Filed by Federated Municipal Securities Fund, Inc.
Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant
to Rule 14a-12 of the Securities Exchange Act of 1934.
Subject Company: Federated Municipal Securities Income Trust
Commission File No. 811-6165
QUESTION AND ANSWER
WHAT IS BEING REQUESTED?
{circle}Federated Vermont Municipal Income Fund ("Federated Vermont Fund")
shareholders are being asked to approve the tax-free reorganization of
the Federated Vermont Fund into Federated Municipal Securities Fund, Inc.
("Federated Municipal Fund"). Class A Shareholders of the Federated
Vermont Fund will receive Class A Shares of the Federated Municipal Fund
in the Reorganization.
WHY IS THE REORGANIZATION BENEFICIAL TO SHAREHOLDERS?
{circle}The Federated Vermont Fund has recently seen increased outflows that
have diminished its capability to diversify and take advantage of
economies of scale.
{circle}Shareholders will also benefit from being invested in a larger-sized,
more viable portfolio. Post-reorganization, assuming no redemptions, the
size of Federated Municipal Fund will be approximately $507.5 million
(Federated Vermont Fund assets were $26.7 million and Federated Municipal
Fund assets were $480.8 million as of June 30, 2007).
{circle}Federated Vermont Fund shareholders will also benefit by being
invested in a more broadly diversified portfolio of securities in the
Federated Securities Fund.
{circle}The proposed Reorganization would provide Federated Vermont Fund
shareholders with comparable investment policies and strategies.
{circle}Federated Vermont Fund shareholders should note, however, that the
income from Federated Municipal Fund is intended only to be exempt from
federal regular income tax (rather than both federal regular income tax
and the personal income tax imposed by the state of Vermont and Vermont
municipalities).
WHAT ABOUT FUND PERFORMANCE?
{circle}As demonstrated in the following table, the Class A Shares of the
Federated Municipal Fund have had stronger year-to-date, 1-year, 3-year,
5-year, 10-year and since-inception performance than the Class A Shares
of the Federated Vermont Fund. The Class A Shares of the Federated
Municipal Fund also had a higher 30-day taxable equivalent yield as of
June 30, 2007.
Total Return as of 6/30/07 Yield as of 6/30/07
Inception Year- 1- 3- 5- 10- Since 30-day SEC 30-day Taxable
Date to- Year Year Year Year Inception Equivalent
Date
Federated Vermont Muni Income Fund, 12/31/87 (0.56) 3.58 2.44 2.41 3.12 4.52 3.43 6.59*
A
Federated Municipal Securities Fund, 10/4/76 (0.14) 4.28 4.35 4.26 4.56 5.84 3.75 6.55**
A
Source is Finders. The 3-Year, 5-Year, 10-Year, and Since Inception returns are
annualized.
Returns are A shares at NAV.
*Are based on combined maximum federal and state tax brackets of 44.50%.
**Are based on maximum federal tax brackets of 35%.
{circle}The Federated Municipal Fund will be the accounting survivor in the
Reorganization and the performance record of its Class A Shares will
continue post-Reorganization.
HOW DO THE PORTFOLIOS COMPARE?
{circle}The Federated Municipal Funds is a diversified, national fund while
the Federated Vermont Fund is non-diversified and invests primarily in
securities issued by the State of Vermont or Vermont municipalities. As
of March 31, 2007, the Federated Municipal Fund owned 0.7% in municipal
bonds issued by the state of Vermont or its municipalities. The
Federated Municipal Fund does not invest its assets primarily in
securities exempt from Vermont state and local taxes.
{circle}Both Funds invest their assets so that, normally, distributions of
annual interest income are exempt from federal regular income tax. Each
Fund also may engage in certain investment strategies that are likely to
result in a limited amount of ordinary income or short-term capital gains
(which are treated like ordinary income for federal income tax purposes).
Unlike the Federated Municipal Fund, however, the Federated Vermont Fund
also invests its assets so that, normally, distributions of annual
interest income also are exempt from the personal income imposed by the
State of Vermont and Vermont municipalities.
{circle}The Federated Municipal Fund normally (except in certain
circumstances) invests in securities that are not subject to the federal
alternative minimum tax for individuals and corporations (AMT). Interest
income from the Federated Vermont Fund's investments could be subject to
the AMT.
{circle}The Federated Municipal Fund is subject to the Pennsylvania Franchise
tax, but the Federated Vermont Muni Income Fund is not.
{circle}As demonstrated by the following information which is available
publicly on Federated's website at FederatedInvestors.com, both
portfolios are comparable in investment objectives, duration and average
credit quality.
FEDERATED VERMONT MUNI INCOME FUND FEDERATED MUNICIPAL SECURITIES FUND
Benchmark Lehman Brothers Municipal Bond Index Lehman Brothers Municipal Bond Index
Weighted Average Effective Duration* 6.04 years 5.5 years
Weighted Average Credit Quality* AA+ AA-
*Weighted Average Effective Duration and Weighted Average Credit Quality are as
of 3/31/07.
{circle}Federated Vermont Fund shareholders should refer to "Summary -
- Comparison of Investment Objectives, Policies and Limitations" in
the Proxy for additional information.
WHAT IS THE IMPACT TO SHAREHOLDERS?
{circle}The reorganization is intended to be a tax-free reorganization so
that it will not result in recognition of any gains or losses for federal
income tax purposes either to the Federated Vermont Fund, the Federated
Municipal Fund or shareholders of the Federated Vermont Fund.
Shareholders of the Federated Vermont Fund should note that there will be
taxes payable in connection with distributions, if any, by the Federated
Vermont Fund prior to the reorganization, and that these distributions,
if any, may include gains realized on dispositions of portfolio
securities in connection with the Reorganization.
{circle}The tax basis of the Federated Municipal Fund's Class A Shares
received by Federated Vermont Fund shareholders will be the same as the
tax basis of their shares in Federated Vermont Fund.
{circle}Pro forma total expenses (prior to waivers and reimbursements) of the
Federated Municipal Fund may decrease after the Reorganization. However,
the pro forma total expenses (after waivers and reimbursements) of the
Federated Municipal Fund are not expected to change after the
Reorganization.
{circle}It is anticipated that, after the proposed reorganization is
consummated, the expenses (after waivers) paid by shareholders of the
Federated Vermont Fund as shareholders of the Federated Municipal Fund
will be greater than the expenses (after waivers) paid by them as
shareholders of the Federated Vermont Fund prior to the reorganization.
WHAT IS THE TIMING?
Record Date as of July 2, 2007
Completed mail date as of July 20, 2007
Contingent upon shareholder approval, the shareholder meeting is scheduled for
August 17, 2007
The re-organization scheduled to occur after the close of business on August
17th
Federated Municipal Securities Fund, Inc.("Federated") (ICA No. 811-02677),
filed a proxy statement/prospectus and other relevant documents concerning the
planned transitions with the United States Securities and Exchange Commission
(the "SEC"). INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND
OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PLANNED TRANSITIONS,
OR INCORPORATED BY REFERENCE INTO THE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY
CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSITIONS, AND RELATED MATTERS.
Investors can obtain these documents free of charge at the SEC Web site
(www.sec.gov). In addition, documents filed with the SEC by Federated are
available free of charge at 1-800-341-7400 or FEDERATEDINVESTORS.COM.
- FOR FEDERATED INTERNAL USE ONLY -
NOT FOR EXTERNAL DISTRIBUTION K. Beresik
Source: Lipper Analytical Services Product Management
July 20, 2007