in a portfolio of long-term, investment-grade Ohio tax-exempt securities.

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Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 13

What Do Shares Cost? 16

How is the Fund Sold? 20

How to Purchase Shares 22

How to Redeem and Exchange Shares 23

Account and Share Information 26

Who Manages the Fund? 27

Legal Proceedings 28

Financial Information 30

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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?

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The Fund invests in a portfolio of tax-exempt securities so that, normally, distributions of annual interest income are exempt from federal regular income tax and the personal income taxes imposed by the state of Ohio and Ohio municipalities. Interest from the Fund's investments may be subject to the federal alternative minimum tax for individuals and corporations (AMT). The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities greater than ten years. The Fund's portfolio securities will be primarily long-term, investment-grade securities. The Fund may invest in derivative contracts to implement strategies as more fully described herein.

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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:

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Interest Rate Risks. Prices of tax-exempt securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of fixed-income securities with longer durations.

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

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Liquidity Risks. Trading opportunities are more limited for tax-exempt securities that have not received any credit ratings, have received ratings below investment grade or are not widely held. Liquidity risk also refers to the possibility that the Fund may not be able to close out a derivative contract when it wants to. Over-the-counter derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

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Tax Risks. The federal income tax treatment of payments in respect of certain derivative contracts is unclear. Consequently, the Fund may receive payments that are treated as ordinary income for federal income tax purposes.
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.

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Call Risks. Issuers of tax-exempt securities may redeem the securities prior to maturity at a price below their current market value.

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Sector Risks. Since the Fund invests primarily in issuers from Ohio, the Fund may be subject to additional risks compared to funds that invest in multiple states. Ohio's economy is relatively diversified across the manufacturing, agriculture and service sectors. However, the automobile and tire industries are still major employers within Ohio and expose the state to the economic dislocations which occur within cyclical industries.

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Prepayment Risks. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also when interest rates fall, the price of municipal mortgage-backed securities may not raise to as great an extent as that of other fixed-income securities.

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Risks of Investing in Derivative Contracts. Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus, such as interest rate, credit, liquidity and leverage risks.

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Non-Diversified Risk. 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.

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Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class F Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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The Fund's Class F Shares total return for the nine-month period from January 1, 2004 to September 30, 2004 was 2. 72%.

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Within the period shown in the bar chart, the Fund's Class F Shares highest quarterly return was 7.23% (quarter ended March 31, 1995). Its lowest quarterly return was (5.94)% (quarter ended March 31, 1994).

Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class F Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for the Fund's Class F Shares. In addition, Return After Taxes is shown for the Fund's Class F Shares to illustrate the effect of federal taxes on Fund returns. Actual after -tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Lehman Brothers Municipal Bond Index (LBMB), a broad-based market index, and the Lipper Ohio Municipal Debt Funds Average (LOMDFA), an average of Funds with similar investment objectives. The LBMB is a broad market performance benchmark for the tax-exempt bond market. To be included in the LBMB, bonds must have a minimum credit rating of Baa. The LOMDFA represents the average of the total returns reported by all mutual funds designed by Lipper, Inc. as falling into the respective category. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in a mutual fund's performance. Indexes are unmanaged and it is not possible to invest directly in an index or an average.

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(For the periods ended December 31, 2003)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	<R> 3. 42%</R>	<R> 4. 36%</R>	<R> 4. 98%</R>
Return After Taxes on Distributions¹	<R> 3. 42%</R>	<R> 4. 36%</R>	<R> 4. 95%</R>
Return After Taxes on Distributions and Sale of Fund Shares¹	<R> 3. 81%</R>	<R> 4. 40%</R>	<R> 4. 95%</R>
LBMB	<R> 5. 31%</R>	<R> 5. 83%</R>	<R> 6. 03%</R>
<R> LOMDFA </R>	<R> 4. 59%</R>	<R> 4. 60%</R>	<R> 5. 04%</R>

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1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED OHIO MUNICIPAL INCOME FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold Class F Shares of the Fund.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)		None
Redemption Fee (as a percentage of amount redeemed, if applicable)		None
Exchange Fee		None

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.40%
Distribution (12b-1) Fee³		0.40%
Shareholder Services Fee		0.25%
Other Expenses⁴		0.33%
Total Annual Fund Operating Expenses		1.38%

1 The percentages shown are based on expenses for the entire fiscal year ended August 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the adviser, distributor, administrator and transfer agent waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended August 31, 2004.
Total Waivers of Fund Expenses		0.48%
Total Actual Annual Fund Operating Expenses (after waivers)		0.90%
2 The adviser has 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 0.19% for the fiscal year ended August 31, 2004.
3 A portion of the distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund (after the voluntary waiver) was 0.15% for the fiscal year ended August 31, 2004.
4 The administrator and transfer agent voluntarily waived a portion of their fees. The administrator and transfer agent can terminate these voluntary waivers at any time. Total other expenses paid by the Fund (after the voluntary waivers) were 0.31% for the fiscal year ended August 31, 2004.

EXAMPLE

The following Example is intended to help you compare the cost of investing in the Fund's Class F Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class F Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

<R> Class F </R>	1 Year	3 Years	5 Years	10 Years
Expenses assuming redemption	<R> $ 339</R>	<R> $ 633</R>	<R> $ 848</R>	<R> $1, 741</R>
Expenses assuming no redemption	<R> $ 239</R>	<R> $ 533</R>	<R> $ 848</R>	<R> $1, 741</R>

What are the Fund's Investment Strategies?

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The Fund invests at least 65% of its assets in investment-grade securities. The Fund does not limit itself to securities of a particular maturity range, but currently focuses on long-term securities with maturities greater than ten years. The Fund's investment adviser (Adviser) actively manages the Fund's portfolio, seeking to manage the interest rate risk and credit risk assumed by the Fund and to provide superior levels of after-tax total return.

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current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve Board's monetary policy; and
supply and demand factors related to the municipal market and the effect they may have on the returns offered for various bond maturities.

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the economic feasibility of revenue bond financings and general purpose financings;
the financial condition of the issuer or guarantor; and
political developments that may affect credit quality.

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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.

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The Fund may enter into derivatives contracts as hedging transactions, as more fully described herein. The Fund also may use derivative contracts to implement its overall investment strategies in a more cost effective or efficient manner. For example, the Fund may purchase derivatives contracts rather than individual securities in order to gain exposure to the municipal bond sector.

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Because the Fund refers to Ohio municipal investments in its name, it has an investment policy that it will normally invest its assets so that at least 80% of the income that it distributes will be exempt from federal regular income tax and the personal income taxes imposed by the state of Ohio and Ohio municipalities. This policy may not be changed without shareholder approval.

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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 derivative contract that would normally increase in value under the same circumstances. The Fund may also attempt to hedge by using combinations of different derivatives contracts, or derivatives contracts and securities. The Fund's ability to hedge may be limited by the costs of the derivatives 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 derivatives contracts that cover a narrow range of circumstances; or (3) involve the sale of derivatives 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

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The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. 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. This may also cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

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What are the Principal Securities in Which the Fund Invests?

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TAX-EXEMPT SECURITIES

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<R>

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.

</R>

General Obligation Bonds

Special Revenue Bonds

Private Activity 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 Leases

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</R>

Zero Coupon Securities

Inverse Floaters

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</R>
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Municipal Mortgage-Backed Securities

</R>
<R>

PACS

</R>
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</R>

Credit Enhancement

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</R>
<R>

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.

</R>

DERIVATIVE CONTRACTS

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</R>
<R>

Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument 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. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.

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<R>

The Fund may trade in the following types of derivative contracts, as well as combinations of these contracts:

</R>
<R>

Futures Contracts

</R>
<R>

The Fund may buy or sell the following types of futures contracts: interest rate and index financial futures contracts.

</R>
<R>

Options

</R>
<R>

Swaps

</R>
<R>

</R>

SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Asset Coverage

<R>

Investment Ratings for Investment-Grade Securities

</R>
<R>

The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, an NRSRO, assigns ratings to investment-grade securities (AAA, AA, A and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade.

</R>

If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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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

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SECTOR RISKS

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A substantial part of the Fund's portfolio may be comprised of securities issued by Ohio issuers or credit enhanced by banks, insurance companies or companies similar characteristics. As a result, the Fund will be more susceptible to any economic, business, political or other developments which generally affect Ohio issuers or these credit enhancing entities. Ohio's economy is relatively diversified across the manufacturing, agriculture and service sectors. However, the automobile and tire industries are still major employers within Ohio and expose the state to the economic dislocations which occur within cyclical industries. Since the Fund invest primarily in issuers from a single state, the Fund may be subject to additional risks compared to funds that invest in multiple states.

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TAX RISKS

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

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Income from the Fund may be subject to AMT.

LEVERAGE RISKS

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Investments can have these same results if their returns are based on a multiple of a specified index, security, or other benchmark.

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LIQUIDITY RISKS

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PREPAYMENT RISKS

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Unlike traditional fixed-income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on municipal mortgage-backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding municipal mortgage-backed securities.

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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus, such as interest rate, credit, liquidity, and leverage risks.

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<R>

RISKS ASSOCIATED WITH NONINVESTMENT-GRADE SECURITIES

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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 downturns and financial setbacks may affect their prices more negatively, and their trading market may be more limited. The Fund may invest up to 35% of its assets in noninvestment-grade securities.

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What Do Shares Cost?

<R>

You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed-income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost. Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. Options traded in the over-the-counter market are generally valued according to the mean between the last bid and the last asked price for the option as provided by an investment dealer or other financial institution that deals in the option.

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<R>

The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

</R>

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charges
		Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class F	$1,500/$100	1.00%	1.00%

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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

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The following table lists the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the table and described below.

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Class F Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $1 million	1.00%	1.01%
$1 million or greater	0.00%	0.00%

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REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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<R>

Your investment may qualify for an elimination of the sales charge, also known as a breakpoint discount. The breakpoint discounts offered by the Fund are indicated in the table above. You or your investment professional must notify the Fund's Transfer Agent of any applicable breakpoint discount at the time of purchase.

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In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your investment professional or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint ("Qualifying Accounts"). Qualifying Accounts mean those Class F Share accounts in the Federated funds held directly or through an investment professional or a through a single-participant retirement account by you, your spouse, and/or your children under age 21, which can be linked using tax identification numbers (TINs) or social security numbers (SSNs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs or SSNs, are not Qualifying Accounts.

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Contingent upon notification to the Transfer Agent, the sales charge at purchase Class F Shares, may be eliminated by:

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Larger Purchases

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

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Concurrent Purchases

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combining concurrent purchases of Class F Shares of the Fund made by a trustee or fiduciary for a single trust estate or single fiduciary account; or made by a Qualifying Account in the same share class of two or more Federated funds (other than money market funds);

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Accumulated Purchases

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achieving accumulated purchase discounts by including previous Class F Share purchases in determining the applicable sales charge on any additional Class F Shares purchased; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class F Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or

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Letter of Intent

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signing a letter of intent to purchase a qualifying amount of Class F Shares within 13 months. (Call your investment professional or the Fund for more information.) 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.

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ELIMINATING THE SALES CHARGE

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Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

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through a financial intermediary that did not receive a dealer reallowance on the purchase;

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with reinvested dividends or capital gains;

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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;

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as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any investment professional that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or

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pursuant to the exchange privilege.

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SALES CHARGE WHEN YOU REDEEM

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Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

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To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

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Shares that are not subject to a CDSC; and

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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.)

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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

<R> Class F Shares:</R>
<R> Purchase Amount</R>	<R> Shares Held</R>	<R> CDSC</R>
<R> Up to $2 million</R>	<R> 4 years or less</R>	<R> 1.00%</R>
<R> $2 - but less than $5 million</R>	<R> 2 years or less</R>	<R> 0.50%</R>
<R> $5 million or more</R>	<R> 1 year or less</R>	<R> 0.25%</R>

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If your investment qualifies for an elimination of the CDSC, you or your investment professional must notify the Transfer Agent at the time of redemption. If the Transfer Agent is not notified, the CDSC will apply.

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Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

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representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;

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purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;

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purchased by Trustees and employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of an investment professional that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;

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purchased through an investment professional that did not receive an advance commission on the purchase;

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purchased with reinvested dividends or capital gains;

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redeemed by the Fund when it closes an account for not meeting the minimum balance requirements;

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purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period. (The holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange.); and

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representing a total or partial distribution from a qualified plan, which does not include account transfers, rollovers, or redemptions for the purpose of reinvestment. For these purposes, qualified plan does not include an Individual Retirement Account, Keogh Plan, or custodial account following retirement.

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How is the Fund Sold?

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to customers of financial institutions, such as broker/dealers, banks, fiduciaries and investment advisers, or to individuals, directly or through investment professionals. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in Ohio tax-exempt securities.

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RULE 12B-1 PLAN

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SERVICE FEES

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ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

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How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

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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

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Make your check payable to The Federated Funds , note your account number on the check, and send it to:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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The Federated Funds
66 Brooks Drive
Braintree, MA 02184

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THROUGH AN EXCHANGE

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BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

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You may redeem or exchange Shares by sending a written request to the Fund.

</R>

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:

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The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

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Send requests by private courier or overnight delivery service to:

<R>

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

</R>

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging , the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

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Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

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your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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PAYMENT METHODS FOR REDEMPTIONS

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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Generally, it is not advisable to continue to purchase Class F Shares subject to a sales charge while redeeming Shares using this program.

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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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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.

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ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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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 regular 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 Fund's dividends will be exempt from the Ohio taxes discussed above to the extent they are derived from interest on obligations exempt from such taxes. Capital gains and non-exempt dividends are taxable whether paid in cash or reinvested in the Fund. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.

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Who Manages the Fund?

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<R>

The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $ 198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1, 650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

J. Scott Albrecht

Mary Jo Ochson

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Mary Jo Ochson has been the Fund's Portfolio Manager since April 1997. Ms. Ochson was named Chief Investment Officer of tax-exempt, fixed-income products in 2004 and is Vice President of the Trust. She joined Federated in 1982 and has been a Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser since 1996 . Ms. Ochson is a Chartered Financial Analyst and received her M.B.A. in Finance from the University of Pittsburgh.

</R>

ADVISORY FEES

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Legal Proceedings

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<R>

Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds (Funds) from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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<R>

As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website www.federatedinvestors.com , and any future press releases on this subject will also be posted there.

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<R>

</R>

Financial Information

FINANCIAL HIGHLIGHTS

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</R>

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 Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended August 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$11.31		$11.47		$11.45		$11.06		$11.11
Income From Investment Operations:
Net investment income	0.51		0.52		0.53	¹	0.55		0.55
Net realized and unrealized gain (loss) on investments, futures contracts and swap contracts	0.20		(0.16	)	0.02	¹	0.38		(0.06	)
TOTAL FROM INVESTMENT OPERATIONS	0.71		0.36		0.55		0.93		0.49
Less Distributions:
Distributions from net investment income	(0.51	)	(0.52	)	(0.53	)	(0.54	)	(0.54	)
TOTAL DISTRIBUTIONS	(0.51	)	(0.52	)	(0.53	)	(0.54	)	(0.54	)
Net Asset Value, End of Period	$11.51		$11.31		$11.47		$11.45		$11.06
Total Return²	6.36	%	3.17	%	4.97	%	8.69	%	4.68	%

Ratios to Average Net Assets:
Expenses	0.90	%	0.90	%	0.90	%	0.90	%	0.90	%
Net investment income	4.44	%	4.51	%	4.75	%¹	4.90	%	5.06	%
Expense waiver/reimbursement³	0.48	%	0.45	%	0.49	%	0.51	%	0.54	%
Supplemental Data:
Net assets, end of period (000 omitted)	$94,744		$96,374		$89,772		$75,896		$73,710
Portfolio turnover	19	%	12	%	21	%	39	%	37	%

1 Effective September 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. For the year ended August 31, 2002, this change had no effect on the net investment income per share or the net realized and unrealized gain (loss) on investments per share, but increased the ratio of the net investment income to average net assets from 4.74% to 4.75%. Per share, ratios and supplemental data for the periods prior to September 1, 2001 have not been restated to reflect this change in presentation.

2 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated August 31, 2004, which can be obtained free charge.

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<R>

</R>

Investment Company Act File No. 811-6165

Federated
World-Class Investment Manager

Federated Ohio Municipal Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313923609

<R>

0090702A-F (10/ 04)

</R>

Federated is a registered mark of Federated Investors, Inc. 2004 (c)Federated Investors, Inc.

FEDERATED OHIO MUNICIPAL INCOME FUND
A Portfolio of Federated Municipal Securities Income Trust

Statement of Additional Information

<R>

October 31, 2004

</R>

Class F Shares
This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in
conjunction with the prospectus for Federated Ohio Municipal Income Fund (Fund),
dated October 31, 2004.

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.

Contents
How is the Fund Organized?...............1
Securities in Which the Fund Invests.....1
What Do Shares Cost?.....................8
How is the Fund Sold?....................8
Subaccounting Services..................10
Redemption in Kind......................10
Massachusetts Partnership Law...........10
Account and Share Information...........11
Tax Information.........................11
Who Manages and Provides Services
to the Fund?..........................11
How Does the Fund Measure Performance?..20
Who is Federated Investors, Inc.?.......23
Financial Information...................24
Investment Ratings......................24
Addresses...............................26

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 Trust changed its name from Municipal Securities Income
Trust to Federated Municipal Securities Income Trust on October 1, 1999. The Fund
changed its name from Ohio Municipal Income Fund to Federated Ohio Municipal Income
Fund on February 26, 1996 (effective date March 31, 1996).

The Fund's investment adviser is Federated Investment Management Company (Adviser).

SECURITIES IN WHICH THE FUND INVESTS

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The principal securities in which the Fund invests are discussed in the Fund's
prospectus. In pursuing its investment strategy, the Fund may also invest in the
following securities for any purpose that is consistent with its investment objective.

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SECURITIES DESCRIPTIONS AND TECHNIQUES

Municipal Notes
Municipal notes are short-term tax exempt securities. Many municipalities issue such
notes to fund their current operations before collecting taxes or other municipal
revenues. Municipalities may also issue notes to fund capital projects prior to
issuing long- term bonds. The issuers typically repay the notes at the end of their
fiscal year, either with taxes, other revenues or proceeds from newly issued notes or
bonds.
Variable Rate Demand Instruments
Variable rate demand instruments are tax exempt securities that require the issuer or
a third party, such as a dealer or bank, to repurchase the security for its face
value upon demand. The securities also pay interest at a variable rate intended to
cause the securities to trade at their face value. The Fund treats demand instruments
as short-term securities, because their variable interest rate adjusts in response to
changes in market rates, even though their stated maturity may extend beyond 13
months.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If a
default occurs, these assets may be sold and the proceeds paid to the security's
holders. Either form of credit enhancement reduces credit risks by providing another
source of payment for a fixed income security.

Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, commodities,
currencies, financial indices or other assets. Some derivative contracts (such as
futures, forwards and options) require payments relating to a future trade involving
the underlying asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other party to a
derivative contract is referred to as a counterparty.

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.

The Fund may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other OTC
contracts. In addition, OTC contracts with more specialized terms may be more
difficult to price than exchange traded contracts.

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. OTC contracts also expose
the Fund to credit risks in the event that a counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts, as well as
combinations of these contracts, including, but not limited to, options on futures
contracts, options on forward contracts and options on swaps.

Futures Contracts
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Futures 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 has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act and, therefore, is not
subject to registration or regulation as a commodity pool operator under that Act.
Futures contracts traded OTC are frequently referred to as forward contracts. The
Fund may buy or sell the following types of contracts: interest rate and index
financial futures contracts.

Options
Options are rights to buy or sell an underlying asset or instrument for a specified
price (the exercise price) during, or at the end of, a specified period. The seller
(or writer) of the option receives a payment, or premium, from the buyer, which the
writer keeps regardless of whether the buyer uses (or exercises) the option. Options
can trade on exchanges or in the OTC market and may be bought or sold on a wide
variety of underlying assets or instruments, including financial indices, individual
securities, and other derivative instruments, such as futures contracts. Options that
are written on futures contracts will be subject to margin requirements similar to
those applied to futures contracts.

Call Options
A call option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. The Fund may use call options in the following ways:

|X| Buy call options on indices, individual securities, index futures and financial
futures in anticipation of an increase in the value of the underlying asset or
instrument; and

|X| Write call options on indices, portfolio securities, index futures and
financial futures to generate income from premiums, and in anticipation of a
decrease or only limited increase in the value of the underlying asset. If a
call written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the exercise
price plus the premium received.

Put Options
A put option gives the holder the right to sell the underlying asset to the writer of
the option. The Fund may use put options in the following ways:

|X| Buy put options on indices, individual securities, index futures and financial
futures in anticipation of a decrease in the value of the underlying asset; and

|X| Write put options on indices, portfolio securities, index futures and financial
futures to generate income from premiums, and in anticipation of an increase or
only limited decrease in the value of the underlying asset. In writing puts,
there is a risk that the Fund may be required to take delivery of the
underlying asset when its current market price is lower than the exercise price.

|X| The Fund may also buy or write options, as needed, to close out existing option
positions.

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Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the returns
derived from underlying assets with differing characteristics. Most swaps do not
involve the delivery of the underlying assets by either party, and the parties might
not own the assets underlying the swap. The payments are usually made on a net basis
so that, on any given day, the Fund would receive (or pay) only the amount by which
its payment under the contract is less than (or exceeds) the amount of the other
party's payment. Swap agreements are sophisticated instruments that can take many
different forms, and are known by a variety of names including caps, floors and
collars. Common swap agreements that the Fund may use include:

Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular payments
equal to a fixed or floating interest rate times a stated principal amount of fixed
income securities, in return for payments equal to a different fixed or floating rate
times the same principal amount, for a specific period. For example, a $10 million
London Interbank Offer Rate (LIBOR) swap would require one party to pay the
equivalent of the LIBOR rate of interest (which fluctuates) on $10 million principal
amount in exchange for the right to receive the equivalent of a stated fixed rate of
interest on $10 million principal amount.

Total Rate of Return Swaps
Total rate of return swaps are contracts in which one party agrees to make payments
of the total return from the underlying asset during the specified period, in return
for payments equal to a fixed or floating rate of interest or the total return from
another underlying asset.

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.

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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.

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:

Treasury Securities
Treasury securities are direct obligations of the federal government of the United
States.

Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank instruments
include bank accounts, time deposits, certificates of deposit and banker's
acceptances.

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.

For example, inter-fund lending is permitted only (a) to meet shareholder redemption
requests, and (b) to meet commitments arising from "failed" trades. All inter-fund
loans must be repaid in seven days or less. The Fund's participation in this program
must be consistent with its investment policies and limitations, and must meet
certain percentage tests. Inter-fund loans may be made only when the rate of
interest to be charged is more attractive to the lending Federated fund than
market-competitive rates on overnight repurchase agreements (Repo Rate) and more
attractive to the borrowing Federated fund than the rate of interest that would be
charged by an unaffiliated bank for short-term borrowings (Bank Loan Rate), as
determined by the Board. The interest rate imposed on inter-fund loans is the
average of the Repo Rate and the Bank Loan Rate.

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are outlined
below.

Credit Risks
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and the
yield of a AAA municipal security with a comparable maturity (the spread) measures
the additional interest paid for risk. Spreads may increase generally in response to
adverse economic or market conditions. A security's spread may also increase if the
security's rating is lowered, or the security is perceived to have an increased
credit risk. An increase in the spread will cause the price of the security to
decline.
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.

Tax Risks
In order to be tax-exempt, tax exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received and
distributed by the Fund to shareholders to be taxable. Changes or proposed changes in
federal tax laws may cause the prices of tax exempt securities to fall.
The federal income tax treatment of payments in respect of certain derivative
contracts is unclear. Additionally, the Fund may not be able to close out certain
derivative contracts when it wants to. Consequently, the Fund may receive payments
that are treated as ordinary income for federal income tax purposes.

Liquidity Risks
Liquidity risk also refers to the possibility that the Fund may not be able to sell a
security or close out a derivatives 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. OTC derivative contracts generally carry greater
liquidity risk than exchange-traded contracts.

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.

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Risks of Investing in Derivative Contracts
The Fund's use of derivative contracts involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and other
traditional investments. First, changes in the value of the derivative contracts in
which the Fund invests may not be correlated with changes in the value of the
underlying asset or if they are correlated, may move in the opposite direction than
originally anticipated. Second, while some strategies involving derivatives may
reduce the risk of loss, they may also reduce potential gains or, in some cases,
result in losses by offsetting favorable price movements in portfolio holdings.
Third, there is a risk that derivatives contracts may be mispriced or improperly
valued and, as a result, the Fund may need to make increased cash payments to the
counterparty. Finally, derivative contracts may cause the Fund to realize increased
ordinary income or short-term capital gains (which are treated as ordinary income for
Federal income tax purposes) and, as a result, may increase taxable distributions to
shareholders. Derivative contracts may also involve other risks described in this
SAI, such as interest rate, credit, liquidity and leverage risks.
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Fundamental INVESTMENT Objective and Policy
The investment objective of the Fund is to provide current income exempt from federal
regular income tax (federal regular income tax does not include the federal
alternative minimum tax) and the personal income taxes imposed by the state of Ohio
and Ohio municipalities.
Under normal circumstances, the Fund will invest its assets so that at least 80% of
the income that it distributes will be exempt from federal regular income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities.
The investment objective and policy may not be changed by the Fund's Board without
shareholder approval.

INVESTMENT LIMITATIONS

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities to the
maximum extent permitted under the Investment Company Act of 1940 (1940 Act).

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction does
not prevent the Fund from investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein. The Fund may
exercise its rights under agreements relating to such securities, including the right
to enforce security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund may
purchase securities of companies that deal in commodities.

Underwriting
The Fund may not underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, lending its
assets to broker/dealers or institutional investors and investing in loans, including
assignments and participation interests.

Buying on Margin
The Fund will not purchase securities on margin, provided that the Fund may obtain
short-term credits necessary for the clearance of purchases and sales of securities,
and further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with permissible activities.

Restricted Securities
The Fund may invest in securities subject to restrictions or resale under the
Securities Act of 1933.
Except with respect to borrowing money, if a percentage limitation is adhered to at
the time of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
In applying the Fund's commodities restriction, investments in transactions
involving futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash are not
deemed to be investments in commodities.
In applying the Fund's concentration limitation, investments in certain industrial
development bonds funded by activities in a single industry will be deemed to
constitute investment in an industry. In addition: (a) utility companies will be
divided according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to end users of their services, for example,
automobile finance, bank finance and diversified finance will each be considered a
separate industry; and (c) asset-backed securities will be classified according to
the underlying assets securing such securities. To conform to the current view of the
SEC staff that only domestic bank instruments may be excluded from industry
concentration limitations, the Fund will not exclude foreign bank instruments from
industry concentration tests as long as the policy of the SEC remains in effect. The
Fund will consider concentration to be the investment of more than 25% of the value
of its total assets in any one industry.

DETERMINING MARKET VALUE OF SECURITIES
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Market values of the Fund's portfolio securities are determined as follows:

o futures contracts and options are generally valued at market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are generally valued
according to the mean between the last bid and the last asked price for the option
as provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value;

o for all other securities at fair value as determined in accordance with
procedures established by and under the general supervision of the Board.

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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.

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 pays a portion of this charge to investment professionals that are
eligible to receive it (the "Dealer Reallowance") and retains any remaining portion
of the front-end sales charge.

When an investment professional's customer purchases Shares, the investment
professional may receive a Dealer Reallowance as follows:

Class F Shares
Dealer Reallowance
as a Percentage of
Purchase Amount Public Offering Price
Less than $1 million 1.00%
$1 million or greater 0.00%

Class F Shares
Advance Commission
as a Percentage of
Purchase Amount Public Offering
Price
Less than $2 million 1.00%
$2 million -but less than $5 0.50%
million
$5 million or greater 0.25%

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RULE 12B-1 PLAN
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The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these expenses.

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Additional Payments to Financial Institutions
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The Distributor may pay out of its own resources amounts (including items of material
value) to certain financial institutions. In some cases, such payments may be made
by, or funded from the resources of, companies affiliated with the Distributor
(including the Adviser). While NASD regulations limit the sales charges that you may
bear, there are no limits with regard to the amounts that the Distributor may pay out
of its own resources. In addition to the payments which are generally described
herein and in the prospectus, the financial institution also may receive payments
under the Rule 12b-1 Plan and/or Service Fees.

You can ask your financial institution for information about any payments it receives
from the Distributor or the Federated funds and any services provided.

The following examples illustrate the types of instances in which the Distributor may
make additional payments to financial institutions.

Supplemental Payments
The Distributor may make supplemental payments to certain financial institutions that
are holders or dealers of record for accounts in one or more of the Federated funds.
These payments may be based on such factors as the number or value of Shares the
financial institution sells or may sell; the value of client assets invested; or the
type and nature of services or support furnished by the financial institution.

Processing Support Payments
The Distributor may make payments to financial institutions that sell Federated fund
shares to help offset their costs associated with client account maintenance support,
statement processing and transaction processing. The types of payments that the
Distributor may make under this category include payment of ticket charges on a per
transaction basis; payment of networking fees; and payment for ancillary services
such as setting up funds on the financial institution's mutual fund trading system.

Retirement Plan Program Servicing Payments
The Distributor may make payments to certain financial institutions who sell
Federated fund shares through retirement plan programs. A financial institution may
perform retirement plan program services itself or may arrange with a third party to
perform retirement plan program services. In addition to participant recordkeeping,
reporting, or transaction processing, retirement plan program services may include
services rendered to a plan in connection with fund/investment selection and
monitoring; employee enrollment and education; plan balance rollover or separation,
or other similar services.

Other Benefits to Financial Institutions
From time to time, the Distributor, at its expense, may provide additional
compensation to financial institutions that sell or arrange for the sale of Shares.
Such compensation may include financial assistance to financial institutions that
enable the Distributor to participate in or present at conferences or seminars, sales
or training programs for invited employees, client and investor events and other
financial institution-sponsored events.

The Distributor also may hold or sponsor, at its expense, sales events, conferences
and programs for employees or associated persons of financial institutions and may
pay the travel and lodging expenses of attendees. The Distributor also may provide,
at its expense, meals and entertainment in conjunction with meetings with financial
institutions. Other compensation may be offered to the extent not prohibited by
applicable laws, regulations or the rules of any self-regulatory agency, such as the
NASD.

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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 1940 Act, the
Fund is obligated to pay Share redemptions to any one shareholder in cash only up to
the lesser of $250,000 or 1% of the net assets represented by such Share class during
any 90-day period.

Any Share redemption payment greater than this amount will also be in cash unless the
Fund's Board determines that payment should be in kind. In such a case, the Fund will
pay all or a portion of the remainder of the redemption in portfolio securities,
valued in the same way as the Fund determines its NAV. The portfolio securities will
be selected in a manner that the Fund's Board deems fair and equitable and, to the
extent available, such securities will be readily marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made in
kind, shareholders receiving the portfolio securities and selling them before their
maturity could receive less than the redemption value of the securities and could
incur certain transaction costs.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as partners
under Massachusetts law for obligations of the Trust. To protect its shareholders,
the Trust has filed legal documents with Massachusetts that expressly disclaim the
liability of its shareholders for acts or obligations of the Trust.

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
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Each Share of the Fund gives the shareholder one vote in Trustee elections and other
matters submitted to shareholders for vote. All Shares of the Trust have equal
voting rights, except that in matters affecting only a particular Fund or class, only
Shares of that Fund or class are entitled to vote. Trustees may be removed by the
Board or by shareholders at a special meeting. A special meeting of shareholders will
be called by the Board upon the written request of shareholders who own at least 10%
of the Trust's outstanding Shares of all series entitled to vote.

As of October 1, 2004, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class F Shares: Edward Jones & Co., Maryland Hts,
MO, owned approximately 2,388,546 Shares (28.80)%; MLPF&S, Jacksonville, FL,
owned approximately 1,367,535 Shares (16.49)% and Milards & Co., Oaks, PA, owned
approximately 660,426 Shares (7.96)%.

Edward Jones & Co., is organized in the state of Missouri and is a subsidiary
of Jones Financial Companies LLLP; organized in the state of Missouri.

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TAX INFORMATION

The Fund will be treated as a single, separate entity for federal income tax purposes
so that income earned and capital gains and losses realized by the Trust's other
portfolios will be separate from those realized by the Fund.

The Fund is entitled to a loss carry-forward, which may reduce the taxable income or
gain that the Fund would realize, and to which the shareholder would be subject, in
the future.

STATE TAXES
Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio
individual income taxes to the extent that such distributions qualify as
"exempt-interest dividends" under the Code and represent: (i) interest from
obligations of Ohio or its subdivisions which is exempt from federal income tax; or
(ii) interest or dividends from obligations issued by the United States and its
territories or possessions or by any authority, commission, or instrumentality of the
United States, which are exempt from state income tax under federal laws. Conversely,
to the extent that distributions made by the Fund are derived from other types of
obligations, such distributions will be subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporate franchise tax
to the extent that such distributions qualify as "exempt-interest dividends" under
the Code and represent: (i) interest from obligations of Ohio or its subdivisions
which is exempt from federal income tax; or (ii) net interest income from obligations
issued by the United States and its territories or possessions or by any authority,
commission or instrumentality of the United States, which is included in federal
taxable income and which is exempt from state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the Fund
which are issued by Ohio or its political sub-divisions will be exempt from any Ohio
municipal income tax (even if the municipality is permitted under Ohio law to levy a
tax on intangible income).

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
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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. The following
tables give information about each Board member and the senior officers of the Fund.
Where required, the tables separately list Board members who are "interested persons"
of the Fund (i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each person
listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The Trust
comprises seven portfolios and the Federated Fund Complex consists of 44 investment
companies (comprising 136 portfolios). Unless otherwise noted, each Officer is
elected annually. Unless otherwise noted, each Board member oversees all portfolios
in the Federated Fund Complex and serves for an indefinite term.

As of October 1, 2004, the Fund's Board and Officers as a group owned less than 1% of
the Fund's outstanding Class F Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Name
Birth Date
Address Principal Occupation(s) for Past
Positions Held with Five Years, Other Directorships
Trust Held and Previous Position(s) Total
Date Service Began Compensation
Aggregate From Trust and
Compensation Federated Fund
From Fund Complex
(past (past calendar
fiscal year) year)

Principal Occupations: Chairman $0 $0

John F. Donahue* and Director or Trustee of the
Birth Date: July Federated Fund Complex; Chairman
28, 1924 and Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.
Began serving: ---------------------------------
August 1990
Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and
Director, Federated Investment
Counseling.

Principal Occupations: Director $224.73 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
TRUSTEE University of Pittsburgh Medical
Began serving: Center.
August 1990
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue is the
father of J. Christopher Donahue; both are "interested" due to the positions they
hold with Federated and its subsidiaries. Lawrence D. Ellis, M.D. is "interested"
because his son-in-law is employed by the Fund's principal underwriter, Federated
Securities Corp.
--------------------------------------------------------------------------------------

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director $247.19 $163,350
Thomas G. Bigley or Trustee of the Federated Fund
Birth Date: Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held:
Pittsburgh, PA Director, Member of Executive
TRUSTEE Committee, Children's Hospital
Began serving: of Pittsburgh; Director,
November 1994 University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director $247.19 $163,350
John T. Conroy, Jr. or Trustee of the Federated Fund
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
3838 North Tamiami Previous Positions: President,
Trail Investment Properties
Suite 402 Corporation; Senior Vice
Naples, FL President, John R. Wood and
TRUSTEE Associates, Inc., Realtors;
Began serving: President, Naples Property
August 1991 Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director $247.19 $163,350
Nicholas P. or Trustee of the Federated Fund
Constantakis Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Drive Director and Member of the Audit
Pittsburgh, PA Committee, Michael Baker
TRUSTEE Corporation (engineering and
Began serving: energy services worldwide).
February 1998
Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director $224.73 $148,500
John F. Cunningham or Trustee of the Federated Fund
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
TRUSTEE Executive Officer, Cunningham
Began serving: July & Co., Inc. (strategic
1999 business consulting); Trustee
Associate, Boston College.

Principal Occupation: Director $224.73 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions:
Began serving: Representative, Commonwealth of
August 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director,
VISA USA and VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust Corporation;
Director, The Boston Stock
Exchange.

Principal Occupations: Director $247.19 $163,350
Charles F. or Trustee of the Federated Fund
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
TRUSTEE Previous Positions: Chief
Began serving: Executive Officer, PBTC
January 1999 International Bank; Partner,
Arthur Young & Company (now
Ernst & Young LLP); Chief
Financial Officer of Retail
Banking Sector, Chase Manhattan
Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine
Midland Bank); Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.

Principal Occupations: Director $269.68 $178,200
John E. Murray, or Trustee of the Federated Fund
Jr., J.D., S.J.D. Complex; Chancellor and Law
Birth Date: Professor, Duquesne University;
December 20, 1932 Partner, Murray, Hogue &
Chancellor, Lannis.
Duquesne University
Pittsburgh, PA Other Directorships Held:
TRUSTEE Director, Michael Baker Corp.
Began serving: (engineering, construction,
February 1995 operations and technical
services).

Previous Positions: President,
Duquesne University; Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean
and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director $224.73 $148,500
Marjorie P. Smuts or Trustee of the Federated Fund
Birth Date: June Complex; Public
21, 1935 Relations/Marketing
4905 Bayard Street Consultant/Conference
Pittsburgh, PA Coordinator.
TRUSTEE
Began serving: Previous Positions: National
August 1990 Spokesperson, Aluminum Company
of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director $224.73 $148,500
John S. Walsh or Trustee of the Federated Fund
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
TRUSTEE Director, Manufacturers
Began serving: July Products, Inc. (distributor of
1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.

Previous Position: Vice
President, Walsh & Kelly,
Inc.

OFFICERS**
--------------------------------------------------------------------------------------

Name
Birth Date
Address
Positions Held with Trust
----------------------------- Principal Occupation(s) and Previous Position(s)
Date Service Began
Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND Inc.
SECRETARY
Began serving: August 1990 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.,
Federated Services Company and Federated Securities
Corp.

Mary Jo Ochson --------------------------------------------------------
Birth Date: September 12, Principal Occupations: Mary Jo Ochson has been the
1953 Fund's Portfolio Manager since April 1997. Ms. Ochson
CHIEF INVESTMENT OFFICER was named Chief Investment Officer of tax-exempt fixed
Began serving: May 2004 income products in 2004 and is a Vice President of the
Trust. She joined Federated in 1982 and has been a
Senior Portfolio Manager and a Senior Vice President of
the Fund's Adviser since 1996. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in
Finance from the University of Pittsburgh.
J. Scott Albrecht has been the Fund's Portfolio Manager
J. Scott Albrecht since March 1995. He is Vice President of the Trust.
Birth Date: June 1, 1960 Mr. Albrecht joined Federated in 1989. He has been a
VICE PRESIDENT Senior Portfolio Manager since 1997 and a Vice
Began serving: November 1998 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.
** Officers do not receive any compensation from the Fund.
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant
Secretary of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of Duquesne
University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Trustee of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne on August
15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes
before Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings Held
---------------- Committee During Last
Members Committee Functions Fiscal Year
Board Committee
Executive In between meetings of the full Board, the Eight
John F. Donahue Executive Committee generally may exercise
John E. Murray, Jr., all the powers of the full Board in the
J.D., S.J.D. management and direction of the business
and conduct of the affairs of the Trust in
such manner as the Executive Committee
shall deem to be in the best interests of
the Trust. However, the Executive
Committee cannot elect or remove Board
members, increase or decrease the number
of Trustees, elect or remove any Officer,
declare dividends, issue shares or
recommend to shareholders any action
requiring shareholder approval.

Audit The purposes of the Audit Committee are to Six
Thomas G. Bigley oversee the accounting and financial
John T. Conroy, Jr. reporting process of the Fund, the Fund`s
Nicholas P. internal control over financial reporting,
Constantakis and the quality, integrity and independent
Charles F. Mansfield, audit of the Fund`s financial statements.
Jr. The Committee also oversees or assists the
Board with the oversight of compliance
with legal requirements relating to those
matters, approves the engagement and
reviews the qualifications, independence
and performance of the Fund`s independent
auditors, acts as a liaison between the
independent auditors and the Board and
reviews the Fund`s internal audit function.

Nominating One
Thomas G. Bigley The Nominating Committee, whose members
John T. Conroy, Jr. consist of all Independent Trustees,
Nicholas P. selects and nominates persons for election
Constantakis to the Fund`s Board when vacancies occur.
John F. Cunningham The Committee will consider candidates
Peter E. Madden recommended by shareholders, Independent
Charles F. Mansfield, Trustees, officers or employees of any of
Jr. the Fund`s agents or service providers and
John E. Murray, Jr. counsel to the Funds Any shareholder who
Marjorie P. Smuts desires to have an individual considered
John S. Walsh for nomination by the Committee must
submit a recommendation in writing to the
Secretary of the Funds, at the Fund's
address appearing on the back cover of
this Statement of Additional Information.
The recommendation should include the name
and address of both the shareholder and
the candidate and detailed information
concerning the candidate's qualifications
and experience. In identifying and
evaluating candidates for consideration,
the Committee shall consider such factors
as it deems appropriate. Those factors
will ordinarily include: integrity,
intelligence, collegiality, judgment,
diversity, skill, business and other
experience, qualification as an
"Independent Trustee" the existence of
material relationships which may create
the appearance of a lack of independence,
financial or accounting knowledge and
experience, and dedication and willingness
to devote the time and attention necessary
to fulfill Board responsibilities.

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

Board ownership of shares in the fund and in the Federated family of Investment
companies AS OF DECEMBER 31, 2003
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated
Board Member Name in Fund Family of
Investment
Companies
John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

</R>
--------------------------------------------------------------------------------------

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Trust or any Fund shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Trust.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's investment
advisory contract. The Board's decision to approve the contract reflects the
exercise of its business judgment on whether to continue the existing arrangements.
During its review of the contract, the Board considers many factors, among the most
material of which are: the Fund's investment objectives and long term performance;
the Adviser's management philosophy, personnel and processes; the preferences and
expectations of Fund shareholders and their relative sophistication; the continuing
state of competition in the mutual fund industry; comparable fees in the mutual fund
industry; the range and quality of services provided to the Fund and its shareholders
by the Federated organization in addition to investment advisory services; and the
Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board also considers
whether there has occurred a circumstance or event that would constitute a reason for
it to not renew an advisory contract. In this regard, the Board is mindful of the
potential disruptions of the Fund's operations and various risks, uncertainties and
other effects that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most shareholders have
invested in the Fund on the strength of the Adviser's industry standing and
reputation and in the expectation that the Adviser will have a continuing role in
providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the Adviser. This
includes fees received for services provided to the Fund by other entities in the
Federated organization and research services received by the Adviser from brokers
that execute fund trades, as well as advisory fees. In this regard, the Board is
aware that various courts have interpreted provisions of the 1940 Act and have
indicated in their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services provided by the
Adviser, including the performance of the Fund; the Adviser's cost of providing the
services; the extent to which the Adviser may realize "economies of scale" as the
Fund grows larger; any indirect benefits that may accrue to the Adviser and its
affiliates as a result of the Adviser's relationship with the Fund; performance and
expenses of comparable funds; and the extent to which the independent Board members
are fully informed about all facts bearing on the Adviser's service and fee. The
Fund's Board is aware of these factors and takes them into account in its review of
the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its substantial
accumulated experience in governing the Fund and working with Federated on matters
relating to the Federated funds, and is assisted in its deliberations by the advice
of independent legal counsel. In this regard, the Board requests and receives a
significant amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of the Board, and
furnishes additional reports in connection with the particular meeting at which the
Board's formal review of the advisory contracts occurs. In between regularly
scheduled meetings, the Board may receive information on particular matters as the
need arises. Thus, the Board's evaluation of an advisory contract is informed by
reports covering such matters as: the Adviser's investment philosophy, personnel, and
processes; the Fund's short- and long-term performance (in absolute terms as well as
in relationship to its particular investment program and certain competitor or "peer
group" funds), and comments on the reasons for performance; the Fund's expenses
(including the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds, with due
regard for contractual or voluntary expense limitations); the use and allocation of
brokerage commissions derived from trading the Fund's portfolio securities; the
nature and extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the Federated
funds and the Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are responding to
them.

The Board also receives financial information about Federated, including reports on
the compensation and benefits Federated derives from its relationships with the
Federated funds. These reports cover not only the fees under the advisory contracts,
but also fees received by Federated's subsidiaries for providing other services to
the Federated funds under separate contracts (e.g., for serving as the Federated
funds' administrator). The reports also discuss any indirect benefit Federated may
derive from its receipt of research services from brokers who execute Federated fund
trades.

The Board bases its decision to approve an advisory contract on the totality of the
circumstances and relevant factors, and with a view to past and future long-term
considerations. Not all of the factors and considerations identified above are
relevant to every Federated fund, nor does the Board consider any one of them to be
determinative. Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach consideration of
every Federated fund's advisory contract as if that were the only Federated fund.

Services Agreement
<R>

Federated Advisory Services Company, an affiliate of the Adviser, provides certain
support services to the Adviser. The fee for these services is paid by the Adviser
and not by the Fund.